Advance Payment Guarantee

An Advance Payment Guarantee is a written guarantee issued by a bank at the request of an applicant (usually an exporter or contractor) to a beneficiary (usually an importer or owner). If the applicant fails to perform contractual obligations (e.g., non-delivery, non-completion), the bank will refund the advance payment plus interest to the beneficiary. Usage scenario: When an importer pays an advance payment (e.g., 10%-30% of the contract value) after signing the contract, they often require the exporter to provide this guarantee to mitigate the risk of default. Precautions: The guarantee amount usually equals the advance payment amount, valid until the advance payment is fully offset or the contract is fulfilled; claim conditions must be clearly specified (e.g., payable upon written demand alone or requiring third-party certification) to avoid abuse risks associated with unconditional guarantees. Difference from a Performance Guarantee: A Performance Guarantee covers the entire contract performance, typically 5%-10% of the total contract price, while an Advance Payment Guarantee only covers the advance payment portion, with an amount equal to the advance payment. Difference from a Standby Letter of Credit: Both serve similar functions, but guarantees are governed by rules such as URDG758, while standby letters of credit are subject to UCP600 or ISP98.