Advance payment guarantee, also called an advance payment bond.

A contract under which

the issuer undertakes to be responsible for the fulfillment of a contractual obligation owed by
one person to another if the first person defaults. The issuer's obligation may be primary (as in
an on-demand obligation or indemnity) or secondary (as in a guarantee). An advance payment
guarantee or bond is typically used to underpin or guarantee the performance of a commercial
contract, such as a contract for the sale of goods (where the buyer is the beneficiary) or a
construction contract (where the employer is the beneficiary). For example, a buyer or employer
may make down or advance payments to a seller or contractor to provide it with funds to
purchase necessary materials or machinery or otherwise prepare itself to perform the contract.
The buyer or employer will wish to ensure that if the seller or contractor fails (perhaps because
of insolvency) to deliver the goods or perform the services in accordance with the contract then,
at the very least, it can recover the payments made to the seller or contractor. The buyer or
employer will, therefore, require the seller or contractor to provide an advance payment
guarantee or bond for these payments. The guarantee or bond will provide that if the seller or
contractor fails to meet its contractual obligations, the issuer will refund the advance payments
made by the buyer or employer.

ADVANCE PAYMENT BOND

An advanced payment guarantee is also known as and cash guarantee and is used when a
commercial contract is issued to guarantee that payment gets made to the company that is
doing the work. An advance payment guarantee also makes the promise that the payment will
be returned to the buyer if the seller does not complete their contractual obligations to deliver
the goods or services required.

There are 1000s of different types of advance payment assurance in existence. For example,
one type of advance payment guarantee in construction uses this guarantee to ensure that the
work a company is doing is done thoroughly and properly. If the work is not done completely the
person who contracted that construction company will be able to get their money back for the
job that was left incomplete by the construction company.advance payment bond

Many other industries have similar types of guarantees that are used in their industry as well.
Each will vary a little bit in order to meet the exact needs of that specific industry at the time.

How Does an Advanced Payment Bond Provide Legal Security?

The advanced payment guarantee provides legal security by offering a unique kind of protection
to the buyer. The advanced payment bonds provide security through guaranteeing that the
contracted company will provide the goods or services that they are contracted to provide
before complete payment is made. If the entity that is hired to do provide a good or service does
not provide that service, the buyer has a money-back guarantee on their investment.

These advanced payment guarantees also ensure that all laws and regulations related to the
product or service that the consumer has purchased are followed.

Why Bother Buying them?

They protect the new entrepreneur from thievery when they hire a new company to provide a
good or service to them as they are growing their own startup company. Even established
businesses should consider purchasing these guarantees to help protect their investments in
goods and services that they purchase or contract others out to provide.

These guarantees ensure that your hard work and investments in your business are protected.
Furthermore, guarantees ensure that you are not taken advantage of or that you are not out of
money because someone gets paid but never provides you with the goods or services that were
“promised”.

What Does an Advanced Payment Guarantee Cost?advance payment guarantee in

construction

The cost of these advanced payment guarantees can vary. Some of these guarantees are able
to be issued for a flat rate without a financial review while others require more in-depth reviews
in order for them to be provided. Generally speaking, you can purchase a $10,000 guarantee for
about $100 to $140 or a $50,000 guarantee for about $500.

On average, the rule of thumb to go by seems to be that each $10,000 of guarantee costs about
$100 to purchase. This means that most advance payment bond cost between 5 and 20% of
their face value to purchase. Sometimes, the cost will be higher but that serves as a median
cost or average across the industries.

Who Should Buy Advanced Payment Surety Bonds?

Entrepreneurs and business owners working in a variety of fields should consider purchasing
these advanced payment guarantees for their business including (but by no means limited to)
businesses or entrepreneurs working in the following fields:

Auto dealership bonds

Construction companies
Collection agencies
Durable medical equipment providers
Health clubs
Auctioneers
Travel agencies
Public notaries
These are some of the businesses and occupations where professionals benefit the most from
having an advance payment bond which will help them ensure that their work and their business
are thoroughly protected.

Source

https://uk.practicallaw.thomsonreuters.com/3-505-2290?
transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1

https://www.lawstrive.com/spotlight/understanding-advanced-payment-guarantee

https://nfpsurety.com/blog/what-is-an-advance-payment-guarantee/