Import Advance Payment Guarantee from Bank of China
2020.9.1 Negotiate laser-cutting machine contracts with customers. The client applied for a loan from a local rental company in Russia.
To obtain long-term financial support, the final customer chooses to buy from the leasing company, then lease from the leasing company and repay the payment monthly.
After a full charge, the machine belongs to the end user.
At the buyer’s request, we need to apply to the Bank of China for a letter of guarantee for import advance payment.
The Advance Payment Guarantee Operation
Import Advance Payment Guarantee (applied by the exporter, also known as export guarantee)
Promise if the advance payee (supplier) fails to perform the contract or complete the delivery in full accordance with the agreement.
At the request of the Russian leasing company, the cutting machine manufacturer applies for the issuance of a bank guarantee with the leasing company as the beneficiary and a written commitment to guarantee the performance of the supplier.
The bank will be responsible for returning the prepayment amount specified in the guarantee letter according to the refund request of the prepayer (purchaser).
Application of Import Advance Payment Guarantee
In importing large complete sets of equipment, project contracting, and other businesses, the applicant can apply for a bank guarantee when the amount involved is relatively large (about 1 million RMB).
You can call your local bank to confirm its feasibility if the amount is lower than this.
The main content of the Advance Payment Guarantee
It mainly includes the name and address of the principal, the beneficiary and the guarantee bank, the bank’s responsibility commitment, the experimental conditions, the amount of the guarantee, the validity period, and the governing law.
The picture below is our company’s bank guarantee. The company information has been blurred in the image to protect the importer’s rights and interests.
2020.10.23 Issued. Because it is our first application, we need to become more familiar with the business process, and many uncertain factors in the middle cause the process to take longer.
Generally, it takes 3-4 weeks for the first application and about two weeks for the second application.
The Process of Advance Payment Guarantee
The equipment manufacturer provides relevant materials and applies to the bank to issue a letter of guarantee;
1. Basic information: business license, articles of association, capital verification report, previous year and latest financial statements
2. Contract
3. Contents of the letter of guarantee
The bank reviews the content and format of the letter of guarantee provided by the supplier and approves the applicant’s credit line;
After the approval of the credit extension, the bank issues a letter of guarantee and sends it to the supplier to sign for confirmation;
If the purchaser claims the bank due to the economic loss caused by the applicant, the bank shall pay;
If the contract is normally performed, the letter of guarantee will automatically become invalid upon expiration, and it will settle the warranty business.
The Importance of Import Advance Payment Guarantee
Investigate the integrity of the purchaser’s business operation and examine whether there are frequent malicious claims in the host country.
Buyer benefits:
To ensure that the purchaser can recover the advance payment smoothly and the funds will be recovered when the supplier fails to perform the contract obligations after receiving the advance payment.
Restrictions on suppliers’ performance of contracts by regulations have been strengthened.
Benefits to suppliers:
BG ensures that the advance payment funds are in place promptly and the preparations for the supply can be carried out smoothly.
It is beneficial to speed up the capital turnover in the stocking process.
Others
a. If the guarantee letter needs to be modified, it must be agreed upon by the purchaser and the principal in advance.
b. By convention, the letter of guarantee is applied by the bank’s law where the applicant.
