Payment & trade finance

Bank guarantee (performance bond / advance-payment guarantee)

An undertaking by a bank to pay a stated amount when the beneficiary makes a demand. A performance bond secures the seller’s performance of the contract, typically for 5–10 % of the contract value; an advance-payment guarantee ensures the buyer’s deposit is refunded if the goods are not delivered. International deals usually use on-demand guarantees subject to the ICC’s URDG 758.

Related terms

Advance payment and deposit/balance structure

The buyer pays all or part of the price before shipment. A common structure is a 10–30 % deposit on signing and the balance against copies of shipping documents or on arrival. The deposit funds the seller’s raw materials and production; to protect it, the buyer may ask for an advance-payment guarantee, an escrow account or a verified supplier. A large prepayment to a new supplier is the highest-risk situation for fraud.

Standby letter of credit (SBLC)

Not a normal means of payment but a safety net: if the buyer fails to pay on open account or deferred terms, the seller draws on the SBLC with a statement of default and simple documents. It is governed by ISP98 or UCP 600 and works much like a bank guarantee. It is used in repeat shipments to avoid opening a separate credit for each lot. Beware: online offers of “leased SBLCs” or “SBLC monetisation” are a well-known fraud.

Sales contract

The core document setting out the parties’ rights and obligations in an international raw material sale. It should cover the product and specification, quantity and tolerance, price and currency, Incoterm and named place, shipment period, payment method, quality and quantity determination (inspection), insurance, force majeure, remedies for breach, governing law and dispute resolution. Where the parties’ countries allow it, the UN Convention on Contracts for the International Sale of Goods (CISG) applies unless expressly excluded.

Explained in the trade handbook

Trade handbook