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Protect your contracts abroad, provide security for your export contracts.
Be prepared to meet the contractual requirements of your commercial contracts.

Commonly used in international trade to guarantee the various stages of commercial markets as well as payments to exporters, international guarantees provide their beneficiaries with the security of a bank signature, and thus the assurance of receiving the sums due to them in the event that the principal does not wish or cannot pay them.

 

WHAT IS AN INTERNATIONAL GUARANTEE?

It is an international signature commitment by which a guarantor bank undertakes to pay a specified amount to a beneficiary in the event that its client does not fulfil its commercial and contractual obligations.


WHAT IS ITS PURPOSE?

These commitments are intended to reassure participants in a cross-border transaction, for whom it is difficult to accurately assess the financial and professional capacities of their partners or to anticipate any possible dispute under the commercial contract before a foreign court.
There are two main categories of international guarantees.

  • International guarantees on the market: guaranteeing compliance with obligations under a contract abroad, these make it possible to guarantee the various stages of commercial markets and can cover different fields of application.
    • Bid security: the Crédit Agricole Group undertakes to pay compensation to your foreign buyer in the event that you are unable to maintain your bid, in the event of withdrawal if your bid is accepted and in the event of failure to provide subsequent market guarantees.
    • Down payment guarantee: in the event of total or partial non-fulfilment of the contract, the Crédit Agricole Group undertakes to return the down payment received by the seller to the buyer.
    • Performance guarantee: the Crédit Agricole Group undertakes to pay a specific amount in the event of poor performance of the contract.
    • The guarantee of waiver of guarantee deduction: the Crédit Agricole Group undertakes to pay your buyer in the event of non-compliance with contractual obligations, thus exempting said buyer from blocking the amount of the guarantee deduction and allowing you to receive this amount.
  • Payment guarantees: these guarantee a buyer's payment obligation under a commercial contract. Other bank guarantees can also be used to cover obligations towards administrative bodies, customs, taxes or foreign banks providing local assistance.


WHAT IS THE FRAMEWORK AND LEGAL NATURE OF THESE COMMITMENTS?

There are three distinct legal forms which can be used according to the requirements of the beneficiary and/or local practices.

  • Joint and several and indivisible suretyship: this is an ancillary commitment to the commercial contract by which the Crédit Agricole Group undertakes to pay your creditor if you do not respect your contractual obligations. Your client, the beneficiary of the guarantee, will have to provide proof of your default in order to be able to bring the guarantee into effect. This guarantee is a particularly French guarantee and not widely used internationally.
  • The independent guarantee payable on first demand: this is an autonomous banking commitment totally independent of the commercial contract, the implementation of which is at the initiative of the beneficiary. It is payable immediately upon receipt of the latter's request.
  • The stand-by letter of credit (SBLC): this is an autonomous banking commitment, independent of the commercial contract, guaranteeing the performance of an obligation. The guarantee may be rendered payable upon presentation of the compliant documents detailed in the stand-by letter of credit.

The guarantee can be issued directly or indirectly:
your bank may issue the guarantee or have it issued by a local bank, if your counterparty has agreed to such a scheme.

 

WHO ARE THE PARTICIPANTS IN A GUARANTEE OPERATION?

For an advance market commitment
Direct issue

  • The principal is the seller
  • The beneficiary is the buyer
  • The guarantor bank is the seller's bank

Indirect issue

  • The principal is the seller
  • The beneficiary is the buyer
  • The counter-guarantor bank is the seller's bank
  • The guarantor bank is the buyer's bank

For a payment guarantee
Direct issue

  • The principal is the buyer
  • The beneficiary is the seller
  • The guarantor bank is the buyer's bank

Indirect issue

  • The principal is the buyer
  • The beneficiary is the seller
  • The counter-guarantor bank is the buyer's bank
  • The guarantor bank is the seller's bank

For a payment guarantee in SBLC form

  • The principal is the buyer
  • The beneficiary is the seller
  • The notifying bank is the seller's bank; it provides the beneficiary, without commitment, with notification of the standby letter of credit
  • The confirming bank is the seller's bank; it provides the beneficiary, with commitment, with notification of the standby letter of credit

 

IN CONCLUSION

Whether your company exports or imports, in many cases, the establishment of a guarantee may be required in your commercial contract.

If you are an exporter

In the context of a contract, you must set up market guarantees: the setting up of these guarantees allows you:

  • to respond to a call for tenders, and to see your tender selected and, if you are declared the successful bidder, to win the contract
  • to issue order commitments from your bank to guarantee your buyer that the contract will be executed correctly
  • to obtain foreign assistance for yourself or your subsidiary
  • to speed up the payment of your contract: payment of instalments guaranteed by your bank.

Within the framework of a commercial contract, you want to ensure that your buyer client makes the requisite payment and thus:

  • benefit from a payment guarantee from your client's bank in the event of non-payment by your importing client.

If you are an importer
This allows you:

  • to benefit from guarantees in the event of non-performance of your trading partner's commitments
  • to issue order guarantees from your bank to reassure your exporter in the performance of your contractual obligations.

Thanks to our local organisation, our technicians/specialists, and the diversity of our international network of correspondents, the Crédit Agricole Group can advise and assist you in the study of specific guarantee texts to be issued or received, as well as on the type of instrument to be issued or received, according to the contractual, regulatory and political/country-specific criteria of your foreign counterparty.

Before signing your contract, contact your corporate account manager.

Jannick Tual
Financial Security Officer
Expert in Trade Finance, Crédit Agricole SA

Corporate Secretary for CREDIMPEX France, the Association of Specialists in Trade Finance.