Peace of mind with bank demand guarantees

Anton Smit, executive officer for credit at Bank Windhoek, sheds light on bank demand guarantees.

31 January 2018 | Banking

The reality is that losing money can cripple a thriving business, or worse, force its closure. – Anton Smit, Executive officer for credit: Bank Windhoek

Daily, businesses in Namibia and around the world enter into agreements for the sale or procurement of goods or services.

With it, comes the accompanying risk of losing money from services or goods not delivered. The reality is that losing money can cripple a thriving business, or worse, force its closure.

To make matters worse, it takes time, effort and money to try and recover losses through litigation which may not be successful. So how does one deal with this very real threat? One solution to buffering such a potential risk is obtaining a demand guarantee from Bank Windhoek, which provides contracting parties with peace of mind.

This is how demand guarantee works: A client will approach Bank Windhoek and provide details of the contract that has been entered into with the beneficiary of the service. The bank will then issue a demand guarantee to the client’s’ named beneficiary; the client’s contractor or supplier. In the event of the bank’s client defaulting under the contractual agreement with the beneficiary, the beneficiary will simply submit a written demand to the bank in order to receive payment.

A guarantee is independent of the underlying contractual relationship, and the bank is in no way concerned with or bound the relationship in any way. What this means is that the bank is obliged to honour claims made by the beneficiary, despite any contrary claims or defences arising from the bank’s client.

Listed below are some of the seven commonly used types of demand guarantees: Tender guarantee/bid bond: This guarantee secures a client’s tender commitment. It pays out on demand by a beneficiary should a client default on the tender submission requirements.

Performance guarantee: Secures a client’s contractual commitments and pays out on demand by a beneficiary when client defaults on the terms of the contract. A prerequisite in terms of the Procurement Act, is an example for both the tender and performance guarantee functions.

Retention guarantee: Mostly implemented in construction projects. A beneficiary can demand payment when client does not rectify faults identified during the warranty period.

Credit facility guarantee: Used to secure a facility granted by a creditor - pays out when client does not honour payments of the facility. For instance, your company extends “unsecured” credit terms to a client and they fail to pay. Small, medium and large retail and commercial business, regularly make use of this form of guarantee.

Payment guarantee: Its purpose is to secure payment for goods. The payment guarantee pays out on demand by a beneficiary when client fails to honour contract.

Advanced payment guarantee: Mostly used in construction projects, its main purpose is to secure prepayment made by a beneficiary to enable a client to start work.

Lease guarantee: Commonly used by landlords, it forms as a deposit for a lease agreement instead of paying over cash money to a lessor (beneficiary). Clients thus earn interest on own money.

Bank Windhoek’s demand guarantees are subject to the International Chamber of Commerce Uniform Rules for Demand Guarantees.

Similar News

 

TEST

1 week ago - 22 July 2021 | Banking

TEST Story

More savings for FNB customers: Alternative channel fees unchanged

3 weeks ago - 09 July 2021 | Banking

“When conducting the annual review of our pricing for transactional banking, we considered the current operating environment coupled with the unique circumstances businesses and individuals...

Nedbank Namibia invests in skills and knowledge

1 month - 25 June 2021 | Banking

Wetumwene Shikage The bank has awarded bursaries amounting to N$400 000 to 10 students, including seven of its staff members. Education continues to be a...

Capricorn Group gives Women’s cricket wings

1 month - 08 June 2021 | Banking

Capricorn Group and its subsidiary Capricorn Asset Management, and Capricorn Private Wealth sent off the Namibian National Women’s Cricket Team – The Eagles – today,...

Hard work works

2 months ago - 31 May 2021 | Banking

Hartung was born in South Africa, Cape Town, where he spent his early childhood. He later moved to Namibia where he completed his primary and...

Get your spice on

2 months ago - 21 May 2021 | Banking

Mariselle StofbergThe 2021 Nedbank Kapana Cook-Off Competition was launched on Friday, 7 May in Windhoek with a media launch which saw 14 Namibian media houses...

Get your spice on

2 months ago - 14 May 2021 | Banking

Mariselle StofbergThe 2021 Nedbank Kapana Cook-Off Competition was launched on Friday, 7 May in Windhoek with a media launch which saw 14 Namibian media houses...

!Gawaxab: ‘Banks must be affordable’

2 months ago - 12 May 2021 | Banking

Jo-Maré Duddy - While ensuring a financial sector at the cutting edge of the technological revolution, banks should not be oblivious to perceptions of high...

Success is no accident

2 months ago - 07 May 2021 | Banking

Nedbank Namibia honors its top achieversWetumwene Shikage On Friday, 30 April, Nedbank Namibia held its annual Employee Top Achiever Awards at the site of the...

Success is no accident

2 months ago - 07 May 2021 | Banking

Nedbank Namibia honors its top achieversWetumwene Shikage On Friday, 30 April, Nedbank Namibia held its annual Employee Top Achiever Awards at the site of the...

Latest News

Weekend recap: Gazza postpones ‘Messiah’...

8 hours ago | Art and Entertainment

MICHAEL KAYUNDE WINDHOEK A day before he was meant to drop his 13th studio album, Gazza announced the postponement of ‘Messiah.’ “My mind, spirit...

We move - Jonas

19 hours ago | Sports

Jesse Jackson Kauraisa Namibian boxer Jonas Junias Jonas has hinted at a move...

Nathanael dethroned by ‘dodgy’ decision...

19 hours ago | Sports

Jesse Jackson Kauraisa MTC Nestor Sunshine Boxing and Fitness Academy promoter Nestor Tobias has revealed that the academy will wait for...

Electricity production capacity needs to...

19 hours ago | Economics

PHILLEPUS UUSIKU For the month of June 2021, Namibia mainly imported its electricity from Eskom Aggeneis, Zesco-Firm Zambia and ZPC-Zimbabwe due to a decline in...

South Africa’s Eskom in a...

19 hours ago | Business

ALEXANDER WINNINGA debt crisis at South Africa's struggling state-owned utility Eskom could be solved by an agreement for government creditors to write off some of...

Swapo sidesteps democracy

19 hours ago | Politics

JEMIMA BEUKES WINDHOEKThe questionable re-appointment of Paulus Noa as chief of the Anti-Corruption Commission...

China worries about terrorist attacks

19 hours ago | Police

JEMIMA BEUKES WINDHOEKThe Namibian police and other units in the country’s security cluster are on high alert after a bomb attack in...

Covid: Third wave not over...

19 hours ago | Health

JEMIMA BEUKES WINDHOEKWhile new cases have slowed down, authorities have cautioned Namibians not to let their guard down in the face of...

Can we please find a...

19 hours ago | Sports

Jesse Jackson Kauraisa This on and off sport in Namibia reminds me of stories I heard about relationships which are...

Load More