At present, companies are immersed in a new battle, better known as ” globalized competition “. Under a regime of low costs, record production times and being supported by re-engineering, research, development and launching new products, innovation is the key to face this reality.
We have found more and more that the current needs of the markets and the way we do business within them, demand guarantees. Our clients require that we guarantee the development of the business through the issuance of a compliance bond, which is why the treasuries of our companies must react assertively and in a very short period of time, that is, take advantage and take advantage of all the Possible opportunities This situation has also impacted the multinational companies that in recent years have actively made investments in the country.
How many of us have applied for bail or guarantee from one day to the next? Most of the time, many businesses have been lost because they do not have the flexibility and speed to present the required guarantees, which is why we must always be alert and prepared with the various financial instruments demanded by current markets so as not to lose opportunities. of business and stay out of this global arena where response times are key.
And to all this, what is a bond? What is your benefit? What is its validity? Is it renewable?
A bond, words more, words less, is a guarantee whose benefit is the security that it offers to the parties, with respect to the businesses that are being developed. The term or term of the bond depends on the obligation established by the business contract, which may or may not be renewable.
The participants in this type of instruments are: a debtor, a surety (guarantor) -who performs the role of guarantor of the principal debtor and can limit itself only to the payment of damages when it is stated in the body of the instrument- and a Creditor or beneficiary.
Within the various guarantees that exist in the market, bail is the most requested instrument because of its versatility for both parties, its clarity and transparency, from its hiring until its extinction, as well as in the cases in which its right to collection is exercised. .
There are different types of bonds
- and its issuance will depend on the need you have.
Among these there are, among others:
- Proposal or bidding: Those that are issued to participate for the first time in a business.
- Compliance: Those that cover compliance with the obligations of any type of contract, order to proceed, purchase order, among others.
- In advance of payment: It guarantees the good management of the advance payments that are made for the execution of a contract.
- Payment to suppliers: Guarantees timely payment to suppliers.
To process a bond for compliance with contractual obligations is relatively simple: the surety company carries out a financial study to define the financial solvency, which is confirmed before the Credit Bureau; a series of legal documents are collected as appropriate; the respective contract is signed; the issuance costs are paid and, if required, a deposit ( cash collateral) is made to the surety company for the amount secured.
At the end of the day, the current markets require some type of guarantee, which can be the issuance of a bond or through a letter of credit, a bank deposit, and so on. This instrument, whatever it may be, will depend on the consolidation of new businesses, since they provide the support and security that these markets demand. The responsibility as treasurers or financial area is to review and analyze in detail the cost-benefit of the guarantees to propose the best option according to the current needs of a specific company. As always, the best decision will be one where the return or benefit is greater than the risk.