Performance bonds 
 

 Performance bonds 

As an exporter competing for overseas contracts, you’ll often be required by a buyer to provide a performance bond. A performance bond gives your buyer assurance that if you don’t perform your obligations under the export contract, they can call on the bond to reduce their losses.

As a result, the ability to offer a buyer a performance bond means you can compete more effectively in the global market.

However, the value of a bond that your buyer requires may be a significant percentage of the contract value. To issue the bond, your bank may require security for its full amount, tying up too much of your working capital and preventing you from pursuing other opportunities.

If your bank can’t help you with a performance bond, or you can’t provide the full amount of security they require, EFIC may be able to assist. If you meet our eligibility criteria, we can issue the bond to your buyer directly or in conjunction with your bank.

Our security requirements are based on an individual assessment of your ability to perform the export contract, and the value of the security we require may be less than the amount of the bond. This enables you to meet your export contract requirements without tying up all your working capital.

What are the benefits?

  • Enables you to compete more effectively in global markets and can help you secure additional or larger contracts
  • Frees up your working capital
  • Flexibility: a bond can be issued directly by EFIC or in conjunction with a bank.

How does a performance bond work?

Work flow diagram for performance bond 

  1. You enter into an export contract with your overseas buyer which requires a performance bond.
  2. If your bank can’t help you with a performance bond, you apply to EFIC for issue of the bond
  3. If EFIC approves your application, you provide security to EFIC
  4. EFIC issues the bond directly to your buyer. Alternatively to 4:
  5. and 6. If your buyer requires your bank to issue the bond, EFIC provides a guarantee to your bank for the value of the bond and the bank issues the bond to your buyer.

Terms and conditions

Terms and conditions will be negotiated during the application process. The following guidelines provide an indication of typical requirements:

Eligibility

You should be an Australian exporter producing goods or services for export which have substantial Australian content.

You should demonstrate that you have the managerial, technical and financial capabilities to satisfy the contractual obligations covered by the bond.

Term

The bond remains in force for the term required by the export contract.

Fees & charges

Fees and charges vary depending upon a number of factors including EFIC’s risk assessment, term and security.

Security

The security required will be determined by EFIC based upon our credit and performance risk assessment.

EFIC will require recourse to your company and may require recourse to company directors and related companies.

NOTE: Information on terms and conditions is supplied as a guideline only. The EFIC Act and various OECD guidelines, together with EFIC’s credit assessment and other policies, influence the actual terms and conditions that may be applicable to any eventual transaction with EFIC.

The information provided does not comprise advice or a recommendation and EFIC makes no representation or warranty relating to it. To the maximum extent permitted by law, EFIC will not be liable for any direct or indirect loss or damage incurred by any person on the basis of this information.