When competing for export contracts in global markets, a buyer will often require you to provide an advance payment bond or a performance bond. These bonds give the buyer assurance that if you don’t perform your contractual obligations, an upfront payment they have made will be returned or that there are funds they can call on to reduce their losses.
However, your buyer may require an unconditional or ‘on demand’ bond – one that doesn’t require the buyer to show proof of default in order to demand payment on the bond. If so, you may be concerned about the risk that your bond could be wrongfully called due to events or circumstances beyond your control, especially if they are a new buyer or you haven’t exported to the destination before.
For example, you may be unable to fulfil your contractual obligations due to political events in your buyer’s country or the imposition of an import or export embargo. If the buyer wrongfully demands payment in these circumstances, it is possible that you could be liable for the full value of the bond.
Bond insurance from Efic is designed to protect you from loss in these circumstances. Once Efic is satisfied that you are not in breach of your obligations under the export contract, we will evaluate your loss and, subject to the terms of the bond insurance policy, may cover you for up to 95% of that loss.
What are the benefits?
- Can give you greater confidence to enter into export contracts with new buyers or those in unfamiliar jurisdictions.
- Gives you increased confidence that if your bond is wrongfully called due to events beyond your control, you won’t be liable for the full value of the bond.
How does bond insurance work?
- You enter into an export contract with your overseas buyer
- On your request, your bank issues a bond to your overseas buyer
- Efic provides a bond insurance policy to you.
Terms and conditions
Terms and conditions will be negotiated during the application process. The following guidelines provide an indication of typical requirements:
You should be an Australian exporter producing goods or services for export which have substantial Australian content.
Level of cover
Generally, the level of indemnity is up to 95% for any loss (as evaluated by Efic) resulting from an insured risk.
After Efic has paid a claim to you, an exporter, under a bond insurance policy, we may require you to take steps to recover the loss.
Cover can remain in force for the life of the underlying bond.
Fees & charges
Fees and charges vary depending upon a number of factors including Efic’s risk assessment and the term of the policy.
Exclusions will be set out in the policy.
NOTE: The information provided, including on terms and conditions, is supplied as a general guideline only. Efic’s compliance with legislation and OECD guidelines, together with its 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.