Definition of Advance Payment Guarantee/Bond

This is an agreement between two parties, stating advance payments will be returned if the entity receiving these payments, does not deliver on its end of the agreement. This pertains to government bonds, non-convertible debentures (NCD) or other debt instruments.

The assurance is provided by the entity accepting an advance payment to the entity making the payment. It undertakes that the advanced total will be returned if the agreement, under which the advance was made can't be satisfied.

Points to remember

• On the off chance that the customer agrees to making an advance payment (the initial installment) to a provider, a bond might be required to secure the payment against default.
• An advance payment security will ordinarily be an on-request security,implying that the bondsman pays the measure of cash set out in the bond instantly on request, with no preconditions being met.

Example
A contractor may get an Advance Payment Guarantee/Bond filled by the consumer.