What Is a Performance Bank Guarantee?

A performance bank guarantee provides a secure promise of compensation of a set amount in the event that a seller does not meet delivery terms or other provisions in the contract. The purpose of this sort of guarantee is to solidify the contractual connection between a seller and buyer. In general, a bank guarantee is an irrevocable duty the bank has to give out a predetermined dollar value if the party represented by the bank fails to meet the terms of a contract.

Most banks offer several different types of guarantees to their clients and parties with which their clients have entered contracts. One of these is the payment guarantee, which gives the seller a guarantee that the buyer is going to fulfill all obligations for payment as established by the initial contract.

An advance payment guarantee applies when contracts specify the completion of an advance payment to the seller. It also guarantees that any advance payment reverts back to the buyer, should the seller fail to fulfill any of the obligations regarding services or goods.

A tender guarantee, also known as a bid bond, is a part of participating in international tenders. One example would cover the expenses of organizers when one of the participating parties pulls back its bid or refuses to take the set offer.