It is clear that the regimes, Basel/banks vs. solvency/insurers have contributed to the increase in providers. After all, the solvency requirement of guarantees for banks is higher than for insurers. In a period where working capital is an important factor for healthy business, it is an excellent solution not to deduct a facility from the credit facility.
There are a number of things you should pay attention to when choosing a provider that best suits your company.
These include:
- Does this party issue local or international guarantees;
- What is the range of guarantees;
- What is the size of a possible facility;
- What is the decision-making power of the provider in question?
- What is the number of guarantees you must provide per year;
- What is the behavior of the warranty provider?
1. Does this party issue local or international guarantees?
If you want to issue guarantees worldwide, it is good to determine whether the provider in question also has branches worldwide to issue guarantees locally, if necessary. In some countries it is a legal requirement that this is done by a local party. If the provider does not offer this service, the costs of a warranty will increase because they will have to engage a so-called “fronter”. This is a local party that issues the guarantee on behalf of the provider and of course also charges costs for this.
2. What are the guarantees offered?
There are different types of guarantees:
- Prepayment guarantees (pre-payment bonds);
- Performance guarantees (performance bonds);
- Maintenance guarantees (maintenance bonds);
- Customs guarantees;
- Rental guarantees;
- Completion guarantees;
- Etc;
Most providers have the option to provide the standard guarantees. They also have the knowledge to assess a requested warranty. However, each provider has its own specialty.
3. What is the size of a possible facility?
Insurers generally provide a facility and, in exceptional cases, they even issue individual guarantees. Because the necessary costs are associated with providing and maintaining a facility (such as annual overhaul), providers have requirements regarding the minimum size. This varies per provider, but the minimum amount is easily € 1,5 to € 2 million, and even higher.
4. What is the decision-making power of the provider in question?
If a facility has been provided, but you want to adjust it because it is no longer sufficient, it is useful that the provider in question can make a quick decision. This decision-making power is different for each provider. For example, there are providers where this authority lies with the department (in the Netherlands), with other providers it lies with a credit committee and some providers have to fall back on the head office abroad. It is clear that it does not improve speed if the jurisdiction is further away.
5. What is the number of guarantees that must be issued per year?
It goes without saying that as you have to issue more guarantees per year (in some cases hundreds per year), automation will play an important role. Does a provider have an online system in which they can register the guarantees, or do they have to manually report each request by email?
6. What is the behavior of the warranty provider?
As we indicated earlier, a large number of providers have entered the market in recent years. A number of them have now left or moved their activities to their headquarters abroad. Is a provider hhonor to sTay or a stop osee? In other words: what are the provider's intentions regarding its presence in the Dutch market? The result may be that they confront you as a company with a contact person abroad with whom they have no connection, or that they terminate the facility.
Furthermore, there are providers who strictly apply a company's rating when providing or maintaining a facility. And who pay less attention to the prospects of a company. In practice, if the rating declines, this often leads to termination of the facility. This is precisely something that comes out poorly in a more difficult period.
All of the above matters are important to make the right decision with which provider you should work.
More information?
Xolv has the knowledge and experience to make the right decision together with you. If you have any questions, Xolv specialists are of course ready to advise you on the most suitable provider.
