Given the limitations of BGs, B2B companies should consider powerful alternatives:
1. Surety Bonds: The Specialist Alternative
A Surety Bond is a three-party agreement:
- Principal: The party obligated to perform (e.g., a contractor).
- Obligee: The party receiving the guarantee (e.g., a project owner).
- Surety: An insurance company (like Allianz Trade) that guarantees the Principal’s obligations to the Obligee.
Bank Guarantee vs. Surety Bond: While they often cover similar needs (Performance, Advance Payment, Bid), Surety Bonds offer key advantages:
- Capital Efficiency: Surety Bonds typically do not require 100% collateral. They are underwritten based on the Principal's financial strength and track record, freeing up capital and credit lines.
- Specialist Expertise: Sureties possess deep industry knowledge (especially in construction) and often provide pre-qualification and project support, adding value beyond just the guarantee.
- Claims Handling: Sureties often investigate claims more thoroughly, potentially protecting the Principal from unfair calls often associated with on-demand BGs.
Surety is often the preferred instrument for performance-related obligations, especially in construction and long-term service contracts.
2. Trade Credit Insurance (TCI): Portfolio Payment Protection
As your original article noted, TCI is another vital tool. Unlike BGs or Surety (which are usually transaction/project-specific), Trade Credit Insurance covers your entire portfolio of accounts receivable against the risk of non-payment due to buyer insolvency or protracted default. It's ideal for businesses with ongoing sales and a need for broad, cost-effective credit risk protection.