An important means of increasing the resilience of value chains is certainly the broadening and diversification of the supplier base. In order to secure the longest possible accounts payable terms on the one hand and to strengthen liquidity for suppliers on the other, tried-and-tested supplier financing instruments such as dynamic discounting and reverse factoring can be used. These instruments are always effective when suppliers have issued invoices and the buying company has accepted them.
But what happens when suppliers need buyer risk protection? For “classic” payment protection, trade credit insurance is typically taken out. However, the buyer company has no influence on this. If the buying company now wants to actively strengthen existing and/or new supplier relationships in connection with supplier financing programs, it can ensure this with the process-integrated and flexible provision of digital payment guarantees.
According to the Standard Definitions for Techniques of Supply Chain Finance a guarantee is defined as:
A guarantees is any signed undertaking however named or described, provided for payment (by the guarantor) on presentation of a complying demand. Guarantees may by also subject to internationally recognised rules of practice issued by the International Chamber of Commerce (ICC) URDG 758. Guarantees, both financial and performance-related, issued by finance providers, form an important category of traditional trade finance techniques. More generally, a Guarantee is a promise to take responsibility for another party’s financial obligations, if that party cannot meets its obligations. The party assuming this responsibility is called the Guaranto.
Source, P. 82, STANDARD DEFINITIONS FOR TECHNIQUES OF SUPPLY CHAIN FINANCE, Global Supply Chain Forum
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