One in three companies that request endorsements and guarantees do not rescue them

The importance of recovering guarantees and sureties for companies with international activity

In recent years, more and more large Spanish companies and SMEs have been exporting, importing, and internationalizing, in response to the constraints of domestic demand in our country.

---

To finance their operations, they all need guarantees y guarantee, instruments that have become the backbone of the new growth model of the Spanish economy.

 

 

 

Going into detail, according to data from the State Secretariat for Trade, Spain exported €254.530 billion in 2016, thanks to the work of 148.794 companies. Of these, 49.792 companies exported regularly, 4,2% more than in 2015. Fortunately, the number of regular exporting companies—those defined by the Ministry of Economy as exporting in the reference year and each of the three immediately preceding years—has continued to increase in Spain since 2012. Around 49% of the total exported for the first time, leading us to consider the reasons why they don't repeat the experience, as only 15% achieved the status of established exporting companies. Successful exporting and importing, and the ability to do so repeatedly, therefore depends on the company's capacity to finance its international activity. Regarding internationalization, many companies have not only made it the core of their strategy, but are also focused on increasing their size to access new markets. Again, access to financing is key for them.

 

All the companies mentioned need to request guarantees and sureties for national and international tenders, offer payment guarantees to suppliers, secure the supply of materials, formalize office and premises leases, defer debts with the Tax Agency or Social Security, etc. Therefore, it is vital to understand what a bank guarantee is and how it works. It is a payment commitment in favor of a third party, ensuring the fulfillment of a specific obligation if the guaranteed party fails to do so. The bank or credit institution assumes this payment responsibility to a third party or beneficiary if its client or primary debtor does not comply with certain conditions stipulated in the guarantee.

 

Depending on the purpose of the guarantee, the most common types are technical and financial guarantees. In technical guarantees, the lending institution that issued the guarantee is liable in the event of a breach of commitments by its client related to participation in tenders, auctions, construction projects, or supply contracts. In financial guarantees, the lending institution guarantees its client in transactions where the client is obligated to pay a specific amount within a predetermined timeframe.

 

The guarantee can be agreed upon for a fixed or indefinite term. If there is no termination date for the guarantee, and the guaranteed party wishes to cancel it, the guaranteeing entity will require the return of the original document or will request its cancellation clearly and expressly. The guaranteeing bank will receive a commission for formalizing the contract and maintaining the guarantee. The type of guarantee, duration, maximum amount payable, payment requirements, obligations covered by the guarantee, and details of the issuer are all factors to consider when attempting to redeem it.

 

At first glance, it seems simple, but companies lack established procedures, adequate IT tools, and dedicated staff for recovering guarantees and sureties to track the process from application to cancellation. Guarantees are requested from financial institutions by the Finance, Administration, and Treasury departments. Once received, they are typically sent to the Sales, Operations, or Technical departments, which need them to submit bids, tenders, or begin working with a client. Communication between departments is often lacking, as those in direct contact with the client (Sales, Operations, and Technical) are often the first to know whether the guarantee can be recovered or if there are any issues that might delay its recovery. It also frequently happens that a provisional guarantee is requested to participate in a tender, and no one follows up to see if the company was unsuccessful and, if so, to request the recovery of the guarantee.

 

Another equally interesting case is that of Temporary Business Associations (UTE). In this situation, we would need to determine our position within the UTE, since whoever holds the management position will typically be responsible for recovering all guarantees, including those of the partners. As you can see, many circumstances can arise. It is advisable to have and follow clear rules to minimize potential problems and detect them as early as possible. These rules can be summarized as follows:

 

• Store and control all documentation that gives rise to the guarantee request (contracts, awards, competitions, etc.); the copy of the guarantee; all documentation subsequent to the guarantee request (work completion certificate, material delivery certificate, final acceptance certificate, etc.), as well as any communication from the beneficiary that may lead to both the cancellation and the extension of the guarantee.

 

• Identify the contacts of banking entities and beneficiaries, especially if they are large public bodies).

 

• Knowing what type of guarantee it is.

 

 

• Review the agreed conditions, as sometimes a cancellation or reduction of the guarantee can be requested and we are unaware of it.

 

 

• Having a computer tool that helps us with the tracking and cancellation of guarantees.

 

 

• Establish a procedure that specifies who is responsible for requesting the guarantee, monitoring it, requesting its cancellation, reporting and resolving incidents, etc.

 

 

• Appoint a person responsible for guarantees within the organization.

 

 

• Persevere in the long-distance race that is the recovery of guarantees, especially with the Administration, since many times, even if we have all the documents signed and stamped, the procedures with the General Deposit Fund and its agencies usually take between 2 and 5 months at least.

 

 

Eduardo Ochoa, Head of Operations Performance at Ayming