¶ Introduction
In finance, a surety, surety bond or guaranty involves a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. The person or company providing the promise is also known as a "surety" or as a "guarantor".
A surety most typically requires a guarantor when the ability of the primary obligor, or principal, to perform its obligations to the obligee (counterparty) under a contract is in question or when there is some public or private interest that requires protection from the consequences of the principal's default or delinquency. In most common law jurisdictions, a contract of suretyship is subject to the Statute of Frauds (or its equivalent local laws) and is unenforceable unless it is recorded in writing and signed by the surety and by the principal
A guarantee is “a formal promise or assurance (typically in writing) that certain conditions will be fulfilled… e.g., that a product will be repaired or replaced if not of a specified quality and durability.” “A formal pledge to perform another person's obligation in the case of default.” Guarantees are often also referred to as warranties. It follows that a guarantee is a legal term more comprehensive and of higher importance than either warranty or "security".
¶ Navigation
¶ Specific Setup
¶ Step 1: Set up Guarantee type
- Go to: Treasury > Registers > Setup for registers > Guarantee type
- Click Newon top
- Create a Guarantee type ID, enter the type and description
- Expand the Documents required Fast Tab and create new documents
¶ Examples of Guarantee types:
|
Guarantee ID |
Guarantee Type |
Guarantee description |
| G001 | APM | Advanced Payment Guarantee |
| G002 | WB | Warranty Bond |
| G003 | PB | Performance Bond |
| G004 | LOI | Letter of Indemnity |
| G005 | CSB | Credit Security Bond |
| G006 | RG | Rental Guarantee |
| G007 | PW | Product Warranty |
| G008 | Con | Contractors WIP |
¶ Daily use
¶ Step 2: Guarantee register
- Go to Treasury > Registers > Guarantee register
- A grid view can be seen
- Click on one of the guarantees to open the details page
- The following FastTabs will appear:
¶ Step 2.1: Guarantee register FastTab
- Identification area:
- Guarantee ID is a system generated ID that will be copied to the Surety register
- Guarantee type:choose between various types such as Rental guarantee, Performance bond, advanced payment guarantee, etc.)
- Guarantee description: short description
- Guarantee notes: free text field to add additional information
- Reference: free text field to insert a reference number
- Broker: a broker can be selected from a drop-down menu
- Setup area:
- Creditor name: automatically populated when creditor is selected
- Creditor: select vendor account number from dropdown list
- Planning method:free text field
- Principlefirst yes / no
- Start date: enter the start date
- End date: enter the end date
- Investment number: can link a non-cash investment to the guarantee
- Main account:functionality to select a main account and link to the guarantee
- Operational:yes/no slide option
- Remaining life: can enter a remaining life of the entity
- Values area:
- Probability (%)enter percentage of likelihood
- Total guarantee value
- Risk value
- Called in yes / no
- Total actual loss
- Guarantee Contractssection, with contract referenced, service provider date, expiration date and Contract description
- Probability (%)enter percentage of likelihood
- Premium Percentage (%) this field is used to calculate the Total Premium Due
- Fee Percentage (%)type in a fee percentage: This field will be used to calculate the Guarantee Fee amount
- Total Premium due: The value of this field will originate from a calculation: Total Guarantee Value X Premium Percentage
- Guarantee fee: This will be a display field which will get its value from the Total Guarantee Value field x Fee Percentage field
- Clean Premium:This field will display the calculation of Total Premium Due Less Guarantee fee
¶ Step 2.2: Guarantee contracts FastTab
- Expand the Guarantee contracts FastTab
- Click on the Add button
- Complete the following fields:
- Contract reference
- Service provider
- Date
- Expiration date
- Contract description
- Guarantee ID
¶ Step 2.3: Sureties in place FastTab
- Expand the Sureties put in place FastTab
- Click on the Add button
- Complete the following fields:
- Surety ID
- Type a Surety description
- Enter any Surety restrictions
- Select any relevant Cash Investments
- Select any Other investment
- Select a Loan ID if it is required
- Enter a Surety value
- Indicate if the surety was Called in
- Enter the Surety actual loss
- Select a Currency
- When this section is completed, it will populate to the Guarantee Register
¶ Step 2.4: Interest agreement FastTab
- The user can capture an interest rate percentage on the details page. It will store a history of rates.
- Click on the New button
- Select a Rate name from the drop down menu if this interest rate is linked to a specific rate
- If a Rate name was selected, then also choose a Maturity from the dropdown menu
- Also indicate if the Rate should be Auto-updated
- If no Rate name was selected, then manualy enter an Interest rate percentage
- Enter Bank spread
- Total interest rate will be the sum of Interest rate and Bank spread
- The default Interest rate group is Variable interest rate, but Fixed interest rate can be chosen
- Enter a Start date and End date for the Interest agreement
¶ Step 3: Surety register
- Go to: Treasury > Registers > Surety registers
- When the Sureties put in place section is completed under Guarantees, a Surety will display on this page as well.
¶ Step 4: Surety linked to a Loan
To link a surety to a loan,
- In the navigation pane, go to: Modules>Treasury>Registers>Guarantee register
- Either create a new guarantee, or use an existing guarantee
- On the Sureties put in place FastTab, add a line for sureties, complete it and select the relevant loan number from the dropdown list.
- To view a list of sureties, go to Treasury>Registers>Surety register
¶ Reports
¶ Step 4: Guarantee contracts
Guarantee contracts
- Go to: Treasury > Registers > Inquiries and reports > Guarantee contracts
¶ Step 5: Surety / Loan link
Surety/Loan link
- Go to: Treasury > Registers > Inquiries and reports > Surety/Loan link
