# Advance Payment Guarantee and Performance Bond Cost Calculator

> Source: https://netray.co/tools/advance-payment-guarantee-and-performance-bond-cost-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Estimate bank guarantee fees, cash collateral cost and the financing benefit of the customer advance to see if the terms are worth it.

## Category

cost-finance

## Industry

Industrial Machinery

## Audience

- Treasurer
- Export manager
- OEM finance manager

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Contract value

**Key:** cv

**Type:** number

**Default:** 1500000

**Min:** 0

**Step:** 10000

**Unit:** $

#### Advance payment

**Key:** adv_pct

**Type:** number

**Default:** 30

**Min:** 0

**Max:** 100

**Step:** 1

**Unit:** % of contract

#### Months the advance is held before it is earned

**Key:** adv_months

**Type:** slider

**Default:** 10

**Min:** 1

**Max:** 36

**Step:** 1

**Unit:** months

#### Advance guarantee fee

**Key:** apg_fee

**Type:** number

**Default:** 1.2

**Min:** 0

**Step:** 0.05

**Unit:** % per year

#### Performance bond

**Key:** pb_pct

**Type:** number

**Default:** 10

**Min:** 0

**Max:** 100

**Step:** 0.5

**Unit:** % of contract

#### Performance bond duration

**Key:** pb_months

**Type:** number

**Default:** 24

**Min:** 1

**Step:** 1

**Unit:** months

#### Performance bond fee

**Key:** pb_fee

**Type:** number

**Default:** 1.5

**Min:** 0

**Step:** 0.05

**Unit:** % per year

#### Cash margin or collateral required by bank

**Key:** collateral

**Type:** slider

**Default:** 10

**Min:** 0

**Max:** 100

**Step:** 5

**Unit:** % of guarantees

#### Your cost of funds

**Key:** cof

**Type:** number

**Default:** 9

**Min:** 0

**Step:** 0.25

**Unit:** % per year

**Outputs:**

#### Advance received

**Key:** adv_amt

**Expr:** cv * adv_pct / 100

**Format:** currency

#### Advance guarantee fees

**Key:** apg_cost

**Expr:** adv_amt * apg_fee / 100 * adv_months / 12

**Format:** currency

#### Performance bond amount

**Key:** pb_amt

**Expr:** cv * pb_pct / 100

**Format:** currency

#### Performance bond fees

**Key:** pb_cost

**Expr:** pb_amt * pb_fee / 100 * pb_months / 12

**Format:** currency

#### Carry cost of collateral

**Key:** collat_cost

**Expr:** (adv_amt * adv_months + pb_amt * pb_months) * collateral / 100 * cof / 100 / 12

**Format:** currency

#### Total guarantee cost

**Key:** total_cost

**Expr:** apg_cost + pb_cost + collat_cost

**Format:** currency

**Primary:** true

#### Financing value of the advance

**Key:** benefit

**Expr:** adv_amt * cof / 100 * adv_months / 12

**Format:** currency

#### Net benefit after guarantee cost

**Key:** net

**Expr:** benefit - total_cost

**Format:** currency

**Primary:** true

**Chart:**

#### Net benefit vs months the advance is held

**Type:** line

**X:** adv_months

**From:** 1

**To:** 36

**Steps:** 18

**Series:**

- net
- total_cost

**Disclaimer:** Simplified estimate. Banks also charge issuance, amendment and confirmation fees and may use different day counts. Get a written indication from your bank.

## Content

**Intro:** Export customers often pay a deposit only if you provide an advance payment guarantee, and then ask for a performance bond on top. This calculator tallies what those guarantees cost and compares it with the value of holding the customer's cash.

**Sections:**

#### How to use it

**Body:** Enter the contract value, the advance as a percentage and the number of months you expect to hold it before it is earned or credited against deliveries. Add the bank fee for the advance payment guarantee, the performance bond percentage and duration, and its fee. If the bank requires cash margin or blocks part of your credit line, enter that share and your cost of funds. The calculator multiplies each amount by the annual fee and the fraction of a year it is outstanding, then adds the carrying cost of collateral. It compares the total with the interest value of the advance.

#### The formulas

**Body:** Each guarantee fee equals amount times annual fee percentage times months divided by twelve. Collateral carry equals the sum of amount times months for each guarantee, times collateral percentage, times cost of funds, divided by twelve. The financing value of the advance equals advance times cost of funds times months divided by twelve, which is the interest you would otherwise pay to fund the same working capital. Net benefit is that value less total guarantee cost. A negative figure means the advance is not worth its guarantees on a pure financing basis, though it may still be worth taking for credit risk reasons.

#### Reading the chart

**Body:** The longer you hold the advance, the more financing value you gain, but the guarantee fees also accumulate. Typically the performance bond is the larger hidden cost, because it runs for the whole warranty period in addition to the build. If the advance is released through shipments, the guarantee amount usually reduces, so use the average outstanding amount for a more accurate result. Check whether your bank allows a reducing guarantee and whether the customer will accept a bond that steps down on delivery.

**Bullets:**

- Negotiate step-down clauses on delivery.
- Ask for the bond to end at final acceptance, not at warranty end.
- Compare bank quotes in writing.

#### Common mistakes

**Body:** Teams often leave out the collateral carry, treat the fee as a one-time charge instead of a yearly rate, and forget that guarantees consume bank limits needed for other contracts. Another mistake is accepting an on-demand bond without conditions, which exposes you to unjustified calls; discuss wording with your bank and counsel. Treasury should track every live guarantee with its expiry date, which most ERPs can do through a contract or financial instrument record.

**Cta:** We can help surface live guarantees and expiry dates from your ERP so treasury sees them next to the project milestones.

**Faq:**

#### What is the difference between an advance payment guarantee and a performance bond?

**Answer:** An advance payment guarantee protects the buyer's deposit if you fail to deliver, and normally reduces as you ship. A performance bond protects against failure to perform to the contract, and often runs through acceptance or the warranty period.

#### Are bank guarantee fees fixed?

**Answer:** No. They depend on your credit, the bank, the country of the beneficiary, the tenor and any collateral you provide. Typical quotes are expressed as a percentage per year, sometimes with a minimum fee per quarter.

#### Can I avoid collateral?

**Answer:** Sometimes, if the bank has an unsecured guarantee limit for you. Otherwise it may require cash margin, a lien on receivables or a charge on assets. Any collateral has a cost, which this tool lets you include.

#### Should the advance be priced into the quote?

**Answer:** Yes. If the customer asks for guarantees, add the expected cost to your price or negotiate a smaller advance, a shorter bond or a step-down. The calculator gives you the amount to include.

## Search terms

advance payment guarantee cost, performance bond cost calculator, bank guarantee fee calculator, APG fee machinery export, performance guarantee percentage, margin money bank guarantee, advance payment bond cost, contract guarantee cost estimate

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