Advanced Payment Bonds
What is an Advanced Payment Bond?
An Advanced Payment Bond is a type of surety bond that protects the buyer or client when an upfront payment is made to a contractor or supplier before any goods or services have been delivered.
How it works:
If a client agrees to make an advance payment (for example, to help fund materials or mobilisation), they take on the risk that the contractor may fail to deliver the work or goods as agreed. An Advanced Payment Bond gives the client a guarantee that if the contractor defaults or goes out of business, the bond provider will repay the advance (in full or in part), up to the bond’s value.
When is it used?
- At the start of construction contracts to cover mobilisation costs
- In manufacturing or engineering projects where the supplier needs capital to start production
Key benefit:
It de-risks upfront payments while still giving the contractor the funds they need to get started.
In short, it builds trust and cash flow without compromising security.
What is a Bond?
Placing your first bond? Or just need a refresher? Read on for the what’s what of surety bonds.
Surety protects a business from financial losses, usually caused when one party fails to fulfil their end of a contract. By placing a surety (usually in the form of a bond), a business makes sure that all the project bills will be paid on time should there be any disruptions or problems fulfilling the contract.
Principal
The Principal is the business placing the bond. They are making a promise to the Obligee. To them, the Surety bond is like insurance.
Surety
The Surety promises to pay the Obligee should the Principal not do as they promise.
Obligee
The Obligee is the party that requests the bond from the Principal.
When might an Advance Payment Bond be required?
An Advanced Payment Bond is typically required when a client agrees to make an upfront payment before any work has started or goods have been delivered, essentially when they’re funding part of the project in advance and want to protect that payment.
Common scenarios where it might be required:
- Construction projects where the contractor needs funds for mobilisation, site setup, or early-stage materials
- Large infrastructure or engineering contracts with long lead times or specialist equipment that must be paid for upfront
- Manufacturing contracts involving bespoke items or significant initial outlay
- International projects, where the client and contractor are in different countries and payment security is a higher concern
- Government or public sector contracts, where internal rules often mandate financial protection for any advance payments
- Any Contract where the client has a poor credit rating and the contractor requires funds in advance.
In short: If the client is advancing funds before receiving anything in return, they’ll often require an Advanced Payment Bond to ensure that money is protected in case the contractor doesn’t deliver.
Can PS Surety help?
PS Surety is a dedicated surety bond brokerage and we would be delighted to assist any contractor with placing performance bonds. We are fully regulated by the FCA and we guarantee that we provide our clients with:
The best possible terms available in the market
An honest, open and joint approach to our client’s Surety needs
Detailed client dashboard providing information on every bond ever placed
Communication when bonds become overdue
A single touch point within our organisation for wording reviews, quotes and queries
Rapid responses
That sounds expensive!
Our service is completely free to contractors. We are paid a commission by the surety providers on each bond that we place with them on behalf of our clients, the details of which are fully disclosed in our client dashboard.
The surety providers are happy to pay our commission because we specialise in bringing them business which fits their ever changing underwriting criteria. We also deal with frequent queries, wording issues, bond drafting and general administration.
The price that you pay PS Surety for a bond is the same price that you would pay any Surety if going direct.
Frequently Asked Questions – Advanced Payment Bonds
What is an Advanced Payment Bond?
An Advanced Payment Bond is a form of surety bond that protects the buyer or project owner when they make upfront payments to a contractor or supplier. It guarantees that the advanced funds will be used appropriately and that, if the contractor fails to deliver, the funds can be recovered.
Why are Advanced Payment Bonds required?
They are typically required when:
- A contractor or supplier requests payment in advance of delivering goods or services
- The buyer wants security that the money won’t be lost if the contractor defaults
- There are bespoke or high-value components being ordered early in a project
Who benefits from the bond?
The party making the advance payment—often the employer, client, or project owner—is the beneficiary. They are protected against non-performance or misuse of funds by the contractor.
What amount is the bond typically issued for?
The bond amount usually matches the value of the advance payment, either in full or a percentage, depending on the contract requirements.
How long does the bond remain in force?
The bond remains in place until the value of the advance payment has been offset by work completed, goods delivered, or other milestones outlined in the contract.
Does the bond reduce over time?
In many cases, yes. As the contractor delivers goods or completes work, the liability under the bond may reduce accordingly. This is usually agreed in advance with the beneficiary.
What are the benefits of using an Advanced Payment Bond?
- Protects the payer’s capital
- Encourages confidence between parties
- Enables suppliers and contractors to manage cash flow without upfront deposits
- Avoids tying up working capital with letters of credit or large cash retentions
How do I arrange an Advanced Payment Bond?
Contact PSS. We’ll assess your needs, negotiate the best terms, and arrange the bond quickly and efficiently with an A-rated surety provider—ensuring your project proceeds smoothly with your capital protected.
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