The parent guarantee is the engagement of a third party (often the parent company of your customer) to pay you if your client does not do so.
This contract is particularly relevant when your client is insolvent, but that he belongs to a parent company financially strong. It transfers the credit risk of your client on the guarantor.
Parent company guarantee provides a relative safety. It is often likened to a simple comfort letter. It is important to ensure the credibility of the guarantor and its ability to meet its commitments.
Insist preferably for a payment guarantee on first demand which is more stringent for the guarantor and clearer for the commercial court in case you need to resort to a lawsuit to oblige the guarantor to meet its commitments and honor your debts.
If you work with a credit insurer, it may be more favorable to give you a warranty on your buyer if you have set up a parent company guarantee.
This contract is particularly relevant when your client is insolvent, but that he belongs to a parent company financially strong. It transfers the credit risk of your client on the guarantor.
Advantages and inconvenients of the parent company guarantee
- The implementation of a parent company guarantee is free.
- It requires a precise formalism from the guarantor in order to be valid. The person who signed must have the approval in writing of its Board of Directors otherwise the document is considered null!
- The parent company guarantee provides the same flexibility as the bank guarantee. You normally work with your client with a standard payment term,
- In case of unpaid invoices there are two possibilities:
- The guarantor honors its commitment and make the payment instead of your client,
- In the other case (the guarantor doesn’t want to pay) you will need to start a legal proceeding against him to get the guarantee applied and your Invoices paid.
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Parent company guarantee provides a relative safety. It is often likened to a simple comfort letter. It is important to ensure the credibility of the guarantor and its ability to meet its commitments. Insist preferably for a payment guarantee on first demand which is more stringent for the guarantor and clearer for the commercial court in case you need to resort to a lawsuit to oblige the guarantor to meet its commitments and honor your debts. If you work with a credit insurer, it may be more favorable to give you a warranty on your buyer if you have set up a parent company guarantee.
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