A flexible alternative to standby letters of credit for securing financial obligations.
Get in TouchMany companies use standby letters of credit (LCs) to support obligations such as insurance deductibles, contracts, or financing requirements.
While effective, LCs tie up capital and reduce borrowing capacity.
On-demand payment bonds offer an alternative structure - designed to meet the same requirement while improving flexibility.
An on-demand payment bond is a financial guarantee issued by an insurer or surety that promises to pay a beneficiary upon demand, subject to agreed terms.
It functions similarly to a standby letter of credit, but is typically issued by an insurance carrier rather than a bank.
It replaces or supplements an LC with a bond-based structure.
A company has an obligation that requires financial security (e.g., insurance deductible)
Instead of posting cash or issuing an LC, a bond is put in place
The bond provider guarantees payment to the beneficiary if triggered
The obligation is satisfied without tying up internal capital
It meets the same requirement - but with a different use of capital.
Both secure an obligation - but the impact on your balance sheet can be very different.
Replacing an LC can be less about cost - and more about unlocking capital.
The more you rely on LCs, the more impactful this structure can be.
There isn't a single solution that works for every situation.
For some companies, LCs remain the right approach.
For others, on-demand payment bonds provide a more efficient way to meet the same requirement - while improving financial flexibility.
A quick review can help determine whether your current structure could be optimized.
Get in TouchUnderstanding your options is the first step.