Retention bond
With the supply of factory plant, machinery and other capital goods, it is often agreed that the buyer may withhold 5%-10% of the contract amount for a period, for example 12 months after the plant or machine(s) are up and running.
The exporter may wish to receive the full contract amount before the end of the contract period (in the example given above, 12 months) by issuing a retention bond that covers the amount that would otherwise be withheld.
The exporter will request its bank to issue a retention bond in favour of the buyer. Once the buyer receives the retention bond he will transfer the amount of the bond value direct to the exporter by international money transfer. A retention bond is issued usually for 5%-10% of the contract amount.
See a
sample retention bond
(demand type).
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