Bank guarantees are a vital feature of many sectors of business, but are costly to manage and all too easily mislaid or found to be riddled with inaccuracies that render them invalid.
Why is that? To a large extent it is because paper still predominates, making it difficult for businesses to stay on top of the guarantees relating to all their projects.
In commercial property, guarantees are often a basic requirement in leases, where they give landlords security against potential loss from tenant defaults.
Unfortunately, when guarantees in a paper-based system are urgently required for a claim, commercial landlords, along with banks, insurers and other businesses, are often unable to find them, or discover they have not been updated and are invalid.
With paper documents it is also easy to overlook guarantees over the term of a lease and then find that amendments involve costly, complex and time-consuming exchanges between the parties and their lawyers. These problems multiply when commercial landlords have multiple guarantees across several banks.
Facing these difficulties in the administration of their guarantees, commercial landlords should consider using a web-based digital application, such as is provided by Bolero, to eradicate the many disadvantages of paper documents.
Here are some sound reasons why organisations should move to digitising their guarantees, so that they have rapid access through a secure online interface:
- An online interface gives landlords (and all other authorised parties) the ability to see all their guarantees instantly, at any time, with up-to-date information on their status.
- Guarantees have to be amended in line with rent reviews or the issue of new leases and it is up to the landlord to ensure this happens. If rents increase, so should the amounts guaranteed. A paper-based system makes this a time-consuming process which involves documents being sent backwards and forwards between the parties involved. A digital platform vastly simplifies all this, with automation reducing man-hours, costs and the risk of errors.
- When a guarantee is amended in a digital platform, all the changes are fully visible to all parties and can be traced through an audit trail, so there is no disagreement. This also severely reduces the opportunities for fraud and forgery.
- Some guarantees have an expiry date. Obviously, if the guarantee is out of date, the landlord is at a severe disadvantage in the event of a claim following a default. The ability to audit regularly via an online interface makes it more likely that these expiry dates will not be overlooked.
- Banks and lawyers will often make mistakes when drawing up guarantees, including simple misspellings that can render a document invalid. Landlords need to check, for example, that the amount guaranteed is accurate and that the guarantee is made out in favour of them and not a third party. Addresses in commercial premises are also easily confused. The ability to check for inaccuracies of this nature remotely, saves time and money, and brings considerable peace of mind.
- Paper documents are easily mislaid and require copies to be made for each party. Using a digital platform, guarantees will not be lost in the vaults of a distant repository and all the parties involved will know where the original guarantee is.
- Claiming is much simpler. The landlord makes the claim directly to the bank electronically and can include any supporting documentation.
- At the end of the lease, the landlord can use the same, straightforward electronic means to inform that bank that the guarantee is terminated.
- Bolero’s platform saves money. Storing and amending paper guarantees always incurs significant costs. With a digital platform, these costs are slashed.
When there are so many advantages from using a digital platform, such as Bolero’s secure web-based technology, there now seems little reason for commercial landlords to stick with paper.