Continuous Bond

Continuous Bond
See also

Continuous bond belongs to the category of custom bonds. It is mostly used in United States of America for international trade and means a financial guarantee that renews automatically until someone cancels it. Continuous bonds never expires. When contractor or client makes his payments, continuous bond renewals. It ensures every transaction in a certain period ("Custom Bulletin and Decisions", 2003, page 13).

Two types of customs bonds

Customs bond is a "legal instrument designed to secure payment of a possible liability that arises from failure by an importer to adhere to United States trade laws and regulations affecting imported merchandise". .It is a government bonds, issued by them, that allows a company or single person to import goods within a world. We can list two types of customs bonds: Single-transaction bonds and continuous bonds (Bhala R., 2012, page 199/200).

Single-transaction and term bonds

These are contrasting types of bonds that are available next to continuous bonds:

  1. Traditional, term bonds: term bond, in contrast to continuous bond, has its maturity or expiration date.
  2. Single transaction: they are taken once in a time, and payment is made for only one single arrival or transaction.

It is an alternative for continuous bonds when a company or person does not want to invest in a long-time continuous bond ("Custom Bulletin and Decisions", 2003, page 13).

How continuous bonds works and its pros

Usually, continuous bonds are taken for a period of 1 year. There are three sides involved in process of continuous bond:

  • Guarantor (Surety company): it agrees to make payments for any liability, that might happens when the bond principal (importer) do not perform his obligations.
  • Importer,
  • Beneficiary, which is CBP (Customs and Border Protection).

Continuous bonds are more profitable than single transactions. You pay once for continuous once in a year, and you are not limited to transactions, when in single-transactions you are obligated to pay for every single trade. Including that usually a company makes a lot of trades over year, continuous bond is cheaper than paying for every time transaction occurs (Bhala R., 2012, page 199/200).

References

Author: Mateusz Paduch