White Paper: Digital Guarantee Management in Germany

What are guarantees?


Guarantees are sureties or guarantees issued by banks or credit insurers (“guarantors”) for their applicants in favour of third parties. These third parties are usually referred to as "beneficiaries".


In contrast to the financing loan, where cash or book money is provided to the applicant as a "money loan", guarantees transfer the creditworthiness of the guarantor to the applicant.


For the issuance of sureties or guarantees, lenders usually charge a guarantee commission, which is calculated periodically and is determined by the amount of the liability, the creditworthiness of the applicant (or the agreed provision of collateral) and the term of the obligation. The latter can be clearly limited in time (time guarantee) or unlimited in time, i.e. valid until the return of the deed or issuance of a waiver of drawdown. If a surety bond is required from the beneficiary, a one-off issue fee may also be payable.





What is the difference between sureties and guarantees?


In Germany, law differentiate between guarantees and sureties. Guarantees are abstract in nature, i.e. the guarantors vouch for a specific future success (e.g. payment guarantee, warranty guarantee, bidding guarantee) irrespective of a residual debt that is reduced over time.


Sureties, on the other hand, are tied to a principal debt and are thus accessory, i.e. a reduction in the collateralised principal debt over time would in principle also reduce the guarantor's liability amount. In fact, however, sureties can also be regulated in such a way that the amount of liability does not decrease and at the same time is limited to a maximum.


Sureties have been used for a very long time and also in the private law sector and are therefore regulated by law in the German BGB (§§765 ff). Accordingly, the guarantor undertakes by the surety contract vis-à-vis the creditor of a third party to vouch for the fulfilment of the third party's liability. Sureties are often directly enforceable, i.e. the guarantor waives the right to plea of anticipation. This means that if the principal debtor defaults on payment, the beneficiary of the surety can immediately turn to the guaranteeing bank and demand payment without first bringing an action. A guarantee in which a loss incurred by the beneficiary due to the debtor's inability to perform must first be proven by enforcement is called a "deficiency surety" or also an "indemnity surety". In this case, the defence of anticipatory action is admissible and the guarantor is only liable for the proven loss. If more than one person guarantees one and the same liability, this is usually done jointly and severally and is referred to as a "co-surety".


In the global business of companies, the BGB as a law valid for Germany is of little use, which is why guarantees (and not sureties) are used here. Due to the lack of legal rules, these offer more freedom of design and the term "guarantee" is better understood and accepted worldwide. Guarantees could generally be issued informally. However, to avoid misunderstandings, the applicable agreements are recorded in (increasingly digitally executed) documents.

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What are the similarities between guarantees and sureties?


Both cases are basically unilaterally binding contracts that create additional collateral for the execution of a transaction. Since the guarantor only has to pay if the principal debtor does not fulfil his contractual obligation, from his point of view they are contingent liabilities. Similarly, from the beneficiary's point of view, they are contingent assets that have to be shown on the balance sheet below the line like contingent liabilities.


Because credit institutions and credit insurers generally want to avoid such payments, they only lend their good name to applicants with sufficiently good creditworthiness. The collateralisation of the guaranteed liabilities is correspondingly different, i.e. in many cases guarantee credits are granted without collateral.





Guarantees in master credit agreements


For the utilisation of guarantees, companies usually receive specific credit lines defining the maximum amount of which they can apply for sureties and guarantees from their bank. These facilities are thus often part of a framework credit agreement. It is not uncommon for these credit lines to be coupled with overdraft facilities in so-called global credit lines, i.e. the headroom of one type of credit is automatically reduced by increasing the other, while the overall risk for the lending bank remains calculable. In connection with large syndicated loans, credit institutions also agree on ancillary facilities if there is little need for sureties and guarantees, which are then only set up bilaterally with one of the syndicate banks for easier handling.



What are sureties used for?


The "lending of creditworthiness" from banks or insurance companies makes business easier for companies in many ways. Sometimes a bid bond is an indispensable prerequisite for participating in a tender for a major project. Other times it is a matter of securing the fulfilment of a contract, customs payments or providing collateral in court.


Bid bonds are required in public tenders and in foreign business to ensure that the bidding company can meet the tender conditions. If the borrower fails to do so, the guarantor pays the agreed contractual sum or penalties. In Austria, by the way, this type of guarantee is called a "vadium" and is regulated in the execution order there. A vadium must be deposited in Austria, for example, as security in the compulsory auction of real estate, otherwise one is not allowed to bid. In Switzerland, it is the "bid guarantee" that makes participation in certain tenders possible in the first place. The amount and costs of bid guarantees depend on the contract value and usually amount to 5-10%.


If a company has received an order, delivery and performance guarantees are used. If the guarantee borrower fails to deliver the promised goods/services, the bank or credit insurer pays the beneficiary an agreed sum of money. The performance guarantee therefore only results in compensation, as the guarantors are usually overburdened with a replacement service or delivery.


In the case of very large contracts, e.g. for the construction of buildings, roads, power plants, ships, the client usually has to make advance payments. If the contractor does not deliver, the client naturally wants to get his down payment back. This is guaranteed by the contractor's bank in the form of an advance payment or repayment guarantee.

If goods have to be transported across national borders, customs duty is payable in some countries. To secure the claims, the offices require customs guarantees, as the customs payment is often deferred and only settled from the purchase price. In addition, there are bill of lading guarantees and various forms of payment guarantees in trade finance that can be used to secure the exporter's payment claim.


If the recipient of deliveries or services is not satisfied, he can, if necessary, fall back on a warranty guarantee, which can be agreed individually beyond national legislation. Banks and insurance companies would, however, as guarantors only offer compensation payments in a certain amount and not rectification or conversion. Similarly, performance bonds can be agreed for almost any purpose.


If the case goes to court, procedural guarantees may come into play, which serve as security in the case of provisionally enforceable judgments or to avert execution

What types of guarantees do companies often use?


The type of sureties and guarantees used depends primarily on the business purpose, the geographical spread and the positioning of the respective company between suppliers and buyers. All of the types of guarantees described above can be requested by a company in principle for the purpose of conducting business, but they can also be requested as beneficiaries. In addition, loan guarantees or other assumptions of liability may have to be issued by the management itself vis-à-vis the bank or counterparty.


Also in the context of cross-border expansions, additional securities are often required, which the top management of the group makes available to its subsidiaries in the form of so-called letters of comfort. These "internal group guarantees" are also not regulated by law and can be freely structured. In most cases, the parent company makes a declaration to a lender of its subsidiary that it will e.g.



  • provide it with sufficient financial resources to meet your obligations, or
  • disclose the ownership structure and promises to keep it stable for the agreed period of time, or
  • will assume any losses.


The recognition of such letters of comfort in the balance sheet ranges from "good will" to genuine warranty. Due to this vagueness, sureties with a legal background or guarantees with clear valuation approaches are preferable to self-formulated letters of comfort.




How can companies save valuable resources through the digitalisation of guarantee management?


Generally speaking, it is always a matter of mapping triangular relationships between debtors, beneficiaries and guarantors. There are clear key data such as the amount, type and duration of the claim and collateralisation as well as the listing of the conditions upon whose occurrence a payment is to be made.


Nevertheless, a uniform standard does not yet exist in the paper-based world. Reason enough to standardise the messages as far as possible in the course of digitalisation.


The international network for the exchange of standardised message types between affiliated financial institutions and meanwhile also non-banks SWIFT has probably taken the most important step towards the globalisation of the guarantee business in the past with the definition of the message types (MT) of category 7 (Documentary Credits and Guarantees/Standby Letters of Credit). However, there were and are numerous conditions attached to participation in this paperless message exchange, which many companies did not want to or could not fulfil.


Standardisation and the limited number of fields and characters also meant that some companies could no longer accommodate all the information they considered important. Moreover, SWIFT as a digital messaging channel was far too costly to apply for guarantees at one or two domestic house banks.


The fact that there is also a way to apply for a guarantee via EBICS, i.e. the Electronic Banking Internet Communication Standard, which has been used by many companies for payment transactions in Germany, Austria, Switzerland and France for a long time, is only slowly spreading.


Following the SWIFT MT7nn bank-to-bank messages, files can be exchanged via the order types GUK (sending of guarantee messages) and GUB (collection of guarantee messages). The file formats G01 to G07 are commonly used, whereby G05 and G06 are intended for free-text messages between both parties. The following files are available for mapping the typical workflow:



  • G01 "Order to create a guarantee" (customer sends to bank, order type GUK)
  • G02 "Information on the creation of a payment advice note" (customer collects: order type PDO)
  • G03 "Order to amend a guarantee" (GUK)
  • G04 "Information on the amendment of a guarantee" (GUB) and
  • G07 "Notice of reduction or discharge" (PDO)


The specifications of the data formats can be found in Annex 3 of the interface specification for remote data transmission between customer and bank according to the DK (Deutsche Kreditwirtschaft) DFÜ Agreement at




Chapter 6 of version 3.5, which will be valid from 21 November 2021, shows that further formats (G08 - G10 and G12) have been defined for process optimisation and that in future it will also be possible to digitise the settlement of utilisation and charges (G11). The contents were supplemented by additional fields so that more information on the parties involved, special agreements with the bank, but also with regard to counter-liabilities can be recorded. Due to the improvements, an increased use of the EBICS/DTA formats in the area of digital guarantee management can be expected.


For the upcoming EBICS 3.0, which will standardise the use of the secure transmission procedure with "EBICS banks" in Germany, Austria, Switzerland and France, the Business Transaction Format (BTF) "GUA" with corresponding mappings has already been defined as the "overarching order type".


Most credit institutions with their own or rented EBICS servers offer this service, which can greatly simplify, accelerate and secure the management of guarantees. With EBICS, the authorisations take place via the already known electronic signatures and the initial initialisation of the corporate customer on the bank computer for the exchange of the electronic keys. These electronic signatures are basically personal and function like qualified digital signatures.


As a secure transmission procedure between customer and bank with standardised order types and file formats, EBICS can be used at all German and Austrian banks, many Swiss banks and soon in version 3.0 also in France.


Unfortunately, EBICS is not yet as widespread in other countries, which is why many globally active companies use the SWIFT network. About 11,000 financial institutions worldwide can be contacted via SWIFT, but they need their own BIC (Business Identifier Code), the application for which and later use cause some costs that only pay off with a sufficient number of transactions. In addition, corresponding contracts for the exchange of messages with the respective counterparties are required. This process can be quite time-consuming and requires sufficient lead time.






A new possibility: The Digital Guarantee Vault


In addition to banks, there are also guarantors who can be reached neither via EBICS nor via SWIFT: Credit insurers such as Allianz Trade, Swiss Re, Tokio Marine, Atradius or Coface. They play an important role in companies that want to protect themselves against bad debt losses through del credere or trade credit insurance. If the buyer does not pay as agreed, the insurance company steps in - in effect, the same construct as with a surety or guarantee. Similarly, it is determined which risk amount is to be secured at which conditions for which period of time, so that in principle one could use the same file format.

In order to bring together all the parties mentioned so far, a central register (guarantee vault platform) is an option, to which applicants on the one hand and guarantors such as banks and insurance companies on the other hand have access in a standardised way after registration and a credit check. The participants undertake to comply with certain rules and can apply for and manage sureties, guarantees or bad debt insurance with this central register. Insurers and guarantors are informed about the digital access in real time and can immediately check, grant or reject the applications or communicate adjustment requests, which are immediately sent to the applicant.


If the parties agree, the agreement is digitally signed and its existence can be communicated to the beneficiaries without them necessarily having to become members of the central register. By accepting the terms and conditions of all participants, taking effective measures against manipulation and forgery, and ensuring that the electronic documents are kept securely for years in an ISO27001-certified data centre, the electronic documents gain legal validity in many countries.


By means of a REST API connection, the liability agreements can be administered by the participants over the entire term, including change history, saving time and money.




What can Trinity offer in this context?


The management of sureties, guarantees and credit insurance in many forms as a relationship between three parties with reference to underlying transactions, projects, investments and financing with liability amount, term, maturity and automated guarantee commission calculation has long been possible in Trinity TMS. Letters of comfort can be applied for by the subsidiary within the group via Trinity TMS and subsequently granted by the parent company with conditions in line with the market. The use of isolated database applications or non-audit-proof spreadsheets can thus be replaced.


Quickly accessible reports show all types of guarantees, filtered or sorted by transaction type, guarantor, maturity, purpose, etc. and increase transparency to a maximum. Trinity offers numerous "ready-to-use reports" in its integrated reporting system and the possibility to present the group-wide overview of contingent liabilities in a condensed CFO dashboard.


Integrated treasury management systems such as Trinity TMS incorporate the payment flows, which essentially consist of guarantee commissions, directly into the liquidity planning and daily account disposition without re-entry. They calculate the costs automatically and show the entire development of the guarantees over time. When reconciling the electronic account statements, guarantee commissions are matched by the system based on rules and can thus be clearly classified for plan/actual variance analyses.


Assignments to underlying transactions and projects can be displayed in n:m format. Accompanying documents and guarantee certificates can be saved as PDF files in the central database for access at any time. Compliance with and utilisation of credit lines and/or limits per counterparty can be tracked at any time as well.


For the application of sureties or guarantees at banks, the file formats SWIFT MT7nn or EBICS/DTA Gnn can be generated from Trinity TMS for transmission to the respective addressees via EBICS or SWIFT communication channels.


New features are the connection via a REST API to the central register of DVS Digital Vault Services GmbH and the possibility to use qualified, EU-compliant digital signatures for authorisation.


Of course, all data in Trinity TMS are available for individual evaluations of contingent liabilities, e.g. to determine the sum of the respective categories according to counterparty (groups), underlying transactions, projects, (remaining) terms, maturities, types of liability, etc. or to have an overview of the difference between contingent liabilities and contingent assets at all times. Volume and fee overviews can be compiled especially for bank negotiations.


By managing the guarantees in the same database in which all other financial transactions, credit facilities and bank accounts are administered, finance professionals receive an optimal decision-making basis for actively controlling and permanently securing the company's liquidity.


Detailed authorisation profiles in combination with a structured and largely automated workflow allow for fast, audit-proof and error-free processing as well as seamless end-to-end tracking of the guarantee process from the application to the complete discharge of contingent liabilities.


And as always with Trinity, you only choose the functionality you need as part of digital aval management.




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