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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Advance payment guarantee (APG)

What is an advance payment guarantee, and why does its amount reduce?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

An advance payment guarantee is a bank guarantee given to a buyer who pays a supplier or contractor part of the price in advance, promising to repay that advance if the supplier fails to perform. Its wording often makes it effective only once the advance has actually been received, and reduces its amount as goods are delivered or as the advance is recovered from progress payments. For the issuing bank it is lending in waiting, like any demand guarantee, and the risk is highest at the start, when the advance has been spent on materials and nothing has yet been delivered.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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