Mar 31, 2023
Digital bank guarantees vs cash deposits for business
Choosing between paper bank guarantees and cash deposits is a situation both institutional organisations and small business have to manage daily.
Both have specific benefits for specific uses, but cash deposits can be viewed as a more straightforward way to secure a property or a project rather than complete the process of acquiring a paper bank guarantee.
Typically, these organisations view a cash deposit as the best solution to a frustrating problem, or in some cases, the only viable option when the business cannot afford to wait for a paper bank guarantee.
Paper bank guarantees vs cash deposits
The paper-based bank guarantee process does have some notable benefits when compared with cash deposits.
Bank guarantees offer organisations a different way of securing properties or projects instead of using their capital and helps protect their cash flow.
In many instances, bank guarantees can help provide a platform to win large-scale projects without a significant financial impact on the business and its cash flow.
For beneficiaries, bank guarantees are often preferred to cash deposits as they have the assurance they can be demanded upon at any time, and their money can be received without dispute.
It also makes managing finances a lot easier, as beneficiaries are not required to keep large cash deposits in their organisation. They simply store the bank guarantee document until it has expired, cancelled or demanded upon.
Whilst these benefits have only existed with paper documents in the past, the digitisation of these instruments carries the same benefits and more for organisations deciding between a bank guarantee and a cash deposit.
As the uptake of our platform and the adoption of digital bank guarantees grows, we anticipate some repercussions for the use of cash deposits and the future usage of bank guarantees.
Digital bank guarantees vs cash deposits
With digital bank guarantees resolving many issues plaguing the traditional paper-based process, organisations that prefer using cash deposits may reassess their stance.
So how does the switch to digital bank guarantees impact the likelihood they will be preferred over cash deposits in the future?
Firstly, digital bank guarantees eliminate the inconveniences associated with the traditional paper bank guarantee process.
One of the reasons organisations may have opted to use cash deposits over bank guarantees in the past is the complexity of obtaining a paper bank guarantee.
Our digital platform simplifies this process, and digital bank guarantees are obtained directly on the Lygon platform. This means that physically attending a branch to obtain a guarantee is no longer a requirement.
The inconveniences with traditional bank guarantees include the physical nature of the instruments themselves.
Amendments to paper bank guarantees require the process to start again, which means it can take up to 31 days to implement any adjustments.
This can be particularly painful when dealing with factors like a CPI increase, a renewal or a change of the terms on the bank guarantee.
Now, digital bank guarantees can be amended on the Lygon platform in real time, resolving one of the major factors that play a big part in influencing organisations to use cash deposits.
The time it takes to obtain a bank guarantee has also been reduced significantly with our platform.
In the past, organisations may have opted for cash deposits in time-sensitive scenarios as they cannot afford to wait up to 31 days for a paper guarantee to be issued.
As a digital bank guarantee is obtained by simply clicking a button, another barrier for those considering a bank guarantee over a cash deposit is removed.
At one point, there would have been many things to consider when comparing paper bank guarantees and cash deposits.
However, the introduction of digital bank guarantees has changed how organisations assess this trade-off, and the improvement of this process will remove many of the pre-conceived limitations associated with using bank guarantees.
Many factors that once influenced organisations to prefer using cash deposits over bank guarantees are now no longer an issue.
These improvements and the benefits of using paper bank guarantees mean we can expect to see a change in preferences, as organisations get more familiar with digital bank guarantees and their benefits.
Currently, there are over 400,000 bank guarantees in circulation within Australia, but this is a number we expect to increase as more organisations opt for digital bank guarantees instead of cash deposits - allowing them to save time, protect their cash flow and innovate their processes.
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