Payment bonds are surety bonds which are being posted by contractors in order to guarantee that its subcontractors and material suppliers engaged in a project will be paid. They are required in contracts which are of valuation of more than $35,000. Payment bonds are required for projects with the Federal Government. Payment bonds are most often dealt in conjunction with performance bonds.
Most often before taking up or beginning with a new project entrepreneur overlook the need for Payment bonds. However, they should always remember that payment bonds are absolutely important as they often deal with huge finances. These surety bonds act as a tool of risk mitigation. They are usually required by government agencies because they look forward to protecting the interests and safety of consumers. These bonds ensure that consumers don’t incur a loss and even if they do it can be well-compensated. They create a sense of faith in the minds of consumers and they won’t hesitate before investing high amounts of money into any project if they have a guarantee of damage control. Some bonds also aim to protect business owners. These can be especially helpful for small business owners.
What is a payment bond?
It is a legal contract that guarantees the performance of an individual or a business in the financial perspective. Each of these bonds has the following three avenues:
The principal is the professional or the business that buys the bond. It is to guarantee the quality of work that is about to be undertaken in the times to come.
The one who purchases it requires certain professionals and businesses to be obligated to the terms of the bond. These are usually government agencies who are working to regulate any particular industry.
The one who purchases the bond is the company and they sell the bond to the principal.
What kind of protection do surety bonds provide?
There are a lot of payment bond types available in the market. Each one offers a unique kind of safety. Most importantly these bonds provide financial and legal protection to protect consumers from unreliable professionals who can dupe consumers of their assets. In this situation, these bonds guarantee that an individual will fulfill his contractual obligations or other professional duties as per the laws and regulations. In this way, surety bonds and payment bonds provide the general public with financial protection against unethical businesses handlers.v