Although Advance Payment guarantee is associated with the financial guarantee it has the inherent risk of performance guarantee Advance payment guarantees are issued on behalf of the (i) Supplier of raw materials/finished goods or (ii) on behalf of a contractor for an execution of contract when he receives the advance payment. Since supplier receives an advance from the purchaser for the supply of raw material or finished goods on a future date, it is a substitution of working capital funds. In the case of execution of the contract, if any one of the terms of the contract is not fulfilled, the guarantee is likely to be invoked. While accepting the request from the customer for APG limit the banker should thoroughly analyse all risk factors.