What You Need To Know About Export Credit Insurance
What is Export Credit Insurance?
Export credit insurance (ECI) protects an exporter of goods and services against the risk of non-payment by a foreign buyer. In other words, if your overseas customer fails to pay for products and services that you have exported to them, the insurance provider will compensate you for the loss according to conditions specified in the insurance policy.
ECI is sometimes referred to as trade credit insurance, debtor insurance, and accounts receivable insurance. However, there is a difference as export insurance focuses on trading relations between exporter and importer, while trade credit insurance works for both international and domestic markets.
What Risks Are Covered by Export Credit Insurance?
Export credit insurance covers exporters’ accounts receivables against commercial and political risks.
- Buyer insolvency
- Buyer bankruptcy
- Protracted defaults and slow payments
- Buyer refuses to pay
- Buyer refuses to take delivery of goods.
- Restrictions on currency conversion or capital transfer.
- Expropriation, nationalization, embargoes, trade sanctions, and other changes in trade regulations.
- Occurrence of war, civil unrest, natural disasters, or general economic conditions in the customer’s country.
Export risk insurance is suited for businesses of all sizes, as well as the banks and financial companies involved in financing the trade of these businesses.
Benefits of Export Credit Insurance
- Minimize The Risk of Non-Payment from Foreign Buyers. Credit Insurance helps you overcome unforeseen payment issues beyond your control in a foreign country.
- Receive Compensation in Case of Non-Payment Loss. Export Credit Insurance pays out up to 95% of unpaid invoices.
- Improve Your Customer Relationships. Export Risk Insurance helps exporters to get a deeper understanding of their buyers’ creditworthiness. Thus exporters can negotiate better deal terms, build long-term trust relationships with their customers, and adjust credit terms to reflect the current situation while ensuring enough liquidity for both businesses.
- Gain Competitive Advantage. Export Insurance allows exporters to offer more attractive credit terms and extend payment terms to their foreign buyers.
- Improved Access to Finance. The banks and lending institutions look favorably on businesses whose cash flow is secure and may include insured foreign account receivables in your borrowing base. The exporters can access additional financing and better financing terms.
- Improved Liquidity. Insuring your foreign receivables keeps your company’s financial position secure while strengthening the company’s balance sheet.
- Avoid Bad Debts and Reduce Bad Debt Reserves.
- Save Time and Costs. Trade safely on open terms instead of costly and burdensome Letters of Credit.
Types of Export Credit Insurance
- By Term - Export credit insurance can be classified as either short-term, medium, or long-term. Short-term insurance typically offers up to 95% coverage against the buyer's non-payment risk. The sales covered under short-term ECI generally include retail goods, materials, and services up to 180 days and small capital goods, consumer durables, and commodities up to 1 year. Medium-term or long-term trade credit insurance offers less coverage up to 90% against commercial and political risks but for a longer term. The long-term ECI is more suitable for exports of large capital equipment and infrastructure projects.
- By Single Buyer or Multi-Buyer Cover - Export Insurance Policy is offered coverage either on one buyer, multiple-named buyers (Multi-Buyer), or all buyers (Whole Turnover).
- By Single Risk or Multiple Risks Coverage - Single Risk Trade Insurance focuses on one specific risk coverage, unlike traditional ECI, which covers multiple risks.
What is Export Credit Insurance Premium?
Export Credit Insurance premium depends on multiple factors like policy terms, insurance coverage, and individual risk factors. The individual risk factors are related to the buyer’s creditworthiness, the countries involved in a trade transaction, exporters’ previous exporting experience and profile, and the underlying trade transaction or transactions.
The cost of export credit insurance is typically low and is priced at less than 1% of the value of the international sales volume being insured. The single-buyer policies are individually priced.
Export Credit Insurance Providers
Export credit insurance is offered by private insurers or by government agencies. The government agencies, referred to as Export Credit agencies (ECAs) or Export-Import Bank (EXIM), assist in financing the country’s export of goods and services to international markets. Private export insurance companies are more flexible with insurance terms, while Export Credit Agencies have stricter eligibility terms for companies and goods and services.
How does Export Credit Insurance Work?
When you have an Export Credit Insurance policy, the process is simple:
- Apply for credit limits for new or existing customers online
- Coface agrees to the insurance cover with a customer credit limit confirmation
- Trade confidently with your customers knowing you are protected against bad debts
- Inform your Account Manager or Claim Department when a customer invoice becomes overdue
- If your customer fails to pay, you can benefit from insurance cover, which is usually up to 95% of the invoice value.
Coface Export Credit Insurance
With over 75 years of expertise as a leading insurer in export credit insurance, Coface offers a variety of options to cover your export risks. We supply export credit insurance for SMEs and large multinational corporations, with single-buyer and multi-buyer policies to cover all your trade needs.
T: +852 2585 9188