Export Credit Insurance protects an exporter of either goods or services against the risk of non-payment from a buyer located in a different country. With cover in place, policy holders can confidently extend credit on open account terms which can be a major competitive advantage for Exporters. Export Credit Insurance also adds a considerable extra service dimension in response to the much wider range of perils which need to be considered.
- Credit worthy buyer can default due to circumstances outside their control.
- Underwriters will share valuable country research helping you to identify potential markets.
- Usually cheaper than bank instruments such as letters of credit and always easier to administer.
- Export accounts receivables are much more likely to be financed when credit insured.
Export Credit Insurance can cover both Commercial and Political Risks, some of these are summarised below.
- Insolvency: Chapter 11* – Company Voluntary Arrangement (CVA) or similar Administration or local equivalent
- Protracted Default: The inability of the buyer to pay. The failure of buyer to take up goods properly delivered
- Currency inconvertibility or transfer risks**
- War, terrorism, riots and revolution
- Change in import or export regulations
- Bank failure
- Expropriation or Nationalisation
- Trade Sanctions
With banking and credit restrictions in many countries, foreign buyers are increasingly reluctant to pay in advance or tie up their collateral in support of letters of credit. While a letter of credit transfers the credit risk from the buyer to their bank you will probably wish to have a confirmation from a trusted bank in your own country.
Underwriters have sophisticated information networks coupled to the insurance cover, helping exporters increase volumes and terms to foreign buyers. Credit Insurance will help you open new markets normally deemed too risky and where commercial underwriters fear to tread, there may be UK Government support.
Many funders are reluctant to acknowledge the export receivables as reliable collateral if not credit insured, but take the opposite view once a Credit Insurance policy is in place. Acumen Credit Insurance are happy to assist with arranging funding if your current provider cannot assist.
Underwriters who specialise in Export Trade Credit Insurance invest large resources into market intelligence and will assist their insured clients with detailed country information, local commercial practice as well as information on specific buyers. In addition Acumen Credit Insurance Brokers have a wide network of contacts into export support services including government agencies, consulates, embassies, etc.
Acumen Credit Insurance is part of the international broker association, Credea which boasts a worldwide membership dedicated to providing clients with an excellent service through experienced brokers who know the local market. Credea provides local support for export policy holders, and members work together to contact local buyers for up to date information in support of key limits.
Hyper inflation in Zimbabwe, totalitarianism in North Korea and piracy in Somalia should deter most budding exporters, but apart from a narrow list of countries there is usually a credit insurance solution for most markets. Where the commercially owned trade credit insurance market is unable to assist there is often help through government sponsored debtor protection schemes.
Credit Insurance underwriters are normally happy to accommodate co-insured policies providing there is no insurance licence or local taxation regulations which need consideration. Where such difficulties preclude joint insurance Acumen Credit Insurance can arrange a local policy to be issued through their broker network Credea.
Chapter 11 is a chapter of the US Bankruptcy Code, which permits reorganisation of a debtor’s business affairs and assets under the bankruptcy laws in the US. There are similar arrangements in other countries around the world. The proceedings require a reorganisation plan to help pay its debts, which can include restructuring and eliminating debts, in order to continue operating and prevent final insolvency. Often creditors are required to take only a small percentage of debts owed to them, or take payment over a very long time. Credit Insurance policies will invite claims at the point the debtor enters this process (so policy holders don’t have to wait this process out which normally takes at least a year, to recover their debt), and treats eventual recovery as salvage.
This is when a currency cannot be exchanged for a foreign currency, because of foreign exchange regulations or physical barriers. These restrictions generally occur due to extremely high volatility such as hyper inflation of a currency. This prevention of a currency being converted to another one will mean that the money is no longer available, and payment cannot be made, effectively the country is bankrupt or close to bankruptcy.