Export credit insurance or ECI protects an exporter of products and services against the risk of non-payment by a foreign buyer. Export credit Insurance can reduce the risks of payment that is associated with international business by giving the exporter conditional assurance that payment will be made if the foreign buyer is unable to pay. Also commercial risks such as bankruptcy, or protracted defaults, insolvency of the buyer, slow payment and certain political risks such as war, terrorism, riots, and revolution that could result in non-payment are covered by ECI, it also covers currency inconvertibility, expropriation, and changes in import or export regulations. Export credit insurance is offered either on a multi-buyer basis or on a portfolio single-buyer basis for short-term up to one year and medium-term one to five years repayment periods. ECI can protect an exporter of products and services against the risk of non-payment by a foreign buyer. It means exporters can protect their foreign receivables against a variety of risks that could result in non-payment by foreign buyers. ECI does not cover any physical loss or damage to the goods shipped to the buyer, or any of the risks for which coverage is available through marine, fire, casualty or other forms of insurance.
Where can I get ECI?
Many private commercial insurance companies offer ECI policies as well as the Export-Import Bank of the United States or EXIM, the government agency that assists in financing the export of U.S. goods and services to international markets and exporters are strongly encouraged to shop for a specialty insurance broker who can help them select the most cost-effective solution for their needs. Internet is also a big source of, reputable and well-established companies that sell commercial ECI policies can be easily found on the Internet. You can also buy ECI policies directly from EXIM.
What is the advantage of ECI?
Reducing the financial risk to the exporter is the main function of export credit insurance. An exporter that have export credit insurance can gain access to overseas working capital. The credit insurance policy assures that the company is protected against potential non-payment by a customer and is a better credit risk for a substantial capital loan.
How much does Credit Insurance cost?
According to the U.S. Government, the premiums for credit insurance on credit ranged from 85 cents to $1.35 a month per month, $100 of outstanding balance and on a $5,000 balance, that insurance could cost $44 to $67 a month.
What does export credit agencies do?
Export Credit Agencies are also known as ECAs. These are public agencies and entities that provide government-backed loans, guarantees and insurance to corporations from their home country that seek to do business overseas in developing countries and emerging markets.
Four benefits of Export Credit Insurance
Boost Sales with Existing Customers
Many exporters have customers that would buy more with an extension of credit terms, or an increase in the credit line offered. A safety net for business’ foreign receivables allows it to seize opportunities and increase sales.
Unlock More Attractive Financing
Banks do not easily lend money against export-related assets. With credit insurance, your bank will likely be more willing to lend against foreign accounts receivable, knowing that they are backed by the full faith and credit of the U.S. government.
Transfer the Burden of Credit Management
As an exporter, you’ve got enough on your plate. The one thing you don’t have is time. Export credit insurance can help by easing the burden of credit risk management and allowing you to focus on what you do best. EXIM’s Express policy even includes complimentary foreign buyer credit reports, thus a relationship with the Export-Import Bank (EXIM) and its credit management expertise can improve receivables management from buyer assessment to protection to collection.
Realize Tax Benefits
During business, your financial department needs to account for a loss reserve. Purchasing export credit insurance, your business can reduce its loss reserve knowing it will be compensated for foreign customer non-payment and, in turn, lower your business’ overall tax burden since the premiums paid for export credit insurance are tax deductible.
If you run a business of any size, the chances are that there will come a time when you need to do some exporting. Doing business internationally can be extremely beneficial to the overall growth of your business, but not all buyers are the same. When you have one client that is consistently reliable with making their payments in a very timely manner, you may very well run into another client that will get your shipment and not send any payment your way whatsoever.