Practical examples - Insuring export transactions with Federal Export Credit Guarantees
You want to export goods or services to a foreign country, either as manufacturer and/or service provider or as trader or agent? Unless the buyer pays in advance or cash on delivery, you will typically set a due date for payment. Until that time you are granting him a credit. This involves the risk that the receivables will remain unpaid.
Since in export business not only the economic risk but also political reasons may result in the loss of receivables, insurance makes good sense. This is especially true in developing countries and emerging markets.
What type of export business do you plan to do?
Is it a one-off transaction? Or do you export on a regular basis? Do you deliver to one buyer or several buyers? In one country or in various countries?
These questions are decisive when it comes to selecting the insurance product that is a perfect fit. We will be pleased to assist you with advice also by telephone or at your office. Please contact us at the +49 (0) 40 / 88 34 - 90 00 in order to agree a date for a consultation, which is free of charge for you.
Example 1: Insuring a single export transaction
If cover of a one-off export transaction is required, a Supplier Credit Cover will be the best choice when goods are supplied and an Export Credit Cover for Service Providers when services are rendered. With these you can insure receivables arising from a single export transaction.
It will protect you from the loss of accounts receivable for the most frequent reasons: for example protracted default or the insolvency of the buyer, adverse measures taken by foreign government, warlike events, confiscations of the goods due to political circumstances and some other reasons.
During the application procedure it will be checked whether your planned export transaction qualifies for cover under a Federal Export Credit Cover. A decision will be taken on the basis of information about the transaction and an assessment of the buyer’s creditworthiness. The earlier you apply for cover the better. Ideally, the application for cover should be submitted before the export contract is signed. Applications which are submitted after the risk has already arisen may be rejected as having been filed to late.
In return for the cover you pay a single premium which is calculated as an agreed percentage of the order value covered (excluding interest). On top of this, a handling fee has to be paid. With the help of an interactive PC program (premium calculator, German version only) you can calculate the prospective premium.
The share you will have to bear in case of a loss is 5 % for political risks and normally 15 % for economic risks; for a limited period until the end of 2016 the uninsured percentage for economic risks can be reduced on request to 5 %; for this a supplement on the premium will be charged.
Example 2: Insuring several export transactions with different buyers in various countries
If you do several export deals every year, you will look for a way to reduce the ensuing administrative burden. A Revolving Supplier Credit Cover would be the best choice if you supply one and the same buyer several times per year.
But what options do you have if there are not only several buyers but these are also domiciled in different countries? Well, for such cases the Wholeturnover Policy (APG, payment periods of up to 12 months) and, if the export turnover is low, the Wholeturnover Policy Light (APG-light, payment periods of up to 4 months) were developed.
Instead of having to apply for cover of each of your export transactions, Wholeturnover Cover will be granted for one year. Under this policy each individual export transaction will be insured in the same way as described in example 1.
In return for this type of cover you pay an individually calculated percentage of the monthly turnover. No handling fee will be charged.
Example 3: Relieving the pressure on your credit line with a Counter-guarantee
In many cases you, as exporter, are expected to provide a contract bond in favour of your foreign buyer which guarantees your performance of obligations under the export contract. Such a bond may be called even without justification. Contract Bond Cover protects you against the risk of suffering a loss as a consequence of unfair calling.
A Counter-guarantee, which supplements a Contract Bond Cover, even goes one step further: It relieves the pressure on your credit line and enhances your liquidity.
Under the Counter-guarantee the bank in its capacity as a guarantor is relieved of a sizeable portion of the risk that its recourse measures against the exporter may be unsuccessful. If the bond is called, the Federal Government will reimburse the guaranteed share of the bond amount (max. 80 %) to the guarantor. Despite the bond being called the exporter’s liquidity will remain mostly unscathed.
We will be pleased to assist you with advice
If you wish individual advice either by telephone or at your office, please do not hesitate to contact us at +49 (0) 40 / 88 34 - 90 00 in order to agree a date for a consultation, which is free of charge.