Export credit insurance (ECI) helps protect your business from non-payment risks when selling internationally. It ensures up to 95% loss recovery if foreign buyers default, enabling safer market expansion, better cash flow, and access to financing. Here’s what you need to know:
- Key Benefits: Protects against commercial and political risks, supports global growth with open account terms, improves borrowing power, and ensures predictable cash flow.
- Customization: Tailor policies based on buyer risks, regions, and industry needs. Options include single-buyer or multi-buyer coverage and flexible terms.
- Best Practices: Regularly review risks, maintain accurate records, and work with insurance experts to align coverage with your business goals.
- Insurer Support: Get access to risk assessments, global networks, and claims management to strengthen operations.
- Trade Finance Synergy: Pair insured receivables with financing to boost borrowing capacity and secure better terms from lenders.
Export credit insurance isn’t just protection – it’s a tool for growth, helping you confidently expand into global markets while safeguarding your bottom line.
EW23 Export Credit Insurance, Payment Terms Letters of Credit, Foreign Exchange Best Practices
Main Benefits of Export Credit Insurance
Export credit insurance offers three key advantages that reshape how U.S. businesses approach international trade. These benefits provide a reliable safety net, enabling companies to expand globally with confidence while maintaining financial stability.
Protection from Non-Payment Risks
One of the main benefits of export credit insurance is its ability to protect businesses from both commercial and political risks. Whether it’s a buyer defaulting due to insolvency, bankruptcy, or prolonged payment delays – or disruptions caused by political events like war, terrorism, or regulatory changes – this insurance ensures businesses are covered. Depending on the buyer type and the goods shipped, companies can recover 90% to 100% of the invoice amount if a foreign buyer fails to pay.
"Export credit insurance is an insurance policy that covers a business’ foreign accounts receivable against commercial and political risks. It assures U.S. companies that their bottom line will be protected should a foreign customer fail to pay." – EXIM.GOV
This protection is critical, especially considering that payment defaults contribute to 25% of corporate bankruptcies. Additionally, trade credit insurance provides businesses with financial insights, helping them assess the solvency of both current and potential clients.
Safer International Market Expansion
Export credit insurance plays a crucial role in minimizing the uncertainties of entering new international markets. With guaranteed payment, companies can confidently offer competitive open account terms to foreign buyers without worrying about non-payment risks.
Here’s a real-world example: M&T Bank worked with a Pennsylvania-based animal feed company to support its international growth. The company extended credit terms to a foreign buyer who lacked upfront working capital. By using a cost-effective export credit insurance policy, the insured receivables became collateral for a new line of credit. This allowed the company to stay competitive, increase order volumes, and access timely funds. This example highlights how insured receivables can strengthen a business’s ability to expand while maintaining financial security.
Additionally, this insurance gives businesses the confidence to build relationships in new markets without being overly cautious. It provides a solid foundation for smoother cash flow and operational stability.
Better Cash Flow Management
Export credit insurance also helps businesses maintain predictable cash flow by ensuring payment, even when foreign buyers default. Insured receivables can be assigned to lenders, giving businesses greater access to working capital. Since banks view insured receivables as high-quality collateral, companies may also find it easier to secure additional financing.
Another advantage is improved Days Sales Outstanding (DSO). By reducing the average collection period, businesses can strengthen their financial profiles, making them more appealing to both lenders and investors. This is especially important for small and medium-sized businesses, as 35% of them face payment delays of over 30 days. Export credit insurance mitigates these risks by offering guaranteed payment timelines and access to professional collection services.
Moreover, insured receivables enhance balance sheets by turning export-related accounts receivable into U.S. government-backed assets. This not only boosts working capital but also increases financing opportunities, ensuring businesses remain financially robust .
How to Customize Your Policy Coverage
Customizing an export credit insurance policy means shaping it to address the specific risks your business faces. This tailored approach helps you select the right options while steering clear of common mistakes.
Evaluate Your Coverage Requirements
The first step in crafting a policy that works for you is understanding the risks tied to your buyers, target markets, and industry.
Start by examining your customers’ creditworthiness and payment history. Look at factors like invoice sizes, payment terms, and the financial stability of your buyers. Then, assess geographic risks. Identify countries where payment risks are higher, factoring in both political and commercial concerns. For instance, if you’re selling to buyers in emerging markets, you might need coverage for political risks such as war or currency inconvertibility. On the other hand, established markets might primarily require protection against commercial risks like buyer insolvency.
Your industry also plays a role in determining coverage needs. Sectors with longer payment cycles, seasonal trends, or higher default risks may benefit from customized policy terms. Keep an eye on changing risks and adjust your coverage as needed.
Choose the Right Policy Options
Once you’ve assessed your risks, you can decide on the specific features your policy should include.
Set coverage limits that reflect your invoice sizes, payment terms, and the creditworthiness of your buyers. These limits can be applied on a per-buyer basis or across your entire portfolio.
Next, focus on the territorial scope of your policy. Instead of opting for a blanket global policy, consider covering only the regions where you do business. This approach can lower premiums while ensuring protection in the areas that matter most.
The duration and terms of your policy should align with your business cycle. Export credit insurance is available for both single-buyer and multi-buyer policies, covering short-term periods (up to one year) or medium-term periods (one to five years). If your buyer base is diverse, a multi-buyer policy might make sense. For businesses with concentrated risk, single-buyer coverage could be the better choice.
Finally, choose a policy that fits your risk tolerance and business objectives. Incorporate credit checks into your sales and onboarding processes to ensure all new customers are covered before extending credit. Providers like Accounts Receivable Insurance offer solutions with customizable options and broker support to help you fine-tune your coverage.
With these decisions made, it’s equally important to avoid common mistakes that could undermine your policy.
Common Mistakes to Avoid
Even with a well-customized policy, certain missteps can lead to issues. Here’s what to watch out for:
- Delayed Reporting of Past Due Balances: Report overdue accounts promptly to avoid claim rejections. Use a timeline checklist and share monthly aging reports with your broker.
- Incorrect Buyer Identification: Ensure you’re insuring the correct legal entity, complete with tax ID or registration number, to prevent disputes over claims. Clarify how parent companies, subsidiaries, and trade styles are addressed in your policy.
- Overlooking Third-Country Risks: If your goods are shipped to one country but the buyer is based in another, make sure these third-country risks are covered in your policy.
- Miscommunication of Policy Terms: Clearly outline your payment terms and credit management procedures to your insurer, including any exceptions to standard terms.
- Weak Loss Mitigation Practices: Don’t rely solely on insurance. Always seek insurer approval before rescheduling debt or adjusting payment terms, and resolve invoice disputes quickly.
- Lack of Ongoing Communication: Stay in constant contact with your brokers and insurers to address changes in terms or potential defaults.
"It starts with the onboarding and asking the right questions. And through shame, we have all learned that the onboarding process is crucial to sorting out the policy in an appropriate way."
– Pieter Van Ede, Global Head of Trade Credit, WTW
The secret to avoiding these pitfalls lies in preparation and consistent policy management. Running a "fake claim process" or a claim audit can help you identify and fix potential issues before they become real problems.
How to Use Insurer Support Services
Export credit insurers offer more than just payment protection – they bring tools and resources that can strengthen your approach to managing risks and expanding globally. Knowing how to make the most of these services can transform basic coverage into a more comprehensive risk management strategy. These services work hand in hand with tailored policy coverage to provide a more robust safety net.
Maximize Risk Assessments and Claims Management
Risk assessments from insurers aren’t just about routine credit checks. They dive deeper, analyzing macroeconomic conditions, political risks, and specific business challenges in the markets you’re targeting. To get the most out of these evaluations, share detailed information about your customers and markets. For example, if political tensions escalate in a country where you operate, your insurer can guide you in adjusting credit limits or tightening payment terms for higher-risk clients.
Claims management is more than just processing payments when customers default. If a claim arises, act quickly – notify your insurer immediately and provide all necessary documentation to improve your chances of recovering losses.
Leverage Global Networks and Tailored Solutions
Many established insurers are part of extensive global networks. For instance, members of the Berne Union collectively provide about $2.5 trillion in payment risk capital annually, covering roughly 13% of global cross-border trade. By working with providers like Accounts Receivable Insurance, you gain access to this network, which offers local market insights and specialized coverage for complex transactions. This kind of support is invaluable when entering new markets or handling intricate deals.
Tailored solutions are another key advantage. Insurers can customize policies to address specific challenges, such as extended payment cycles or seasonal fluctuations in your business. These customized terms ensure your cash flow needs are met. Additionally, having a global presence can enhance claims support by using local expertise in legal systems, business practices, and regulatory environments.
Collaborate with Specialized Brokers
Specialized brokers add another layer of expertise to your risk management efforts. They go beyond simply placing policies, offering advanced market intelligence and insights into trends and risks across industries. Independent brokers can access the full credit insurance market, helping you optimize your coverage while supporting claims and adapting policies as your business evolves.
Your relationship with a broker should be a true partnership. Set clear expectations for their role and involvement. A good broker will provide training and regular updates on market conditions, helping your team understand policy details and claims processes. By keeping in close contact and staying informed about changes in your business or customer base, brokers can recommend timely policy adjustments and offer coverage options that align with your growing export operations.
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Combining Export Credit Insurance with Trade Finance
Pairing export credit insurance with trade finance can be a game-changer for your business. This combination not only strengthens your financial foundation but also opens doors to better borrowing opportunities. By understanding how these two elements complement each other, you can unlock greater export potential and solidify your position in global markets.
When your accounts receivable are insured, lenders see your business as a safer bet. This lowers the perceived risk, often leading to improved financing terms and increased borrowing capacity. According to the World Trade Organization, 80–90% of global trade depends on some form of financing. This highlights just how critical it is to integrate export credit insurance with trade finance to remain competitive. Let’s explore how this synergy can elevate your borrowing power and strengthen your relationships with financial institutions.
Improve Your Borrowing Power
Using insured receivables as collateral not only secures payments but also boosts your borrowing capacity. Programs like the EXIM Bank‘s Working Capital Loan Guarantee offer a clear example of how this works. Through this program:
- Inventory can be financed up to 75% of its value, compared to the usual 50% for uninsured inventory.
- Uninsured accounts receivable can be financed up to 90% of their value.
"The Working Capital Guarantee provides an excellent opportunity for exporters to maximize their borrowing capacity against their export accounts receivable and their inventory destined for export."
– Michael Dwiggins, Lender Account Manager at EXIM Bank
Banks are often willing to provide higher advance rates for insured receivables, whether under factoring arrangements or post-shipment financing. This enhances liquidity and expands your borrowing base. For pre-shipment financing, lenders may finance up to 90% of the value of insured receivables, ensuring a risk-managed flow from production to payment.
Strengthen Financial Partner Relationships
Transparent communication with your financial partners about your export credit insurance is essential. When banks understand your insurance coverage and its scope, they gain confidence in your risk management strategies. This confidence can lead to better lending terms and stronger, long-term partnerships.
Trade financiers often work closely with exporters and insurers to structure payment terms and contracts tailored to specific needs. These collaborations can open the door to advanced financing options like export financing, post-shipment financing, and short-term loans. Additionally, export credit insurance demonstrates a professional approach to managing risks, which builds trust over time. This trust can translate into benefits such as:
- Better interest rates
- Higher credit limits
- More flexible repayment terms
Regular updates to your financial partners about your export activities, new markets, and any policy changes are crucial. Keeping them informed ensures that your financing arrangements can evolve alongside your business, helping you navigate new opportunities with confidence.
Best Practices for Export Credit Insurance Success
To get the most out of export credit insurance, you need to stay proactive. This means conducting regular risk reviews, keeping precise records, and frequently evaluating your policy. These steps help ensure your coverage adapts to your business’s changing needs and offers strong protection when challenges arise.
Perform Regular Risk Reviews
Regularly reviewing risks is a cornerstone of effective export credit insurance management. The goal here isn’t to eliminate risks completely – because that’s impossible – but to manage them smartly in a constantly changing export environment.
Start by pinpointing all possible risks in your export portfolio. These could include economic factors like currency fluctuations, political instability such as government changes, or customer-specific issues like creditworthiness. Once identified, rank these risks based on their likelihood and potential impact. Keeping an eye on these risks and making timely adjustments – like reducing credit limits during political unrest – can prevent small problems from spiraling into bigger ones. Also, ensure thorough due diligence by double-checking contact information, verifying registrations, and collecting key company data.
Keep Accurate Records
Accurate and accessible records are critical for smooth claims processing. This means securely storing invoices, shipping documents, payment terms, and buyer communications in digital or cloud-based systems.
Reliable record-keeping isn’t just about storage; it’s about consistency. Train your team to follow proper documentation practices and periodically review these processes to keep them aligned with your business’s growth. A well-organized system ensures your claims process is not only faster but also hassle-free.
Review Policies with Insurance Experts
Navigating export credit insurance policies can be complex, which is why expert guidance is invaluable. U.S. exporters are encouraged to collaborate with specialized insurance brokers who can identify the best coverage options for their specific needs. These professionals can help determine whether a single-buyer or multi-buyer policy suits your business and advise on short-term (up to one year) versus medium-term (one to five years) coverage plans. They also offer insights into how premiums are calculated based on your risk profile.
Being proactive with your coverage is key. Watch for early warning signs and make adjustments when entering new markets, launching new products, or seeing shifts in your customer base. As Gary Lorimer, Head of Business Development for Aon Credit Solutions, aptly puts it:
"It’s known as credit insurance, but it’s more opportunity protection."
This reframes policy reviews as more than just a way to manage risks – they’re also a powerful tool for driving business growth. Regularly revisiting your policy ensures it supports both your risk management and your expansion goals.
Conclusion: Protect Your Business and Support Growth
Export credit insurance goes beyond simply managing risks – it opens doors to new opportunities for business growth. In 2022 alone, over $7 trillion worth of shipments were insured through export trade credit insurance, showcasing its value to businesses worldwide.
To make the most of this protection, it’s essential to understand your coverage, customize your policy, and actively manage it. Tailored policies turn standard insurance into a powerful tool for your business. Whether you’re a small exporter dealing with a single buyer or a larger company navigating multiple markets, customizing your policy ensures you’re not overpaying for unnecessary coverage or leaving critical risks unaddressed. In fact, most multi-buyer policies cost less than 1% of insured sales, making them a cost-effective way to secure your financial stability.
By tapping into insurer support services and combining coverage with trade finance, you can not only increase your borrowing capacity but also gain a competitive edge. This dual benefit – protecting against both commercial and political risks – creates a ripple effect. Your insurance doesn’t just safeguard your current business; it also enables you to expand into new markets and handle larger transactions. With this protection, you can confidently offer competitive open account terms while reducing non-payment risks, giving you an advantage in pursuing international opportunities.
To maintain these benefits, proactive management is key. Regularly reviewing risks, keeping accurate records, and working with insurance experts to evaluate your policy ensures that your coverage evolves alongside your business. As markets change and your company grows, your insurance strategy should adjust to meet new challenges and opportunities.
FAQs
How does export credit insurance help businesses secure better financing options?
Export credit insurance plays a vital role in helping businesses secure better financing by protecting against the risk of nonpayment from international buyers. With this safety net in place, lenders feel more assured, enabling them to provide higher credit limits and offer more appealing terms – like reduced interest rates or longer repayment periods.
By safeguarding against financial risks such as buyer insolvency or political turmoil, export credit insurance enhances a company’s credit profile. This boost in creditworthiness can improve cash flow and make it easier to access funding for both domestic and international trade ventures.
What are common mistakes businesses make when customizing export credit insurance, and how can they avoid them?
One misstep that businesses often make when dealing with export credit insurance is not thoroughly understanding the particular risks their operations face. This oversight can lead to policies that either fall short in coverage or include features that don’t serve their needs. Another common problem is neglecting to ensure that all shipping and contractual documents are accurate and complete, which can result in disputes or even denied claims.
To address these issues effectively, businesses should focus on the following:
- Perform a comprehensive risk assessment: Pinpoint specific challenges such as potential non-payment or political instability in the regions they operate.
- Customize the policy: Align the coverage with the unique aspects of their trade activities and business model.
- Keep documentation precise and complete: Ensure contracts, shipment details, and invoices are accurate to streamline the claims process.
By approaching export credit insurance with these strategies, businesses can better safeguard their operations and fully leverage the advantages these policies offer.
How can combining export credit insurance with trade finance help grow my business internationally?
Combining export credit insurance with trade finance can be a game-changer for businesses looking to grow internationally. Export credit insurance acts as a safety net, shielding your company from financial risks like buyer non-payment or political upheaval. This protection allows you to extend competitive credit terms to your customers without jeopardizing your cash flow.
On the other hand, trade finance provides the funding you need to boost liquidity, making it easier to handle larger or more frequent transactions. When used together, these tools empower businesses to confidently explore new markets, broaden their global presence, and strengthen relationships with international buyers – all while keeping financial risks in check.
