SEMINAR ON EXPORT CREDIT INSURANCE
Managing Export
Risks
SEMINAR ON EXPORT CREDIT INSURANCE
Credit Insurance is the
insurance against nonpayment - when sales are
made on credit.
SEMINAR ON EXPORT CREDIT INSURANCE
Credit Insurance ensures that
the profit on a sale becomes
predictable and therefore
the risk is more manageable.
EXAMPLE
With Insurance:
A Ltd is about to sell goods to
B Ltd on credit at a price of  If buyer pays:
EUR200,000
EUR 500,000. The cost of Profit:
the goods is EUR 300,000. Premium: - EUR 5,000
Net Profit Lm195,000
A Ltd is considering credit
insurance for the debt, and  If buyer fails to pay:
an insurance company has Cost of sale: EUR300,000
indicated that it would be
Premium:
5,000
willing to insure 100% of
Ins. refund: - EUR500,000
the debt for EUR 5,000.
Net Profit
EUR195,000
SEMINAR ON EXPORT CREDIT INSURANCE -
The assessment of credit, how
much to give, for how long
and under what conditions
is a function which require
serious consideration.
SEMINAR ON EXPORT CREDIT INSURANCE -
 Commercial
risks are risks
inherent in the buyer himself
 Political risks arise from events
outside the control of the exporter
and the buyer.
SEMINAR ON EXPORT CREDIT INSURANCE -
Export Credit Insurance
interweaves the cover for
the buyer risk and the
country
SEMINAR ON EXPORT CREDIT INSURANCE –
Cover available
for trading terms of up to
180 days
SEMINAR ON EXPORT CREDIT INSURANCE –
Insurance cover attaches on
despatch of
goods or services
SEMINAR ON EXPORT CREDIT INSURANCE -
“Retention of Title”
is an important feature in
the Contract of Sale
between the buyer and
seller..
SEMINAR ON EXPORT CREDIT INSURANCE -
The causes of loss:
Insolvency
Protracted Default
Political intervention
The transfer risk of funds
War and allied perils
ECI - Benefits of credit insurance
)
Benefits of credit insurance
The export credit insurer evaluates
and monitors the financial situation
of the exporter’s buyers
– The exporter can allow buyers more
attractive payment terms
–
Benefits of credit insurance
 Greater
possibility for the exporter to
penetrate new markets
 The export credit insurer assists in the
recovery of overdue debts
Benefits of credit insurance
The payment by the export credit
insurer protects the exporter from a
hard knock due to substantial bad
debt
– export credit insurance improves
the exporter’s credibility with his
bankers
–
Benefits of credit insurance
–
As a result of export credit
insurance, the exporter’s business is
bound to increase as the exporter
can do more business with the same
financial risk covered
SEMINAR ON EXPORT CREDIT INSURANCE -
The exporter can concentrate more on
his actual work and plan his sales and
turnover.
SEMINAR ON EXPORT CREDIT INSURANCE -
Uncertainty in business planning is
eliminated.
The forecasts have a greater possibility of
becoming a reality.
SEMINAR ON EXPORT CREDIT INSURANCE -
The exporter can give better terms than he
would otherwise afford to give without the
cost of additional finance.
SEMINAR ON EXPORT CREDIT INSURANCE -
The ECI can help companies recover debts
through its world wide network of
assistance.
SEMINAR ON EXPORT CREDIT INSURANCE -
Credit Insurance provides financial support
that would otherwise have severely
strained the exporters stability.
SEMINAR ON EXPORT CREDIT INSURANCE
Credit Insurance can be used as a
collateral to other means of finance.
SEMINAR ON EXPORT CREDIT INSURANCE -
The protection offered minimises risks
and provides opportunity to invest in
new markets.
SEMINAR ON EXPORT CREDIT INSURANCE
Stabilises cash flow by ensuring funds
are available.
SEMINAR ON EXPORT CREDIT INSURANCE -
Bad debts receives can be reduced and
thus release capital to be re-employed.
SEMINAR ON EXPORT CREDIT INSURANCE -
More attention to credit control and tight
financial attitude
Export Risks of Trade
Transit Risks
 Exchange Risks
 Political/Country/Economic Risks
 Buyer Risks
 Seller Risks

Export vs Local Risks of Trade
International
Trade
Major Risk
Risk
Local Trade
Transit
Minimal
Substantial
Exchange
Non- Existent
Erratic often
dramatic
Major Risk
Considering
Globalisation of
International
Trade
Political/Country Well Anticipated
/Economic
Buyer’s
Easily
Quantifiable
Seller’s
Easily
Quantifiable
Export vs Local Risks of Trade
International
Trade
May not be
known
Different
Risk
Local Trade
Language
Known
Culture
Known
Different
Business practice
Known
Different
Distance/Time
Known
Foreign
Taxes/Accounting
Practice
Known
Export Risks of Trade
 Transit Risks
 Land, Sea, Air
 Courier, Air-Freight, Postal Service,
Marine, Truck
 Packaging
 Marks & Labels
 HS Codes
Export Risks of Trade
 Exchange Risks
 Currency Fluctuations
 non-convertible currency
 moratorium on foreign exchange/barter
 devaluation
 stock market crash
Export Risks of Trade
 Political/Country/
Economic Risks
change in government
 invasion/war
 import/export restrictions
 natural disasters
 terrorism attack
 strikes

Export Risks of Trade
 Buyer’s
Risks
does not have a code of ethics
 overtrading/ back to back transaction
 small family business - no decision makers
 too ambitious/ no market experience
 does not retrieve goods from port

Export Risks of Trade
 Seller’s
Risks
supplier does not honour supply contract
 poor quality/goods do not match sample
 wrong costing
 penalties for not delivering on time
 poor distribution/factory production
 breakdown in machinery

Export Risks of Trade
 Credit
/Payment Risks
incorrect use of trade terms
 is not familiar with documentary credits
 retention of title clause
 jurisdiction clause
 use of export credit insurance
 did not obtain good legal counsel

Export Risks of Trade
 Questions?

If not, thank you for your attention

James Spiteri