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:
Lm200,000
Lm500,000. The cost of the Profit:
Premium: - Lm 5,000
goods is Lm300,000.
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: Lm300,000
indicated that it would be
Premium:
5,000
willing to insure 100% of
Ins. refund: - Lm500,000
the debt for Lm5,000.
Net Profit
Lm195,000
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
Benefits of credit insurance
SEMINAR ON EXPORT 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
–
SEMINAR ON EXPORT CREDIT INSURANCE -
Greater
possibility for the exporter to
penetrate new markets
The export credit insurer assists in the
recovery of overdue debts
SEMINAR ON EXPORT 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
–
SEMINAR ON EXPORT 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 -
ECI 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
SEMINAR ON EXPORT CREDIT INSURANCE
Managing Export
Risks
Questions
Do
I
I have to insure all my exports?
have been trading with the same
client for a number of years without
any difficulty and I do not foresee any
payment problems. In these cases why
does ECI advise that I should insure
these clients all the same?
Questions
Do
I have to insure contracts
covered by a letter of credit?
Does
ECI cover sales to Libya?
If not, why is this so?
Questions
If
a client is claiming that I have sent
defective goods as an excuse for not
paying me, how does ECI react in
such cases?
Are
there any special rates for
SME’s?
Questions
How
are ECI premiums calculated ?
What other costs are involved?
In
a claim situation, how does ECI
assist me in recovering debts due?
Does the policy cover legal charges?
Questions
What
is a credit limit?
What happens if I sell to my client
amounts exceeding this limit?
Why
does ECI insist on having a
Contract of Sale in writing and other
documentation before issuing a
policy?
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
Easily
Buyer’s
Quantifiable
Easily
Seller’s
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