commercial transactions on short credit terms
covered by export credit guarantees
Commercial transactions on short credit terms
In the era of globalization exports are the most
natural thing in the world. But few people think of
the possible risks. With this booklet we wish to
give you an overview of how German exporters
can protect themselves against these risks with
export credit guarantees of the Federal Republic of
Germany. There is a broad range of cover options
available for export transactions on short credit
terms of up to two years, which we will present to
you in this booklet.
In many cases, individualized advice is the
guarantee for a smooth transaction of business.
You can get this advice from the staff of Euler
Hermes Aktiengesellschaft at any time. Not only
the staff at the Head Office in Hamburg will be
pleased to assist you but the sales representatives
will also visit you at your offices whenever you
want if you request so.
24 hours a day and seven days a week information in German and English is available online
on the Internet – for you and your customers.
Throughout Germany information workshops are
regularly held and we would be pleased to invite
you to one of them.
what exactly are export credit guarantees?
federal
export credit guarantees
Federal Export Credit Guarantees – Hermes Cover – protect your export business against the risk of bad debt
losses. The export credit guarantees of the Federal Republic of Germany offer an array of insurance options
which are mainly targeted at exports to developing countries and emerging markets. Thus they help to create a
level playing field for German exporters in international
competition. An Interministerial Committee (IMC) decides
on the cover policy for exports to the various countries
and on the granting of export credit guarantees. The
Interministerial Committee is formed by representatives
of the Federal Ministry for Economic Affairs and Energy,
which has the lead function, the Federal Ministry of
Finance, the Federal Foreign Office and the Federal Ministry for Economic Cooperation and Development.
Back in 1949 the Federal Government entrusted two
private companies with the management of the export
credit guarantee scheme: Euler Hermes Aktiengesellschaft (Euler Hermes) and PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (PwC).
Since Euler Hermes is the lead partner in this consortium,
the Federal Export Credit Guarantees soon became known
as “Hermes Cover”.
Long years of experience in export matters have given
the staff of the two companies a comprehensive knowhow base in the field of export finance and export credit
cover. They offer a customer-focused consultancy service
to exporters and banks and support the on-going projects with advice.
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what can we do for you?
a broad range of options
for exporters and banks
Different export transactions require different types of
cover. The export credit guarantee scheme of the Federal
Republic can offer a matching type of cover for each of
your export transactions: This includes cover of risks
before and after shipment of the goods as well as flexible
solutions for varying credit periods or the bundling of
several shipments under revolving or wholeturnover
cover. And the most important aspect: There is no minimum contract value required for export credit guarantees.
For exports on medium and long credit terms (more
than two years) the Federal Government offers supplier
credit cover as well as buyer credit cover for the
financing of export deals with tied buyer credits.
These types of cover are in demand mostly for individual
export transactions. Specific types of cover for project
financed transactions and other structured
finance constructions are products which will be
used in special circumstances.
There is a wide range of cover options available for
export transactions on short credit terms (payment
periods of up to two years): wholeturnover policies
and wholeturnover policies light insure exports on
short credit terms of an exporter who supplies several
buyers in different countries. revolving supplier
credit guarantees and revolving buyer credit
guarantees provide protection against bad debt losses
in cases of repeated deliveries to one buyer. One-off
transactions can also be covered with an export credit
guarantee on short credit terms. January 2011 the Federal
Government introduced buyer credit cover-express,
a fast-track procedure that facilitates the financing of
exports transacted by small and medium-sized enterprises.
However, there are export transactions on short credit
terms which do not qualify for Hermes Cover. Cover is
only available for supplies destined for non-EU and
non-OECD countries (exceptions: Chile, Israel, Mexico,
South Korea and Turkey). Since private insurance companies provide sufficient cover facilities for exports on short
credit terms to EU and OECD countries – the so-called
marketable risks –, the Federal Government is not allowed to offer cover for such business.
Export credit guarantees …
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@ make it possible to open up difficult markets
@ offer protection from non-payment
@ make export financing easier
@ create a level playing field
in international competition
@ support also small and medium-sized
enterprises
@ preserve jobs in Germany
Insurable risks
Export credit guarantees provide protection against
bad debt losses mainly due to
@ insolvency of the buyer
@ non-payment of an account within
6 months after the due date (protracted default)
@ legislative or administrative measures
and warlike events
@ non-conversion/non-transfer of amounts
paid in local currency
@ confiscation of the goods for political reasons
@ frustration of the contract for political reasons
our products for the cover of transactions on short credit terms
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Short-term supplier credit cover
When raw materials, semi-finished goods, components,
consumer goods and spare parts are supplied, the
accepted credit period is normally only up to a six
months’ maximum. For high-value components, consumer durables as well as fertilizers and pesticides,
the acceptable credit period is 12 months. In these
cases of short credit periods we will cover your
cross-border supplies under short-term supplier
credit guarantees.
Occasionally, your foreign buyers also wish to order
capital goods supplies (machinery and plant) on short
credit terms. It goes without saying that Hermes Cover is
available in such cases too, provided that the supplies
are destined for countries which are classified as nonmarketable risks.
Every German exporter can apply for supplier credit
cover. The same holds true for foreign business enterprises who transact export business through their
branch offices registered in the German Companies’
Register.
Cover takes effect with the shipment of the goods
and/or the commencement of service, and ends with full
payment of the covered amount owing to you. For the
provision of cover we will charge you an administrative
fee and a premium, the amounts of which depend on
the order value. The premium level will depend on the
foreign buyer’s credit rating, the general country risk and
length of the credit period.
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the advantages of the various cover options
Supplier credit cover
Wholeturnover and revolving cover
Buyer credit cover
@ many possible combinations
@ flexible insurance cover
@ customized cover options
@ simple and swift handling
@ immediate easing of the strain
on the balance sheet
@ cover before shipment possible
@ easy administration
@ low costs
@ enhanced liquidity
@ no negotiations about credit terms
@ revolving: simple and swift handling
our products for the cover of transactions on short credit terms
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Revolving supplier credit cover
Revolving supplier credit guarantees cover repeated
deliveries of goods and the provision of services
to one foreign buyer on short credit terms of up to
24 months. Their scope of cover and the premium rate
are the same as for short-term supplier credit cover,
however, it is much easier for you to handle.
If a positive decision is taken on your application for a
revolving supplier credit guarantee, you will receive
a policy in which the maximum liability accepted (“maximum amount” or “limit”), the permissible payment terms
and other general conditions are specified. Because of
this limit, which is fixed at the outset, you can use the
amount freed up once your covered shipment has been
paid for further supplies – the policy “revolves”. There is
no need to file separate applications for supplier credit
cover for each order and you can react much more
flexible to market trends. The Federal Government
continues to be liable for these covered trade receivables
even if the revolving supplier credit guarantee is not
renewed upon the expiry of the policy year.
It is up to you to decide whether you wish to include
receivables secured by a letter of credit. In this context
you have, for example, the option of restricting cover of
receivables secured by L/C payable at sight to political
risks only.
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Revolving buyer credit cover
If you continually supply a foreign business partner on
short credit terms and these supplies are financed by a
bank, the bank can insure the credit under a revolving
buyer credit guarantee. This type of cover frees up additional liquidity for the exporter.
our products for the cover of transactions on short credit terms
© Paul Georg Meister/PIXELIO
© Paul Georg Meister/PIXELIO
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Wholeturnover Policies
In particular semi-finished goods, consumer goods, raw
materials and agricultural produce are usually traded on
short credit terms. For all companies with a turnover that
qualifies for cover amounting to at least EUR 500,000
and a number of foreign buyers in several countries the obvious choice would be a Wholeturnover Policy (APG) as comprehensive cover. An online link makes
this type of cover of supplies on short credit terms of up
to 12 months easy to handle and cost-effective.
It protects you from bad debt losses due to foreign
buyer insolvency, non-payment of receivables within six
months following due date as well as due to political
risks, especially lack of hard currencies or restrictions on
the international payments system.
In most cases wholeturnover cover can be provided
at a much more favourable price than supplier credit
guarantees for individual transactions. Besides, there are
no individual application or handling fees. The premium
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amount will be determined mostly by the country risk and
the terms of payment you agreed with your buyers. The
higher the risk attached to countries and buyers included
in your Wholeturnover Policy, the higher the premium
rate will be. On the other hand, the premium will be the
more favourable, the better the risks are balanced. In
addition, a system of no-claims bonuses/risk surcharges
rewards you for entrepreneurial diligence exercised when
choosing your business partners. The Wholeturnover
Policy runs for one year.
The flexibility of wholeturnover cover is proven by a great
variety of options for inclusion. You can have receivables
from business with customers in Chile, Israel, Korea,
Mexico, Turkey and all other non-EU and non-OECD
countries included in wholeturnover cover. You can
choose freely which of these countries you want
to include in the cover. However, you have to offer
all deliveries to private buyers domiciled in the countries
chosen for cover, with the exception of receivables secured on a letter of credit. You apply for limits (maximum
amounts) for commercial and political risks respectively
for each buyer, which will be fixed without any extra
costs. Hence you will always know which of your customers are included in the cover and with what amounts.
In addition, you can optionally include certain types of
receivables for the entire policy period. You can exercise
these options on a country-by-country basis. Receivables
due to your foreign subsidiaries from their foreign customers can be included in the wholeturnover policy
irrespective of whether the goods are delivered by your
subsidiary to a third country or an end buyer within the
country it is domiciled in. You additionally have the option of including your turnover with your foreign affiliates
or amounts due from public buyers. A further option is
the inclusion of receivables for which a letter of credit
has been opened prior to shipment of the goods. No
difference is made here between sight letters of credit
and deferred payment credits.
our products for the cover of transactions on short credit terms
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options for inclusion in a wholeturnover policy
Inclusion not possible
for buyers in
Right of inclusion in
OECD member states for buyers in
Right of inclusion in
non-EU/OECD member states
@
@
@
@
@
@
@
@
@
@
@
@
@
@
@
@
@
@
Australia
Canada
Iceland
Japan
New Zealand
Norway
Switzerland
USA
EU member states
Chile
Israel
Korea
Mexico
Turkey
options for inclusion in a wholeturnover policy light
Inclusion not possible
for buyers in
Inclusion mandatory
for buyers in
@
@
@
@
@
@
@
@
@
@ all other countries
Australia
Canada
Iceland
Japan
New Zealand
Norway
Switzerland
USA
EU member states
Public buyers
Affiliated companies
Letters of credit
Private buyers
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Wholeturnover Policies light
Wholeturnover Policies light (APG-light) are ideal for
exporters who normally agree short credit terms of up
to four months. Hence they are aimed at small and
medium-sized companies whose turnover from export business is not yet big enough to qualify for normal
wholeturnover cover or at larger companies which have
only a minimal percentage of their turnover in export
business. A Wholeturnover Policy light is even easier
to handle than a standard Wholeturnover Policy but
does not offer the same comprehensive options for inclusions. The Wholeturnover Policy light also runs for one
year, however, all insurable business has to be included
in the policy.
The Wholeturnover Policy light is handled exclusively via
the Internet. You declare your turnover by reporting your
turnover for the previous month online and also carry out
all other transactions you need to manage your cover,
such as making requests for credit limits, via the Internet.
When cover commences, the premium rate will be fixed
for two years, afterwards the premium may be reduced
due to a system of no-claims bonuses/risk surcharges
depending on the loss experience. The conditions for an
indemnification payment have been simplified, too: The
Federal Government indemnifies any insured account if
it remains unpaid six months after due date.
other products
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Manufacturing risk cover
If you already need cover during the good’s manufacture, our manufacturing risk guarantees are an
appropriate safeguard. In particular customized goods
should be insured because it may be almost impossible
to sell them to another buyer if they cannot be delivered.
Manufacturing risk cover includes the actual prime costs
you incurred. These are estimated in advance by you and
form the basis for the maximum cover amount given. If
an insured event occurs, the actual amount of the loss is
ascertained by a specially prepared expertise.
The guarantee covers all political and commercial
circumstances in the buyer country which prevent the
completion or the despatch of the goods. The risk of an
embargo being imposed is also covered.
In combination with short, medium or long-term supplier
credit cover, a manufacturing risk guarantee provides
comprehensive protection against risks from the commencement of manufacture right through to the payment
of the receivables.
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Frequently your business partners will request you to
provide contract bonds, such as advance payment, performance or maintenance bonds, for the transaction of
export business. These bonds can considerably restrict
your liquidity and put a major strain on your credit line.
For example, in many cases the total amount of the down
payment has to be deposited as collateral. This restriction can be lifted with the Federal counter-guarantee.
With this guarantee the Federal Government guarantees
your bank the payment of up to 80 percent of the bond
amount if the contract bond is called. On the basis of
this guarantee, the bank will forgo further collateral
restricting your liquidity and your credit line will only be
debited with the remaining 20 percent.
© Peter Wiegel/PIXELIO
Counter-guarantees
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how much does cover cost?
fees and premiums
For supplier credit guarantees and revolving
supplier credit guarantees you pay administrative
fees and premium for cover. The administrative fees
depend primarily on the order value. The premium rate is
also determined by the country risk category into which
the country of the buyer falls. Besides, the premium rate is
influenced by other parameters such as the term of the contract, status of the buyer and, where applicable, the percentage of cover. In addition to the buyer’s credit standing certain types of security interests, which reduce the
creditor’s risk, may affect the calculation of the premium.
While under manufacturing risk cover your prime costs
are covered, the amount of receivables due is the basis for
the calculation of the premium in the case of credit risks.
With the “Entgeltberechnungs-Tool” on the Homepage of
the Federal Export Credit Guarantees (www.agaportal.de)
you can quickly calculate the premium payable. Our
field staff and the employees at the Head Office will be
pleased to assist you if you wish to calculate the costs
of an export credit guarantee.
The premium for wholeturnover policies and
wholeturnover policies light is calculated on the
basis of your monthly declared turnover. For Wholeturnover Policies the premium will be fixed on the basis of
the risks covered in each individual policy, while fixed
premium rates apply to Wholeturnover Policies light. For
both types of policies the premium rates will be adjusted
in accordance with the claims experience under a system
of no-claims bonuses/risk surcharges, which results in
premium reductions or increases in subsequent years.
However, both types of cover are normally cheaper than
an individual supplier credit guarantee.
calculation examples for the premium payable for export credit cover (table)
case 1 a:
Order value:
Covered amount:
Risk period:
Delivery to a country with medium risk level:
Public buyer:
© Paul Georg Meister/PIXELIO
Cost of cover:
case 1 b:
Order value:
Covered amount:
Risk period:
Delivery to a country with medium risk level:
Private buyer:
Cost of cover:
case 2a:
Order value:
Covered amount:
Risk period:
Delivery to a country with medium risk level:
Public buyer:
Cost of cover:
case 2b:
Order value:
Covered amount:
Risk period:
Delivery to a country with medium risk level:
Private buyer:
Cost of cover:
*
EUR 1 million
EUR 850,000
six months
Country Risk Category 4
SOV
EUR 8,755 plus fees* or
1.03 % of the guaranteed amount
EUR 1 million
EUR 850,000
six months
Country Risk Category 4
CC3
EUR 11,220 plus fees* or
1.32 % of the guaranteed amount
EUR 1 million
EUR 850,000
five years
Country Risk Category 4
SOV
EUR 25,925 plus fees* or
3.05 % of the guaranteed amount
EUR 1 million
EUR 850,000
five years
Country Risk Category 4
CC3
EUR 40,545 plus fees* or
4.77 % of the guaranteed amount
For transactions of this volume an application fee of EUR 1.000 and an issuing fee for the guarantee declaration
of EUR 250 will be charged in addition.
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how much foreign content is permissible?
cover of supplies
The export credit guarantee scheme is intended to
promote German exports. This means that the goods to
be exported ought to originate for the most part in
Germany. Nevertheless supplies from foreign countries
can also be included in the cover. The uniform OECD limit
for the cover of local costs is 23 percent of the contract
value. In addition to that local costs and foreign
content worth up to a total of 30 percent of the contract
value may be included in the cover of medium- and longterm transactions without the necessity to give specific
reasons. If sufficient reasons can be put forward, the
supplies from foreign countries may even account for
49 percent of the contract value. In special cases deserving particular promotion, which require careful investigation, the value may even exceed 49 percent.
Under Wholeturnover Policies and Wholeturnover Policies light foreign content and/or local costs worth up
to 100 percent can be included in the cover. This holds
also true for short-term supplier credit cover unless
the goods to be supplied are capital goods. In that case
foreign content and/or local cost of up to 49 percent
can be included in the cover; if their share is higher, the
Interministerial Committee will decide on an inclusion
on a case-by-case basis.
where and how can you submit an application?
applying for hermes cover
Before the commencement of the risk you, as exporter,
or your bank which is financing the export transaction
apply for an export credit guarantee to Euler Hermes.
For the sake of a swift processing of the application
you should submit information material on your
buyer, where available. Such information material will
be, above all, your buyer’s annual reports but e.g. presentations showing its business development will also be
possible. If cover of a transaction with a contract value of
more than 15 million Euros is applied for, a memorandum
giving details of financing, infrastructure, environmental
aspects and the macro-economic significance of the
project is also required.
After the export contract has been signed, you will receive a certificate of guarantee. This document contains
all material details, such as the type and the amount
of the risks insured and a description of your business
transaction.
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what happens in case of a loss?
indemnification procedure
If there are any payment delays, please contact the
employees of Euler Hermes early on in order to discuss
the specific situation and the necessary steps to be
taken. The purpose of this is to assist you with your
obligation to take all measures required to collect the
outstanding receivables.
Because if a loss is looming, team-work between the
Federal Government, the exporter, the bank providing the
credit and Euler Hermes frequently makes it possible to
stabilize a project which has become economically instable and to avoid indemnification payments – at least
partially. In most cases the restructuring will be in
the form of a prolongation. This has also advantages for
you as exporter.
If an account due from a foreign buyer is not paid as
agreed in the contract, you submit a claim for indemnification to Euler Hermes. We check whether the export
business was transacted in accordance with the terms of
the guarantee and then indemnify you within one month
of the claim being ascertained. Your claim, in the amount
indemnified, is then subrogated to the Federal Republic
of Germany. You or the bank retains the uninsured percentage agreed for your/its own account.
Only legally valid claims can be indemnified. If a
foreign debtor disputes his liability to pay, the Federal
Government is entitled to suspend indemnification pending final clarification.
The Federal Government participates in the costs, e.g.
court costs or lawyers’ fees. In the case of political claims
it normally tries to recover the sums indemnified in the
form of a rescheduling agreement with the country concerned.
This procedure may lead to the recovery of your uninsured percentage.
exporters’ and banks’
share in a loss
There are different uninsured percentages that you have
to bear for your own account for political and commercial losses. An exact classification of an event of loss
determines the uninsured percentage and the amount
of the indemnification.
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uninsured percentage in case of a loss
*
Export credit cover
5%
15 %
15 %
for political risks
for commercial risks*
for protracted default
Manufacturing risk cover
5%
for all types of risks
Wholeturnover Policy
5%
10 %
for political risks
for commercial risks
Wholeturnover Policy light
10 %
for protracted default
For a limited period up to the end of 2016 the uninsured portion can be reduced upon application to 5 % against
the payment of a premium surcharge.
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Export Credit Guarantees of the Federal Republic of
Germany are granted under the control of the federal
ministry for economic affairs and energy.
Bundesministerium für
Wirtschaft und Energie
Referat VC2
Scharnhorststr. 34-37
10115 Berlin
Internet: www.bmwi.de
The Federal Government has appointed a consortium
formed by euler hermes aktiengesellschaft, Hamburg, as lead partner, and pricewaterhousecoopers
aktiengesellschaft wirtschaftsprüfungsgesellschaft, Frankfurt am Main, branch office Hamburg, to
manage the official export guarantee scheme.
You can find out more details and request information
material as well as advice on the options and procedures
open to you under the export credit guarantees scheme
of the Federal Republic of Germany either from the Euler
Hermes Head Office or from the regional branch office for
your area. You can also dial up more information via the
Internet: e.g. the latest AGA-Report, General Terms and
Conditions and information leaflets, the Annual Report
in German and English as well as information on events.
Federal Export Credit Guarantees
head office
berlin liaison office
Euler Hermes Aktiengesellschaft
Gasstraße 27
22761 Hamburg
Friedrichstadt-Passagen
Quartier 205
Friedrichstraße 69
10117 Berlin
Phone: +49 (0)40/ 88 34- 90 00
Fax:
+49 (0)40/ 88 34- 91 75
Phone: +49 (0) 30 / 20 94 - 53 10
Fax:
+49 (0) 30 / 20 94 - 53 20
info@exportkreditgarantien.de
www.agaportal.de
aga-berlin@exportkreditgarantien.de
branch offices
10117 Berlin
Friedrichstraße 69
50672 Köln
Hohenzollernring 31-35
60311 Frankfurt
Große Gallusstraße 1-7
81373 München
Radlkoferstraße 2
22761 Hamburg
Gasstraße 27
70597 Stuttgart
Löffelstraße 44
For all branch offices
Phone: +49 (0) 40/ 88 34 - 90 00
Fax:
+49 (0) 40/ 88 34 - 91 41
info@exportkreditgarantien.de
www.agaportal.de
Euler Hermes Aktiengesellschaft
Export Credit Guarantees of
the Federal Republic of Germany
Postal address
22746 Hamburg, Germany
Office address
Gasstraße 27
22761 Hamburg, Germany
Phone: +49 (0)40/ 88 34- 90 00
Fax:
+49 (0)40/ 88 34- 91 75
09 2401e 0814
info@exportkreditgarantien.de
www.agaportal.de
Branch offices: Berlin, Frankfurt,
Hamburg, Cologne, Munich, Stuttgart