Foreign Credit
31/01/2012

www.pspinsurancesolutions.com
News article: Export credit

Politicians and economists alike are pinning their hopes for the UK’s economic recovery on a strong export market. But any firm selling goods or services to overseas customers faces a number of potential problems. Happily, insurance companies and, as a last resort, the Government are able to provide support and assistance.

An obvious threat faced by any seller is non-payment by the customer. This can be a risk in any market, but it is amplified in the international arena because of distance and differences in language, culture, regulation and jurisdiction. And, clearly, some countries will be riskier than others.

Ideally, an exporter will be able to obtain payment when an order is placed, or at least in advance of delivery (especially where goods have to be made or assembled to the buyer’s specifications, or specialist staff recruited). But any firm holding out for such terms – especially in today’s competitive market – may find it difficult to secure business. For this reason, exporters usually extend credit terms to their customers, allowing them to pay on receipt, or even within a grace period of, say, 30 days.

Here’s where businesses can need help. For example, an exporter might need funding from its bank to pay for the manufacture and delivery of the items prior to the customer settling its account. And it might need an insurance policy to cover the risk of the customer not paying its bill, perhaps because, between placing the order and taking receipt, it has become insolvent.

Such a policy would sit alongside a marine and/or goods-in-transit policy, which would pay out if the goods were damaged, lost or destroyed en route.

Underwriters will take various factors into account when drawing up an export credit policy and calculating the premiums. Is the buyer a reputable firm? Does it have a sound financial platform? Is it an existing customer, either of the would-be policyholder or of another UK exporter? Alongside such considerations will be analysis of the broader political context. Is the location of the buyer a cause of potential concern? What is the risk of civil strife, terrorism or war?

In some instances, firms will find it difficult to secure credit risk protection from the insurance market, simply because the risks are deemed too great. This is where the Government steps in, via the UK Export Finance (formerly the Export Credit Guarantee Department). For example, the agency has recently increased its risk capacity for Libya to £375 million to help would-be exporters struggling to buy commercial insurance.

UK Export Finance does not normally provide cover unless is can be demonstrated that cover is unavailable from the private sector. Also, cover is not provided for exports to EU countries or certain other states where the manufacturing period under the contract, plus any period of credit, total less than two years. Further details are available at: www.ecgd.gov.uk

The commercial insurance market remains the first port of call for exports. Specialist insurers will always strive to write business if at all possible, and an experienced broker will be able to negotiate the best possible terms.

NOTHING CONTAINED IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL ADVICE.

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