What does EXPORT CREDIT INSURANCE mean?

Export Credit Insurance is a method of mitigation risks (reducing the credit risks of the foreign buyer), it provides the exporter with protection against the risk of non-payment associated with doing business in the international trade. It grants the seller with a conditional insurance that payment will be made if the foreign buyer defaults.

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When Export Credit Insurance can be typically used?

Credit Insurance is a typical risk mitigate means when the seller sells under open account term or documentary collection, or sells without using ( invoice discounting or factoring without recourse).

What are the risks that can be covered or mitigated by using Credit Insurance?

Credit risk of the foreign buyer

Country risks like political risks

Credit risk of the foreign buyer : 

The foreign buyer is unable or unwilling to pay due to bankruptcy or liquidation of business

The foreign buyer is unable to take delivery of goods due to bankruptcy or liquidation of business

Credit Risks in international trade can be explained as below:

Credit risks associated with sovereign governments, local governments or local agencies:

The public buyer is unable to pay

The lack of hard currency for making the payment

Changes to rules and regulations for importers to acquire hard currency

Changes to rules and regulations for import licenses

Changes to rules and regulations for export and licenses 

War, conflict and civil unrest 

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Types of Export Credit Insurance:

1. Whole turnover credit insurance policy
2. Specific or key customer credit insurance policy
3. Excess or catastrophic credit insurance policy

1. Whole turnover policy : covers the whole sales and usually covers 80 to 95% of the transaction.

2. Specific policy covers one-off transaction or a small group of deals

3. Excess policy : covers only the exceeded amount of the agreed ceiling of the cover.