What is EXIM Export Credit Insurance?
EXIM export Credit Insurance is a policy designed to provide protection of the accounts receivable of the exporters. It has quite a few benefits to offer. Since it serves to protect the accounts, business owners get more confidence to venture into new markets.
With EXIM support, the business owners have the opportunity not to be thwarted by obstacles in cash flow as they can borrow cash against the receivables insured.
How does EXIM Export Credit Insurance Work?
The EXIM export credit insurances cover two significant aspects of risks in businesses:
- Commercial- this includes bankruptcy. Any default on payment also falls in this category.
- Political- This primarily refers to government actions which render the exporter incapable of receiving payments or recovering products.
Once you have selected one of the policies of EXIM export credit insurance that you deem fit, you need to report shipments and pay the premium amount on the amount that you have shipped. If the buyer fails to offer you payment for whatever reason, EXIM pays you the amount.
Advantages and Disadvantages of EXIM Export Credit Insurance
The benefits of EXIM export Credit insurance include:
- 95% of sales invoices are covered, and thus exporters are protected from potential losses owing to buyers.
- The exporters get the opportunity to offer buyers with credit without having to worry about losses.
- Cash flow is accelerated.
The cons of the insurance policy include:
- The policy is not available for very high credit risk or the fee for the same is a bit too much.
- Every non-payment scenario is not covered. Slow or late payment or issues of disputes with the customers are not taken into consideration.
Who Qualifies for EXIM Export Credit Insurance?
There are certain qualities a business must possess to acquire EXIM export credit insurance.
- The company needs to be in business for at least one year.
- The company must have at least one person employed full-time.
- The company must show a positive net worth.
- The products or services exported need to exceed 50% of the US on all content based indirect and direct costs.
How to obtain EXIM Export Credit Insurance for My Business?
An online application is available which is quite simple and straightforward. Some exporters also prefer to acquire the assistance of trade finance broker. Their fee is incorporated in the premium you pay, and thus no additional cost has to be paid. The brokers provide guidance on the whole application process along with details about filing claims. The turnaround duration is approximately ten working days.
What are the Costs Associated with EXIM Export Credit Insurance?
Quite a bit of variation is found in each case, depending on various factors.
To determine the costs, two main parts of the policy have to be taken into consideration.
An advanced premium: this payment is refundable and applies to exposure fees.
Exposure fees: this refers to the share of the value of the shipped invoices
Certain other factors also play a role including:
- Which country the shipment is sent to
- The extent of business
- Is the shipment does to one or multiple buyers?
- How many days of credit terms were given to the buyer?
Types of EXIM Export Credit Insurance
Financial Institution Buyer Credit Export Insurance
Medium-Term Export Credit Insurance