Export credit insurance is an insurance policy that protects U.S. exporters against nonpayment by international buyers. It plays a major role in facilitating international trade and accounts for a large sector of trade finance that is increasing in demand as global conflicts continue to arise. If you are exporting goods or services from the U.S., export credit insurance could shield you from severe financial loss and increase access to growth capital.
Minimizing Risk in the Global Marketplace
Also termed “trade credit insurance” or “accounts receivable credit insurance,” export credit insurance safeguards vendors/exporters from various credit risks inherent to international trade. At the same time, buyers/customers benefit from terms that allow them time to generate cash from sales to pay for the goods and services received.
Provided by private insurance companies and governmental export credit agencies (ECAs), export credit insurance gives exporters a competitive advantage by empowering them to offer more attractive credit terms to their buyers rather than requiring prepayment or cash on delivery. It also carries with it the benefit of expanding an exporter’s borrowing base and improving cash flow by leveraging foreign receivables as collateral to obtain additional working capital.
In a climate fraught with uncertainty, this type of insurance reduces a vendor’s exposure to commercial risks, including protracted default, insolvency, and bankruptcy. Some insurance plans also include coverage of losses resulting from political unrest, government action, and economic turmoil.
How Export Credit Insurance Works
Export credit insurance can be an effective tool to mitigate risk, improve cash management, and increase sales. It’s easy to get started and uncomplicated to manage:
- You identify an international buyer and obtain a policy.
- You offer credit terms to your foreign buyer.
- The buyer accepts your credit terms.
- You ship your product and invoice the buyer.
- You report shipments and pay insurance premiums on the amount shipped.
- The buyer pays. If they fail to do so, your insurance carrier pays.
EXIM Export Credit Insurance
LSQ is an approved lender and working capital platform provider to the Export-Import Bank of the United States (EXIM). EXIM is the official ECA of the United States federal government. Our combined solution has proven to expand access to working capital finance programs, reduce costs to sellers, and improve cash flow.
Many exporters may find it difficult to get export credit insurance with foreign countries in various states of recovery. Premiums are rising, putting small exporters at greater risk, with insurance becoming cost-prohibitive. EXIM’s focus is on increasing U.S. exports and facilitating the growth of U.S.-based exporters— particularly smaller businesses with less than 500 employees.
While EXIM works with large enterprise organizations, roughly 90% of their transactions are direct with small businesses. They provide different financial insurance tools to help companies in the U.S. remain competitive when they’re selling abroad. In addition, they can provide coverage to foreign-owned (with production in the U.S.) and service-based companies.
How EXIM’s small business multi-buyer credit insurance works:
- Policies cover both commercial and political losses at 95%.
- There are no application fees or minimum premiums.
- Premiums are paid no later than 30 days after the month of shipment.
To qualify, an exporter must:
- Be in the same line of business for at least three years,
- have more than or equal to 50% U.S. content, including labor, and
- ship from the U.S.
Export credit insurance is an insurance policy and risk management product and thus requires serious consideration before implementing it into your business strategy. LSQ and EXIM Bank offer exporters various working capital solutions to meet their specific cash flow demands, remain competitive, and enter new markets or expand within existing ones. Contact LSQ to learn more about this solution and if it is a good fit for your business.