Foreign accounts receivable insurance (export credit insurance) protects U.S. exporters by reducing exposure to various risks that could result in non-payment. In this prerecorded webinar, experts from EXIM Bank and One Source Risk Management join LSQ to outline what foreign accounts receivable insurance is, who can qualify, and how exporters can safeguard themselves from external factors while increasing their access to working capital.
Highlights from this webinar include:
- An overview of the global economic outlook
- A look at the current credit insurance landscape and its impact on U.S. exporters
- Why you should consider government-backed foreign accounts receivable credit insurance
- How exporters can leverage their insured receivables to overcome cash flow obstacles
Watch the Webinar
Renee Jackson, National Sales Director — LSQ
Aryam Vazquez, Chief Economist — EXIM Bank
Ursula Wegrzynowicz, Broker Account Manager — EXIM Bank
John Steel, First Vice President — One Source Risk Management
Renee (Host): Thank you for joining us today. As we’re halfway through the second quarter, we continue to see an uptick in foreign accounts receivable insurance requests for U.S. exporters. LSQ, with the support from EXIM Bank and One Source, have partnered together to assist exporters in looking for ways to stay competitive, enter new markets, and/or expand with existing markets.
My name is Renee Jackson I’m the National Sales Director here at LSQ headquartered out of Denver, Colorado. Also joining me today, we have Aryam Vasquez. Aryam is the chief economist at Export-Import Bank of the U.S. Prior to EXIM, Aryam has had several roles in economic and investment strategy.
Aryam’s colleague Ursula Wegrzynowicz is a broker account manager for EXIM bank. Ursula is an experienced business development manager with a demonstrated history of working in the trade finance and logistics industry. Skilled in negotiation, trade finance, business planning, banking, and sales, Ursula is definitely a welcomed addition to today’s webinar. John Steel serves as the first vice president for One Source Risk Management and has over 30 years experience in the credit insurance business. John has worked for both Dun and Bradstreet and Euler Hermes and specializes in all industries with a heavy emphasis in foreign credit insurance.
Renee: Prior to handing the floor over to Aryam, Ursula, and John, I will just provide you with a brief high-level overview of who we are and what we do here at LSQ. LSQ is based out of Orlando, Florida, and was founded 25 years ago by a gentleman by the name of Max Eliscu. Currently, we’re one of the largest privately held working capital finance companies here in the U.S. We do have a national footprint and have funded over 25 billion to small to medium-sized businesses. Over the last, I would say past 25 years, we’ve established pretty close to 500 partnerships in an effort to act as an incubation tool primarily by bridging the gap to companies in a transition period and/or high growth mode.
LSQ is also an approved lender under EXIM Bank’s foreign AR credit insurance policy. To highlight today’s agenda, during the webinar, Aryam will provide us with an economic outlook from a global perspective, including macro activity aggregates, GDP trends, and forecasts. Ursula and John will review the current credit insurance landscape and the benefits of really leveraging insured receivables to overcome cash flow obstacles. At the end of the presentation, we welcome you to ask questions by using the webinar control panel. With that said, Aryam, I’ll go ahead and hand the floor over to you. Thank you.
Global Economic Outlook
The COVID Crisis…Not Out of the Woods Yet
Aryam: Thank you very much, Renee, for the introduction and a very good afternoon to all. My name is Aryam Vasquez. I am the chief economist for EXIM Bank. My team and I basically lead the bank’s global economic forecast and outlook as well as the country risk ratings that guide the repayment risks associated with U.S. government lending to foreign countries. I want to thank LSQ for the invitation to present today. Certainly welcome this opportunity to share some of our insights, some of our perspectives on how we are thinking in really the current economic backdrop.
We’re almost halfway through the year and despite considerable improvements and a much rosier global economic growth outlook, the climate remains fraught with risks, challenges, and concerns. I have a few slides to get us through here and I look forward to your questions and comments thereafter. The COVID-19 crisis remains front and center. Despite considerable improvement in recent months and continued spread of the virus, we think it’s fair to say that the COVID pandemic remains a principal concern to the state of the global risk and economic outlook.
I say concern and not risk because I sense that for the most part, the global community has a pretty decent handle on how the virus works and more importantly, how to contain it. We’ve seen a very robust U.S.-led global vaccine campaign that began last year and has been continued, extended, and accelerated worldwide. Together with these targeted restrictions and lockdowns across a number of countries and regions, there has been a great deal of success in reducing the spread of the pandemic. The data today does point to reduced infection levels, lower hospitalization rates, and importantly, lower mortality rates.
Still, after all these advances in the cold front, but it’s probably too early to say that we’re out of the woods, especially at the global level. I think if you look at the data, the vaccine campaign remains largely uneven. While much of the developed world economies are having considerable success in this inoculation campaign and their economies are gradually returning to normal, the same cannot be said of conditions and trends in a number of emerging markets and frontier market economies.
These are economies where you supply-side constraints, cost limitations, and logistical pressures continue to limit the effectiveness and accessibility to the necessary vaccine.
Such concerns are probably most prominent in Africa, even though the region has miraculously shown very low infection and mortality rates. It’s also very common in Latin America and that’s a region that’s been hit hard by the crisis, although it must be said that the inoculation process has been ranked up in countries such as Brazil, Peru, and Chile, and we’re starting to see some initial progress in terms of bending the curve.
Importantly, many regions are also leading with second and third wave list. India is most at risk in this point and the virus continues to spread, the death toll is rising fast in that area of the world and the pandemic in India is certainly impacting the region’s disrupt from trade, it’s slowing supply chains. For other countries in Asia such as Singapore, the Philippines, Indonesia, Korea, have also restrictions dealing with these trends of infection. Again, COVID challenges are still with us, but I think, for the most part, the risk of the pandemic worsening and resulting to new dislocations across the global trade capital and credit channels is highly unlikely.
From Restart to Recovery
The focus of these next two slides are on the state of the global outlook. At this point, I think we find ourselves in this middle of this resurge in confidence about improved sentiment over the state of the global economy. We’ve moved from a period of hurting and healing to one of start and recovery. The confluence of this global vaccine and this inoculation rollout and sustained policy support from the world’s principal economies has led to considerable optimism on the global growth outlook.
More importantly the last couple of months, we’ve continued to see concrete evidence of improving economic trends across countries, across regions. The data is very clear reflective of improved momentum. You’re seeing it in the manufacturing and services PMI, which continues to push higher, mobility indicators are more robust, employment trends are better, retail sales, auto sales, shipment figures, capital export orders, competence, and the indices. These are all showing sequential monthly gains that speak to the resurge in economic momentum.
We also put heavy emphasis in supply-side metrics. We track and follow a lot of these global electricity usage rates, railway, port traffic, cement, and fuel consumption patterns and all these also speak to improve economic momentum at the global level.
More Certain but Uneven Growth
This basically captures how all this improved GDP growth momentum is leading to rosier forecast across the world economy. Now, much of it reflects basis of dynamics. Again, given the unprecedented levels of policy support, we are seeing signs of economic strength. The issue is that we’re evidencing growing disparities and unevenness in the scope of these upside growth revisions. It’s too far from a synchronized global alternate at this point. The U.S. is leading the charge and will likely outperform most of the world in terms of GDP.
We’re now looking at an annual GDP growth rate of 7% this year here in the U.S. China, for all intents and purposes, it’s slowing down, but they’re still clocking out around 9% GDP growth this year, and this contrast very sharply with regions such as the Eurozone, countries such as Japan where the growth is laid at around 4% to 3% respectively. The emerging-market universe as a whole will probably grow around 7% GDP. Much if not all of that growth, that 7% comes from the Asian basin. Eastern European and Central European economies are still lagging and Latin America and Africa are still struggling or underperforming.
The issue now is how sustainable is this rebound? That’s a question we get a lot. Will it continue into 2022? Our modeling shows that this torrid pace of growth is just simply unsustainable. Much of the current growth surge is coming on backs of the expansion of the United States and China, and the rest of the world is really struggling to recuperate much of that loss output observed during the COVID crisis.
As I mentioned in the call last time, the output gaps across a lot of these world economies are vastly negative. Very few economies aside from the U.S. and China are operating at near or full capacity. Lastly, I sense once the policy stimulus begins to wear off, the global economy is likely to settle into a more moderate sustained pace of economic activity and we should start seeing such moderation as early as the third quarter and fourth quarter this year.
Optimism on Trade, Commerce, and Supply Chains
The next slide drills down a little bit with respect to the state of the global trade and supply chain outlook. It’s an outlook which despite some underlying challenges related to port delays, April shortages, elevated freight rates, if you will. It’s not like they remain quite supported, especially because you have such improving growth dynamic at the global level. Still, there are some key developments that really further support the outlook for global trade and commerce and the overall supply chain outlook, and first and foremost is the Asian region.
It’s a region which really controls the global trade and supply chain dynamic. It’s a region with strong, robust, macroeconomic health. political stability is assured, these are countries with mass degrees of policy, flexibility, and maneuverability to navigate difficult global challenges. Asia was the region first in and first out of the COVID crisis. We saw China respond aggressively with targeted policy support for exporters, manufacturers, heavy industry producers, critical supply chain operators and this is a trend that is replicated in countries such as Korea, Japan, Taiwan, Vietnam, Indonesia, you name it.
Really, such efforts have allowed their region to recover rapidly while protecting the nation’s export base and supply chain infrastructure. Importantly, this is a region that continues to advance free trade structures. You saw that the Regional Comprehensive Economic Partnership deal of last year. Again, you’re looking at a region that accounts for 30% of the world’s population, 30% of global GDP, and really, the strength of the region is a huge benefit for this global trade and global supply chain outlook.
The other factor is that the COVID crisis has really not resulted in the material destruction and reorganization of supply chains that many had expected, we had a lot of the academic literature— everyone was expecting this massive restructuring of global supply chains and that really hasn’t materialized. There are and we continue to see some changes in terms of source, reorganization and digitization, and automation making supply chains more reliable, that’s to be expected. And there are regional challenges that speak to higher April costs, port delays, but we really haven’t seen the systematic diversification and unprecedented destruction of inventories that many had expected. Moreover, this talk of supply chain decoupling moving away from China and the Asian region, also has not transpired.
Asia is too important and too beneficial in terms of business opportunities and if there is a trend, it’s further regional consolidation in terms of trade and supply chain develop. The last factor since is the fact that we’re seeing fading trade war risks at this point. This wasn’t the case may be a year ago, not to say that geopolitical and trade tensions have to be ignored, but relations, still somewhat delicate between the U.S. and China. We can’t discount that risk.
For the most part, the risk of a full-blown trade war is very low. It’s simply too economic costly and politically challenging and the fact that you still have important regional trade agreements coming forward, whether it’s between the U.K. and the E.U., whether it’s the RECP (Regional Comprehensive Economic Partnership) or the Continental free trade area in Africa, the USMCA, these are all proof and solid examples that free trade is trumping, if you will, trade war risks.
Risks to the Outlook
The next slide and I want to end here is just basically giving you some perspective on some of the risks and challenges and concerns that we’re constantly monitoring and that we feel can alter the global backdrop, global economic outlook. First and foremost, inflation. Inflation is now a serious threat, probably more of a near-term concern than a worse long-term risk.
The street is divided on whether we’re looking at a transitory phase or a prolonged inflationary spiral. We’re not going to argue for an impending structural inflationary crisis, but inflation will be more prolonged than previously expected and will remain with us well into 2022. Our rationale here is based on several key dynamics, for one, you have surge in demand and pent-up savings and this is driving prices higher.
You have labor shortages, which are becoming more prominent and that will feel increased wage and price pressure. Importantly, we’re seeing growing signs of overheating, and global manufacturing and industry. Factories are struggling to keep up with surging demand for goods. Supply chain constraints are evident and this is triggering production, input shortages, elevated freight rates, long delivery times, and a sharp increase moreover, in global commodity prices.
A more worrisome inflation risks moreover, stems from the view that much of the global fiscal and monetary policy settings are unlikely to be altered anytime soon. The threat that we’re going to face transfers turned into permanent fixtures of fiscal policies that will certainly fueling more prolonged inflationary trends going forward. A second challenge or threat that we see is fiscal conditions and physical conditions and toward that dynamics. This is an equally pressing challenge on our most worst and long-term risk, in our view.
You’re seeing massive debt buildups and widening budget deficits for as far as the eye can see, especially within developed black economies. Governments seem only focused on continued spending, higher taxes for households and corporations, increased regulations, and it’s sustained as we pretty much fear that this trend will further enhance the growing role of governments, not only in economic policy but in business affairs, while undermining sovereign and non-sovereign conditions.
The risk here is that further erosion in a nation’s fiscal balance and rising debt load speaks to a policy dynamic that not only will limit a nation’s capacity and resources to respond to shocks and adverse developments, but this deficit financing and debt dependency is really detrimental because it crowds out private sector, undermines productive investments, invites higher taxes, adversely impacts and manipulates capital structures, interest rates, negatively impacts net exports, that will certainly lead to more unproductive growth, fuels higher inflation, all that good stuff, if you will. It’s something that we keep an eye out for is core debt dynamics and during fiscal conditions that we’re seeing worldwide, really not just across the developed black economies.
A third point here, or risk concern is— as it relates to the dollar global commodity prices, bond yields— we look at premium prices. The price of oil, the prices on the government bond yield and the U.S. dollar, and all three have displayed fairly interesting developments as of late. Demand and supply dynamics are speaking to sustain price pressure and commodity, especially in oil prices.
You have this global decarbonization measures and growing international regulations against the energy sector, and these underlying supply-side constraints speed to continue rises in energy prices. While on top of that, you have these ongoing import shortages, elevated freight rates, and so forth, that’s leading to higher commodity prices. In recent weeks, you’ve seen a surge in metals, lumber, agriculture prices.
Global bond yields, also keep your eyes out peeled for this, you’re seeing a steady increase in global bond yields. This merits attention, especially critical for the global trade outlook, given its impact on global liquidity conditions. This speaks to the outlook for emerging markets. Liquidity is critical to the developing black economies that drive much of the action on the global trade front and we get sustained higher yields, a tightening of liquidity conditions would have tremendously adverse impacts, especially in the more vulnerable emerging and frontier markets, social capital dependent. If we get another run-up in yields, capital and credit could stop at the drop of a dime here and that would be critical on their mind. It would critically undermine the growth and trade outlook.
Lastly, the ongoing trends of the dollar. Despite the period growth and interest rate differentials, the dollar is against the ropes. You’ve seen in the Bloomberg index, which is down 3% since last month. The DXY is also markedly lower. The reality is that the Fed is not budging. The jobs report has disappointed. You have underlying twin deficits, growing concern here in the U.S. and you have some sort of an anti-market rhetoric coming out of Washington. This is spooking investors’ worries over their faith and confidence in the U.S. dollar.
A weak dollar may be good for exports, but in reality, it masks underlying imbalances and social dislocations in a nation’s economy. Importantly, it can fuel inflationary pressures, it destroys purchasing powers, it aids low productivity sectors, and it aids the government at the end of the day. We thought it was something that we’re worried about, it could be a game-changer nature.
I think a number of emerging markets obviously benefit from this weaker dollar as it leads to more restrictive financial conditions and allowed for wealth and capital to migrate back into the developing block economy, but it’s something that we need to take a little bit more seriously because we’re seeing these trends begin to take hold here. Lastly, the last risk concern that I’ll mention here is geopolitics. It’s a very unruly political backdrop.
Anywhere you look, there’s tension, there’s a crisis, there are issues. We have renewed tensions between the Israelis and the Palestines. Iran, Turkey flexing their muscles. Russia and China growing increasingly closer as we continue to widen the sphere of influence in a number of regions. In Latin America, you’re seeing the region again, the pendulum turn back to towards populism and radical economic heterodoxy. Africa still fraught with uprisings, civil unrest, terrorism, humanitarian crises, you name it.
Let us not forget that the state of superpower relations between the U.S. and China remains very, very delicate and far from improving. All in all, it’s a very worrisome geopolitical climate, despite continued volatility. I’m certain, I think that’s going to weigh in the overall outlook. With that, I will stop here. Certainly, look forward to your questions and comments, and I will now turn the call over to John Steel on the credit insurance landscape.
Credit Insurance Landscape
About One Source Risk Management
John: Thank you, sir. I appreciate it. That was excellent. My name is John Steel. I’m with One Source Risk Management, and we are the largest credit insurance broker in North America. We have a national footprint and we’re pretty proud of being a Gold Standard EXIM and evaluate broker based on volume and we’ve been doing quite a lot of business with them. Our headquarters is Portland, Maine with a service center in Houston. We have over a thousand clients.
Basically, what I do is with one application, I can go to the entire credit insurance market to find the best price, coverage, and structure for my clients. Often it is EXIM backed.
Current Credit Insurance Landscape
I want to talk about the current landscape of credit insurance, as you can imagine, the last 12 months plus have been pretty ugly. It was the hardest I’ve ever worked in my life, yet the most challenging at getting a client coverage in and keeping policies in place.
We lost several clients because of the pandemic, and credit insurance— they’re starting to get back now, but the problem we’re having is the capacity. A lot of the foreign countries still remain in lockdown. It’s very difficult in some cases to get insurance. The cost is increasing. The cost of reinsurance is increasing. It’s basically what we consider a hard market. All right, there are soft markets and hard markets. This is a very hard market. Minimum premiums are also rising, and that’s not good for the small exporter. That’s what EXIM is about— is trying to enhance exports going out of the U.S., and helping the small exporter. We’re going to pass it over to Ursula to talk about foreign accounts receivable insurance.
Foreign Accounts Receivable Insurance
About EXIM Bank
Ursula: Thank you so much, John, and thank you, everyone, for joining us this afternoon. Special thanks to Renee and the whole LSQ team for having us here today. If we can move on to the next slide and just do a quick introduction for those of you who might not be a very familiar, Export-Import bank or EXIM for short, we’re a government agency and basically, we provide different financial insurance tools to assist companies who are located in the United States to be competitive when they’re selling abroad.
On the screen it says that we’re the official export credit agency of the United States. That just means that again, we offer these tools to support our U.S. companies, much like our competitors. There are export credit agencies in about 80 countries around the world, and they do the exact thing for their local companies. They’re trying to help their local companies export more. At the end of the day, we’re an economic development agency.
With us, the focus is specifically on trade and exports, even more specifically. We have offices all around the United States. In normal times, that is a benefit because when we’re back, hopefully, to be back in person soon, we try to meet with companies in their local marketplace.
Focused on Supporting U.S. Companies
We’re going to talk a little bit about who it is that we support. John alluded to that we work with small business exporters and about 90% of our transactions are direct with small businesses but when we really can work with any size company, we’re probably best working in the small business space and then at the very large transaction. Some of you might know us as being a supporter of Boeing and other large companies. It’s from one extreme to the other, the middle ground is probably where we play the least and where a company like One Source is as an important partner to figure out where your particular needs, where it’s going to be the best in the marketplace because EXIM bank is essentially the public sector, insurance carrier when it comes to trade credit insurance. Again, we’re looking at working with our companies regardless of ownership. Even if it’s a foreign-owned company with production here in the United States, and it’s not just tangible goods exports, but we also provide coverage for service companies.
Export Credit Insurance
What exactly is credit insurance for those of you who might not be as familiar? It is really just an insurance policy for your accounts receivable. Here at EXIM Bank, we’re focused just on the foreign accounts receivables. As I mentioned, John, and One Source work with companies and different insurance carriers that can provide insurance for both on domestic as well as on foreign. The reason why companies look for credit insurance is kind of threefold. In some cases, it is the need to offer more competitive terms and also wanting to sleep at night and knowing that you’re going to get paid at the end of the day. Those are two definitely big drivers for a lot of our clients. And for many, it is also financing. A lot of the companies that we work with already have a number of foreign, either distributors or end-users that they’re dealing with day-in and day-out.
Those foreign receivables are not eligible collateral with their banking institution unless there’s credit insurance wrapped around that form of receivable so that now unlocks additional collateral for most companies. There’s a number of different ways that we can structure policies.
We’ll start off with the discussion on a single buyer in just a moment, really quick though— what exactly are the risks? We say “a sale is not a sale until you get paid”. What keeps most of our clients up at night is exactly that— inability to collect payments, and there are a myriad of reasons and risks associated with that non-payments. Some of it could be foreign governments actions that would prevent the foreign customer from making payments, whether the currency is inconvertible or if there’s any kind of– Aryam just discussed geopolitical risks that erupt in terms of war, interruption, but a majority of the times that we see claims filed— it is for commercial reasons.
Whether that’s bankruptcy or insolvency or simply slow pay, you may be selling to a distributor dealer who is on selling that product to an end-user. If that end-user doesn’t pay that distributor, oftentimes you as the supplier in the United States is going to feel that effect, there’s a domino effect. If your customer’s not paid, they may not be paying you, and that is reason enough to file a claim on an insurance policy.
Short-Term SingleBuyer Policy (ESS)
As far as credit insurance is concerned, there’s a few different ways to set up policies. Some companies come to us and say, “We already do business internationally, where we’re comfortable from a credit risk standpoint, but we’re entering a new market, and this is a market that we don’t feel as comfortable with. We don’t have access may be to the information that we’d like,” and so they can come to us on one-off transactions.
The other thing that we’ve seen, and John will talk about this a little bit is that some of the private sector carriers have been unable to really renew credits or give as high of credits. Some companies have maintained their private sector insurance policies, and then just come to us on a one-off basis for a particular client to get insurance coverage on that. The single buyer policy is the 90% cover.
Usually, it’s always issued for a year period of time. There’s no deductibles. What’s great about the single buyer policies, our rates are available online. For companies who are in quoting stages, they can often look up to what the cost of insurance is, and typically it’s going to be less than 1%, although it does depend on the term, just to give you a sense of what the cost might be.
For example, in Mexico, if you’re selling on 60-day open account terms, it would get less than 1%, but 84 basis points to insure 90% of your receivables. If you have a $100,000 sale, you’re going to have insurance cover on $90,000 of that, in case of non-payment situation. The other advantage that we offer in terms of these types of policies is that, although we do ask for projections in terms of what the anticipated sales are for the next period of time, really the premium is paid based upon actual sales that occurred.
If a sale occurs in the month of May, it’s invoiced in May, insurance premium is not due to us until the following month. That’s definitely an advantage that we offer. I’m actually going to have John jump back in here to talk about a client that is a company that we worked with jointly. The client of LSQ and One Source that came to EXIM Bank for insurance coverage, I should say.
LSQ Success Story / Case Study
John: Thank you, Ursula. I appreciate it. At One Source, we’re really proud of our partnership with EXIM. This is a great classic story about how this partnership helped a digital identity software company selling a software licenses to multinationals. They had a true concentration, 95%. If you have 95% of your receivables responsible for, without any other customers, you should have insurance audit. If you have that kind of concentration, that is a huge loss.
You might be out of business anyway because your biggest customer left you, however, you can be out of business with 90% of your money in your pocket. Concentrations are an issue. This private company, the private market had zero capacities for this guy. We couldn’t get coverage with the other carriers and he had an operation in Western Europe he was selling to— needed a million and a half dollars— and also South America. Now you look at this and say, “how does this fit EXIM, there’s no product” there’s no like manufactured product because this is software. We actually had a service endorsement because they’re actually providing a software service, which got it got us over the hump, and got this policy written.
What we did on this, this story here is prove that we are U.S. product, prove to EXIM the data was solid by getting three years of financial statements from the account debtor and once the policy was in place, everybody wins. The customer ships on open terms, this guy’s not going to pay cash in advance 1.5 million, right. The bank was happy, and of course, the happiest guy over there was probably the president, and the salesman has now expanded their sales safely to a foreign market. That was basically the takeaway here on this story. I’m going to pass it over, back to Ursula.
Multi-Buyer, 95% Coverage
Ursula: Thank you so much. The other option that we have for companies is multi-buyer insurance policy, just like it sounds like— you have one insurance policy with a number of buyers under one policy, and we have some companies who come to us and say, we don’t want any foreign risk. We really want you to write us a policy to cover all, and for many companies whose prime motivation is financing, this is probably a way that they’re going to go.
Within the realm of multi-buyer, there’s just a few different options, we have a standard policy that’s really available to any size company, and here, when we price the premium, this isn’t something that you can pull off our website but instead, we take a look at what countries are you selling to? What are the payment terms? Is it net 60? Is it 90? Is it something longer than that, kind of what’s the mix, and then we come up with one premium rate.
The advantage of that is that we do have clients who have several separate single buyer policies, and then their premium rates are going to vary market by market. We’re here they have one premium rate for an entire year across the board. Again, the advantage is knowing what that cost is that it can be built into the product costs and added onto the invoice and ultimately, hopefully, the foreign customer is really the one paying for it. We have a variety of policies that are targeted specifically to the small business community. Which basically means that there’s a little more risk that we’re covering. There’s typically no deductibles with those types of policies and for us a small business, if you’re a manufacturer, it’s typically 500 employees or less.
It’s actually whatever the small business administration’s definition is of small plus from EXIM’s perspective, we would look at companies that have less than $10 million in export sales on credit, specifically. Maybe you have $10 million in exports but half of that is on a prepaid basis or letter of credit and the other half is on open account, we would consider that to be a small business. This express policy that’s up on the screen is really for companies that are just not small businesses, but also new to the export landscape.
One of the features of this policy is that we’re doing a little bit more due diligence on behalf of the exporter on who that point of buyer is understanding that typically, they’re smaller shops, and they might not have as much of a credit department and we’re offering that additional service.
One thing we’re proud of is that we’ve made public our credit standards very transparent in terms of what information we’re going to want to see and review on your foreign customer.
This is super helpful because it gives you the ability to be proactive and ask your customers upfront, whether that is through a credit application or just verbally. Letting them know that if we’re talking $100,000 of credit, what we would want to see is either your company’s experience in giving credit to this buyer overseas or can “ABC Company” provide a reference on doing business with “XYZ company” in Mexico, for example.
Really just a reference or ledger experience, absent any of that, no one’s given them credit overseas before then, we’ll pull a credit report. We will ask for our credit reports to be provided. It’s not until we reach $500,000 about standing credit at any given point in time that we asked for financial statements on the buyers. Sometimes we run into exporters who are shy about asking for financial statements.
That’s another benefit of working with a broker like one source is that they potentially can assist you in wording how to ask for that information. Our philosophy is that, at the end of the day, if you do not want to ask for it directly if you’re going to ask your broker to do that, or you want those financials to be sent directly to EXIM Bank, that’s your call but you don’t have 100% coverage from EXIM.
You do have skin in the game and we feel like you have the right to know the financial standing of the customer that you are extending credit to because you do have some skin in the game in this transaction, but some companies use our credit standards to write their own credit policy. They’ve definitely done that. We’re happy to share that.
Eligible U.S. Exporters
What is the process? Really step one is to talk with us so that we can understand what your particular need is, and we can tailor a solution to what it is that you need. You know what information we’re going to want on your customer, so it’s a good idea to have an international credit application, although it’s not required, but it’s just a way for you to be organized and collecting information from your customer and then be able to provide it to us or to any underwriter for that matter.
You’ll submit some information on your company as well as on your customer. Usually, in two to four weeks’ time, you’re going to have an insurance policy in place. Then once you actually start exporting and start shipping your product or start invoicing for those services, it’s after that you’ll actually pay premium. Of course, we want you to keep copies of documents like your purchase order, your final invoice, your bill of lading if it is a product that is actually being shifted because those are the items that we’re going to ask for in the event of a non-payment situation.
Just a little bit more about who it is that we are looking to work with. Ideally, we’re looking for companies who have been in business for at least three years, doesn’t necessarily mean you’ve been exporting for that period of time. A little bit of experience is always helpful, but we’re open to working with new exporters’ as well. Again, there’s no really size limitation in terms of what size companies that we could work with, no floor, no ceiling, really.
We’re looking for again, providing support to U.S. companies because, at the end of the day, we’re interested in supporting U.S. jobs. We’re looking for the product to be manufactured or supplied from the United States, 50% U.S. content, so exclusive of your markup but everything else can be counted in towards that 50% or 51%. The final shipment should also be from the United States as well.
We sometimes run into companies who mass majority 70% made in the United States, but maybe final assembly is in Mexico. Then it goes on to the customer from there. That particular scenario doesn’t work for us for us. Even though it’s over 50% U.S. content, we really need that final shipment to take place from the United States as well.
There’s about 180 markets around the world that we are open to do business in. That does change periodically. We have on our website, what we call a country limitation schedule, and it sets out all the countries in the world and gives you an idea of whether or not we’re open for business in particular market. We divide that into two sections, whether you’re selling to a foreign government or if you’re selling to privately owned entities overseas.
Sometimes, in some countries we might be open in one area, but not in the other. It’s definitely important to consult that, and that does change as things change in the marketplace. There are no costs really from an underwriting standpoint, of course, when we ask for credit report that there’s cost associated with that, but we don’t charge any underwriting fees or application fees. Then we highly recommend working with brokers like One Source.
They are knowledgeable and can speak to our underwriters and in the language that our underwriters understand. Also because they understand the entire landscape of the credit insurance market. We have customers who have used EXIM and who we say graduate out of EXIM because now, maybe the sales have increased and the private markets more competitive from the pricing standpoint.
We’re not here to compete with the private market but rather fill in the gaps when they exist. I’m going to turn it over. We can go to the next slide. Back to John again, who’s going to talk about one more case study.
One Source: Benefits and Case Study
Benefits of Working With a Broker
John: Thank you, Ursula. I appreciate it. I want to speak now about the benefits of working with a broker. Obviously, with EXIM bank, you need to work with a broker and when you choose a broker, choose one that has experience. This is all I do— nothing else. All I do is AR insurance. What I would do with an applicant is firstly ensure they’re a good fit for EXIM. Looking on the greens slide here, exporters must. Look at those items, ensure a good fit, and vet out the risk. The three-year thing we sometimes get around with an experienced exporter that change companies or has been in business for a while, and moved over to a new company, so sometimes that goes away. DUNS number is important, U.S. content always important, and restricted countries are critical, plus the military.
I always say if the president of the country you’re selling to wears a military uniform when they’re making their address to their country, it’s not a place you want to sell. That’s what typically the rule of thumb there. We basically streamline the application on onboarding through communication with EXIM with the client, we help you with the portal. Ursula pointed out something before about gathering financials.
At One Source, we have a CIS department, a team of people, that’s all they do all day is gather financials for our customers. We can set NDAs up directly with the EXIM underwriter where nobody sees the financials, but EXIM. There’s a way to do that as well. That’s something important when looking at financials because that’s a taboo subject, how do you get somebody’s financials? Call some guy in France and say, “Hey, send me your financials,” you might not receive them.
Other things we do with the benefits is crystallize the coverage. We want to make sure that coverage is in place, do reminders, just manage the policy, help you through that minutia. It’s very easy, it’s an online portal. EXIM has one of the best online platforms in the business. It’s very simple to use, the pricing is right there. There’s no surprises
Our job is to make sure— monthly reminders, you’re doing your sales reporting, paying your premiums, and of course, filing a claim on time. If you’re going to buy an insurance policy, you should probably file the claim on time. That’s critical.
One Source Case Study
I want to talk about a quick case study and then we’ll go to some questions at the end for everyone. I had a company that had a private insurance policy with the top private market Euler Hermes, and there was a buyer declined in Japan.
This guy was very active, he has about 10 million in sales, 20% international and growing. His international sales were really taken off. He was in the nutrition business for pets, basically, organic pet food. Euler Hermes would not approve this company in Japan, it was in the middle of pandemic, things were really ugly for all the credit insurance carriers, a couple have been downgraded already.
It was doom and gloom back in July. People were hiding in their homes, it was really rough. We said let’s go to EXIM and see if they would take a look at this Japanese buyer. We got some information, a credit report for him, we help them pull their credit report. We helped him upload it, put it into the portal, send the ledger experience they have, and basically, got the $450,000 credit limit approved.
Now, my exporter is selling monthly up to $450,000, and paying a 0.56 rate on that, and pays premiums whenever he ships. If he ships 100,000, he only pays 100. It’s been really good for him. The bank was named beneficiary of the policy which helped his funding. All right. He was with a typical for the regular lender. Everyone was happy, the sales team, the bank, the debtor, everyone’s satisfied. Even in the photo, you can see a happy pooch driving down the highway in Japan looking at the sunset with a belly full of organic food. Even the dog was happy. Anyway, I’ll leave you with that. I’m going to pass it over to Renee to finish up.
Renee: Perfect. Thank you, John. Thank you, Aryam, and thank you Ursula as well.