As we discussed in our export credit insurance explained article, export credit insurance is a branch of insurance which offers protection to exporters against the risk of non-payment by a foreign buyer in exchange for the payment of a premium. Suppose an exporter agrees to any payment method other than cash in advance or a locally confirmed irrevocable letter of credit. In that case, they are exposing themselves to the risk of not being paid for their goods and are advised to take out cover. To learn more about how the international payment method you use influences your risk of not being paid, check out our articles on “payment methods for international trade“. This article focuses on the different types of export credit insurance.
The Types of Export Credit Insurance
Export credit insurance is available as either short-term, medium-term, or long-term cover. Short-term policies are the most common and provide protection against the risk of non-payment, where the credit terms are 180 days or less. For example, you have agreed to payment terms of 30, 90 or 180 days. Medium and long-term policies provide protection against the risk of non-payment where credit terms exceed 180 days. This type of insurance usually applies in the case of capital goods exports or foreign construction projects, where the parties involved spread payment over a period of two years or more.
The Types of Cover
An exporter can tailor its cover to suit particular circumstances. The types of cover available to an exporter under a short-term export credit insurance policy are:
- Pre-shipment cover
- Post-shipment cover
- Consignment stock cover
- External trade cover
Your ability to manage financial risk and maximise opportunities heavily influences your international success. However, very few exporters know the full extent of the danger they face in the global market. Identifying and mitigating international financial risk can be a complex task. Thankfully, Trade Forward Southern Africa, in collaboration with the International Trade Institute of Southern Africa, has created a free and comprehensive online training course on various aspects of global trade, including the various types of export credit insurance cover that could be included in an export credit insurance policy. In addition, modules provided include training on international finance, foreign exchange rates, Letters of Credit, international payment methods and Incoterms®. Click the links below to sign up for free and get started.
To sign up to the School of Export CLICK HERE.
If you already have a profile, CLICK HERE to login to begin the module.
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