When an exporter agrees to any payment method other than cash in advance or a confirmed irrevocable letter of credit, they expose themselves to the risk of non-payment. To mitigate the risk of non-payment, an exporter can choose to take out export credit insurance. When procuring export credit insurance, an exporter can elect to include different types of cover in their policy. This article explains the main types of cover offered by export credit insurance companies, such as credit guarantee.
Pre-shipment Export Credit Insurance Cover
Pre-shipment cover offers protection against the risk of an exporter incurring financial loss between the date the contract with its buyer comes into force and the date it ships the goods.
Post-shipment Export Credit Insurance Cover
Post-shipment cover offers protection against the risk of an exporter incurring financial loss between the date the goods are shipped and the date the final payment is due.
Consignment Stock Cover
Consignment stock cover is applicable when a local manufacturer holds stock in a foreign market, and due to political action, such as the foreign government confiscating their goods, they incur a financial loss
External Trade Cover in Export Credit Insurance
External trade cover offers specific protection to local companies and their agents or subsidiaries, which negotiate the sale and movement of foreign purchased goods to buyers in other countries.
Constructing your Policy
As we discussed, an exporter can tailor a policy to suit the particular financial risks they face. However, like most forms of insurance, export credit insurance does have various exclusions, underlying principles, and best practices. When concluding a policy, you must understand the limitations of cover, the principles that must be adhered to and the possible exclusions to 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 how to use export credit insurance to mitigate particular financial risks. 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.