Credit Insurance – Exports and Domestic
Credit Oman will not cover disputes between the buyer and the exporter regarding the supply e.g. quantity, quality, packing, etc., unless the policyholder gets a court ruling in his favour in buyer’s country. Also, it does not cover causes inherent in the nature of goods, default of any agent of the exporter or of the collecting bank, and fluctuation in the exchange rate.
On an average, 40% of company’s assets are tied up in the form of commercial debt. All it takes for an otherwise well-run business to become insolvent is for one major customer not to meet its payments. Even smaller debts can have a destructive effect. For example, if your profit margin is 5% and your client’s debt is just RO.10000, your company will have to achieve additional sales of RO.100000 just to make up for the loss. A credit insurance policy from Credit Oman can protect from the consequences of such an event.
Why is that exporters sometimes do not get larger credit limits on certain buyers or Credit Oman refuses or reduces cover on a buyer?
Credit Oman may restrict or refuse cover on certain buyers for various reasons. For example, it could happen if the buyer is not sufficiently credit worthy based on their financial standing or if his total commitment with other suppliers are already too high in relation to its size and financial capability or we may have recorded or received adverse payment experience or disputes with those buyers. Thus Credit Oman is of the view that such restriction of cover on buyers will safeguard the interest of the exporters against possible losses. However, Credit Oman always tries to decide on cover as objectively and pragmatically as we can in order to promote and enhance Omani exports while evaluating the risks on buyers.
The exporter should ensure that the approved buyer whose name and address is shown on the credit limit is the same party with which he/she has entered into the contract of sales. A slight variation in the name of a company can mean another separate legal entity. Should you wish to trade with the buyer’s parent or associate or subsidiary companies, it is necessary for you to send in separate Credit Limit Application (CLA) since members of the buyer’s group of companies are different legal entities. You should also pay particular attention to the amount, the payment terms, the expiry date (if any) as well as any specific conditions shown on it, e.g. the credit limit covers specific shipment only or you must report overdues to Credit Oman immediately or any other endorsement attached to the credit limit approval.
Is it necessary to limit the value of my export contract to the value of the credit limit agreed by the Agency?
Not necessary. Shipments could be effected over a period of time so that the amount outstanding for goods exported is, at any one time, within the approved limit. In other words an exporter can undertake contracts of a value greater than that given of your credit limit, since it is revolving.
A credit limit does not have expiry date and it remains in force during the validity of the policy as it operates on revolving basis unless any credit limit is canceled and advised by Credit Oman due to adverse information on the buyer or due to unutilization for specific period.
A-It minimizes the credit risks and maximize opportunities by exporting goods abroad
C. – You can derive better credit control by keeping tabs on the buyers and credit limits as approved by Credit Oman.
D. – You can assign your export Credit Policy as additional collateral to a bank in order to obtain additional financing at better terms
E. – You can discount export bills as with Banks
F. – It provides greater financial liquidity and flexibility administering foreign receivables portfolio.
As it is a violation of a specified term of the Policy, Credit Oman of Oman, as the insurer, has the right to refuse the business declaration after the stipulated time. Thus, the sales already made will be off cover. Hence, it is highly important that all your sales, whether it is domestic or exports, are declared on time.
If a buyer who is unable to make payment on of the due date and requests for more time to pay the amount, the exporter should make a good commercial judgment on the request based on facts and circumstances of the case. If it appears that extending the due date of the bill is the proper course of action, then the exporter should seek the approval of the insurer (Credit Oman), detailing the reasons justifying such action.
An Irrevocable Letter of Credit provides guarantee / security for receiving your payment of export bills provided the terms and conditions of the letter of credit are strictly complied with. However, certain events of political nature in the buyer’s country could prevent performance of sales contract or transfer of funds. In such circumstances, the Export Credit Policy of Credit Oman provides you protection against such losses.
Why does Credit Oman charge premium on total business declared, even when it exceeds the credit limit amount?
According to the policy, the premium is payable on actual export and domestic sales made to various buyers on whom credit limit have been issued and not on the credit limit amount. However, the Agency charges premium on sales declared by the policyholder in excess of credit limit due to the fact that those export sales made in excess of credit limit also be automatically covered once previous shipments are paid. If no premium is charged on those sales, it is off cover in accordance with the terms of the Policy in the event of non-payment by the buyer.
The credit insurer issues a credit limit for every buyer with whom the policyholder trades. The level of the limit is set at the maximum amount that can be owed by the buyer at any given time. The granted credit limit is the maximum insured credit line for a specific buyer that operates on revolving basis and the policyholder can trade within the approved credit limit throughout the policy period without further reference to the Insurer.
Credit Insurance Policy is a risk management tool that helps the exporter to stabilize his/her cash flow and protect his/her trade receivables in the ever-changing competitive and economic business climate. The exporter can also enhance his/her borrowing power from financial institutions.
Firstly, the amount of the credit limit application should be realistic and close to the credit insured by exporter’s probable requirements in the foreseeable future.
Second, the policyholder should provide (Credit Oman) with full and correct details of the buyer’s trading style, address and the name and address of his banker.
Third, it is important that the policyholder gives full and actual details of previous trading experience with the buyer.
Fourth, if the policyholder has up to date credit information on the buyer he can attach such reports together with any other additional information to the application.
Export Credit Insurance provides risks protection to the exporter who sells on credit terms against non-payment by his buyers. Non-payment may be due to buyer’s insolvency, protracted default, non-acceptance of goods or economic and political conditions that are out of the control of the exporter and buyer.