Q- How does ECGA perceive a potential loss situation?
The Agency recognizesoccurrence of such situation when payments are overdue or when credit insuredexporter has any reasons to expect payment problems. Thus the insured is required under the ExportCredit Policy to notify ECGA especially when such payments are overdue. In its part, ECGA will then categorize theexposure as a potential loss, even if claims have not yet beenpaid.
Q- What is the credit risk and why it is necessary to insure it with ECGA?
Itis the risk that the insured will be unable to recover all or part of thereceivable due to the occurrence of a cause of loss.ECGAcredit limits stipulate for each overseas buyer the maximum amount that theexporter may have outstanding at any one time for goods dispatched. Itis necessary to mitigate such risk through export credit insurance. The Export Credit Policy of ECGA will minimizes the risk of non-paymentdue to both commercial and non commercial or political risks.
Q- What risks are off cover by ECGA?
ECGA 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 favor 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.
Q- What action as policyholder should take when recoveries are received from the buyer?
All proceeds of recovery action must be remitted in full promptly to ECGA for allocation. It will then allocate them in the proportion in which the original loss was shared and pay you your share.
Q- Are credit limits issued to buyers by ECGA supersede earlier limits?
Credit limits issued by ECGA usually supersede all earlier limits but do not necessarily invalidate them. At Date of Ascertainment of Losses only one is judged applicable.
Q- What type of sales contracts are eligible for ECGA cover ?
Under the Export Credit Insurance Policy cover is available for shipment under contracts for export of goods on payment terms of Cash Against Document, Documentary Sight Draft, Documents against Payment (D/P), Documents Against Acceptance (D/A), Open Accounts and Letters of Credit at Sight or Usance. However, if the terms of payments are different to those in the original contract for instance from L/C to D/P terms and from D/P terms to D/A terms the policyholder is advised to obtain the buyer's prior consent in writing before shipment. Otherwise ECGA may not be liable even if the policyholder already has a credit limit on that buyer .
Q- What is theBank Assignment Letter?
It is the transfer of rights and / obligations under a contract from the credit insured exporter by ECGA to his bank. Thus the exporter assigns the benefits of Export Credit Policy it has obtained from ECGA in favor of his bank as security for financing. Hence in case of payment of claim, the Agency will pay directly to the exporter’s bank in view of his authorization as per the signed assignment letter also known as Letter of Authority (L/A).
Q- What actions does ECGA suggest to the exporter to minimize losses in the case of repudiation of the goods by the buyer?
In the case of repudiation, the exporter should first arrange proper storage and provide commercial insurance for the goods involved. Then he should send a written demand to the buyer to take delivery of and pay for the goods within a certain time limit. If such action fails, he should look for an alternative buyer and hold the original buyer responsible for any losses incurred. The exporter should always promptly inform ECGA of his actions.
Q- When should a claim be submitted?
A claim should be submitted as soon as it becomes clear that your efforts to minimize loss have been exhausted. Take a potential buyer default, for example. Assuming that your buyer had not paid on 'due date' and that you had spent, say, six months in chasing action (in consultation with ECGA following notification of a probable loss), you would be justified in assuming that your probable loss had turned into a fairly certain one and that a formal claim was now called for. Were the submission of your claim to be delayed much longer there would be a danger that ECGA would not be given sufficient time to examine and process the claim and to settle it at the earliest date permissible under the terms of the Guarantee.
Q-What is the commercial risk and what are the causes of losses being covered under such risk by ECGA?
It is the risk of deterioration in the financial situation of a private buyer, resulting in default or insolvency or non-acceptance of goods by the buyer. These causes of commercial risk are covered by the credit insurance of the Export Credit Guarantee Agency.
Tips to Exporters
Default in payment and repudiation of goods are the first two of the three main causes of losses covered under the export credit insurance scheme of ECGA. The third being bankruptcy that is when the buyer become insolvent.
Continuousvigorous recovery action by the exporter to the buyer prior and after payment ofclaim by ECGA is the best option than write off any amount of overduedebt.
As an exporter insured by ECGA, you should not ignore warning signs of a bad debt to the buyer.
By insuring your export business with ECGA, the policy provides necessary protection from protracted default, non-acceptance of the goods as well as insolvency of the buyer as well as non-commercial risks.
Export Credit Insurance is clearly one of today’s greatest hidden keys to global growth and success.
The ability of exporters to offer aggressive open credit terms can enhance the exporters ability to meet a customer’s needs. As competition in the global marketplace heats up, more and more companies are demanding open credit. By utilizing credit insurance to hedge the risk of loss, exporters can extend open credit to buyers, which may make the difference between securing the contract and losing the sale.
The keys to business success rest largely in the hands of the credit decision-maker. And, the door to success won’t open without them. What are four keys of such success?
Key 1 - Gathering as much information as possible on the prospective Buyer before a sale is made .
Key 2 - Careful analysis of the available information in order to make an informed and prudent credit decision.
Key 3 - Setting a judicious and appropriate credit limit.
Key 4 - Continue to monitor the customer’s creditworthiness.