Questions and Answers
Q- Why do I need to insure export sales under Irrevocable Letter of Credit?
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 buyers’ country could prevent performance of the sale contract or transfer of funds. In such circumstances, the Export Credit Policy of ECGA provides you protection against losses.
Q- Apart from indemnifying the exporters for losses, does ECGA contribute towards recovery costs? If so, what nature of costs incurred by the exporter?
Yes. ECGA normally reimburses the legal fees paid to the appointed lawyer and the court, in the buyers country in the proportion of its liability to the total outstanding debt provided the claim for loss is admitted by ECGA. It does not contribute other expenses such as travel expenses, auditor’s fees, translation charges and any overhead expenses etc. However, ECGA is not obliged to share recovery costs, as per the policy. Also being an Insured, you should inform ECGA, on the legal fees agreed upon in advance.
Q- If ECGA cancels the credit limit on a particular buyer duly informed the exporter, are the shipments made prior to the cancellation of the limit eligible for future claims in case if the buyer fails to pay?
Yes, certainly, all shipments made prior to the cancellation of the credit limit are covered and eligible for indemnification for loss. But not shipments made after cancellation.
Q- What can ECGA do if the exporter faces difficulties in discounting export bills with the commercial banks for which the Agency has entered MOU?
Upon receipt of intimation from the exporter to this effect, ECGA would contact the concerned bank to ascertain the reasons for not discounting the export bills which are credit insured under the Policy and endevour to assist the exporter. Sometimes, the banks may have some restriction in extending further credit facilities due to past due facilities with them, or with the other banks which are under litigation.
Q- Why ECGA restricts its indemnification of claim for loss to the maximum of 80% or 85% of the credit limit issued but not on the business declared considering that the premium charged is based on the later which is more than the credit limit?
ECGA liability is tothe maximum of 80% or 85% of the credit limit or business declared whichever islower. However, premium is charged on the business declared as loss that, may beincurred by the exporter, is related to business declared i.e export sales. Incertain instance the premium is being charged on business declared which couldbe in excess of credit limit amount, due to the fact that such export sales alsowill be under cover once the earlier export bills are settled by thebuyer.
Q- Why ECGA charges same rate of premium for 60/90 days and 120/180 days?
ECGA’s premium structure is based on 30, 90, 180 days credit period for open account export sales which are the common payment terms extended to buyer. In other words, the premium rate indicated for 30 days, 90 days and 180 days are in fact for the credit period 0-30 days, 31-90 days 91 – 180 days respectively. It is rather difficult to have all possible credit periods up to 180 days in the premium structure. This is the practice adopted by all Export Credit Agencies in other countries as well.
Q- What is the importance of approved credit limit to the policyholder?
An approved credit limit is the maximum amount which ECGA is prepared to pay for any insured loss in respect of individual buyers.
Q- What modes of payment are provided cover under an Export Credit Policy issued by ECGA?
An ECGA Export Credit Policy provides protection when export on Open Account, Post Dated Cheques (PDCs), Documents Against Payment, Documents Against Acceptances and Irrevocable Letters of Credit.
Q- Apart from credit insurance cover against both commercial and non-commercial risks what are other benefits available to credit insured exporters of ECGA?
Other benefits provided to credit insured exporters include post-shipment financing through bills discounting by commercial banks at a concessional interest rate as well as availability of pre-shipment financing for working capital needs.
Tips to Exporters
In a business that is fiercely competitive and increasingly unpredictable, your ability as a growing enterprise to safeguard against bad debt and ensure the safety of your cash flow assumes even great significance. Hence it is important for you as an exporter to insure your exports receivables with ECGA.
Credit insurance helps you to avoid the risks associated with non-payments resulting in a secure cash flow which gives you freedom to pursue your business strategies with confidence. Avail tangible benefits by credit insuring your export business with ECGA
3). Offering you the best credit risk protection at a price you can afford, let ECGA provides you with the reassurance needed in today’s business world to secure your company’s growth.
By reducing management time spent on chasing aged debts, your own staff will be able to focus on key business goals.