A previous blog post highlighted some of the benefits of an EXIM Single-Buyer Export Credit Insurance policy – it enables qualified U.S. exporters to insure against nonpayment by a foreign buyer as well as extend open account credit terms to a foreign buyer. The exporter benefits by reducing its risk and improving its liquidity. To better understand if EXIM’s Single-Buyer Insurance is a fit and help ensure a successful policy application, consider this basic checklist before seeking coverage:
- At Least 50 Percent U.S. Content. To qualify, the product being exported must contain at least 50 percent U.S. content. This simply means there was more money spent in the U.S. on U.S direct and indirect costs (e.g. labor, materials, and administrative costs) than there was on foreign direct and indirect costs when taking the entire product cost into consideration. For example, if a product costs $200 to make and $101/$200 is U.S. content, it would qualify. More details and examples can be found on the EXIM Short-Term Content Policy webpage.
- EXIM Covers the Destination Country. U.S. exporters should confirm whether the country of their foreign buyer is supported by EXIM by checking the Country Limitation Schedule (CLS). Updated quarterly, the CLS contains an alphabetical list of countries and indicates whether full, limited, or no support is provided. For example, if a U.S. exporter was interested in exporting to a buyer in Argentina, they’d go to the CLS and notice a “Y” (Yes) in the “Up to 1 Year” (invoice terms) Argentina column. Then they’d look at the private sector row (if the buyer is not a government entity), read the notes provided, and know they can proceed.
Argentina Excerpt from EXIM Country Limitation Schedule, 10/28/2020 Edition
- Recognize the Cost and Coverage. EXIM’s nonbinding fee calculator has an alphabetical dropdown listing of countries and is a useful tool for finding the exposure fees for each one. Continuing with Argentina as an example, the calculator at the time of publication displays “1.45%” (.0145 x sales) in the “Non-Financial Institution” row and “60 Days” (terms) column. If a U.S. exporter is shipping $25,000 of product to their Argentinian foreign buyer, the cost for that shipment will be $362.50 ($25,000 x 1.45%) to the exporter. Actual fees will be confirmed upon approval of a completed application.
There is a deposit required of the U.S. exporter, typically $500, which is refunded at the end of the policy year as long as at least $500 in premiums were paid during that year. As new shipments occur to the foreign buyer, the exporter reports them on EXIM’s website and can pay premiums by credit card. The customer balance is insured for 90 percent (100 percent if a government buyer).
- Prepare to Apply. EXIM’s Qualifying a Foreign Buyer infographic outlines the required documents that EXIM underwriting needs, depending upon the credit limit size that the exporter would like considered for the foreign buyer. Once these credit documents are compiled in full, the online single-buyer application can be completed by the exporter with the assistance of a free EXIM registered broker.
An EXIM trade finance specialist can walk you through all of these checklist items and much more. Click here to schedule a free consultation.