Filling out a credit insurance application can seem to be a daunting task. There is a lot of confusion about what should be the correct policy limit to request. In this blog, Pauline Bell, Loan Officer of the EXIM Trade Finance and Insurance Division, explains some typical oversights that EXIM underwriters see when exporters fill out credit insurance applications.
Requesting excessive policy payment limits
- Often gets confused with estimated sales volume
- Policy payment limit is the aggregate maximum liability EXIM Bank will incur under the policy for the policy period as defined in the policy declarations. It is typically set to cover the average total foreign receivables outstanding at any time.
- Should be a reflection of the maximum amount outstanding in foreign accounts receivable during the next 12 months
- Should be somewhat consistent or close to the current foreign accounts receivable outstanding as indicated on the policy application
- The repayment terms are also a factor: longer collection cycle will require larger policy limits.
- Export credit sales do not include cash-in-advance/pre-paid transactions, secured transactions (L/C transactions), etc.
- “Pie in the sky” projections by inexperienced exporters that do not match their previous volume/markets or scope of operations
- $1 entered under financial figures in the application
- Application is submitted with interim financial statements. Provision of latest full, fiscal-year-end financials is required.
- Application is submitted with stale financials that predate the application date by more than 18 months
- If CPA-review or audited financials are provided, including financial statements’ notes is helpful to the underwriter
- Could results in processing delays if not justified by the product
In summary, these are some common missteps that can cause delays or denials on applications. The good news is exporters don’t have to do it alone. We have 12 regional offices as well as insurance brokers that are here to help, at no cost to the exporters. Additionally, most of our export credit insurance requires no upfront cost to the small business exporter, and the premium is pay-as-you-ship. To learn more, talk to one of our regional trade specialists today.