Gaining international customers is a major milestone for many small U.S. businesses but the transaction process can involve many moving parts, adding complexity and uncertainty. Fortunately, the Export-Import Bank of the U.S. (EXIM) offers export credit insurance which protects U.S. exporters against foreign buyer nonpayment due to political and commercial risks. What exactly are these risks and what happens to an insured exporter’s claim if one were to occur? Read on for a summary.
First, it’s important to note that while EXIM’s Export Credit Insurance stipulates coverage for both commercial and political risks, disputes are not covered. For example, if an exporter shipped a container of large widgets when its customer was expecting small ones, a misunderstanding like this wouldn’t be covered by an EXIM ECI policy. Nevertheless, exporters who qualify for ECI have the option of choosing comprehensive or political-only coverage.
Covered commercial risks include:
- Protracted default: Also referred to as “slow pay,” this occurs when a customer is delinquent in payment. Under EXIM guidelines for short-term single- and multi-buyer policies, an insured exporter can file a claim after a three-month waiting period from the payment due date. After a claim is filed, EXIM has 60 days to pay the claim to the insured.
Say an exporter insured by a multi-buyer policy and its foreign customers agree to net 30 terms with a July 31st due date. If a foreign customer fails to pay, the exporter can file a claim with EXIM as soon as October 31st (three months later). EXIM will then process the exporter’s claim by December 31st (60 days later). If an exporter included a “past due interest finance charge” on the original invoice, EXIM will include past due interest in the claim payment.
- Insolvency: This occurs when a customer’s liabilities are greater than its assets, resulting in the customer’s inability to pay the exporter.
- Another commercial risk is bankruptcy.
In bankruptcy and insolvency situations, an exporter covered under a short-term single or multi-buyer policy can file a claim with EXIM immediately. EXIM can also request that the exporter file a claim. Once a claim is filed, EXIM will process it within 60 days.
Covered political risks include:
- Currency transfer risk (currency inconvertibility): An example is when a foreign buyer is unable to access U.S. dollars to pay its U.S. supplier.
- Expropriation An example is a government taking over a foreign buyer’s property so it can build an airport.
- Other political risks include war, revolution, and insurrection, and cancellation of an export or import license.
If a customer fails to pay due to one of these political risks, an exporter can also file a claim with EXIM immediately (or EXIM can request that the exporter file a claim) then EXIM will process it within 60 days.
This is a high-level overview of the type of risks covered by an EXIM Export Credit Insurance policy. An EXIM specialist can provide more details, discuss requirements, and further assist you. Please click here to schedule a free consultation.