Business, Legal & Accounting Glossary
Export credit is a type of credit, which an importer opens in an exporter’s country for financing exports.
It is an insurance, which grants protection to an exporter for the failure of payment on part of its foreign customer. However, this kind of insurance coverage excludes cases of product disputes. Credit insurance enables a seller to sell on competitive selling terms when there exists protection against the critical issue of default. Via export credit insurance a seller of a product can offer credit to a buyer in a foreign land. Insured receivables are accepted as collateral for loans under this kind of insurance deals. Export credit insurance lends protection against both political and commercial defaults. Credit insurance is either offered for a particular single sale or for a multi-buyer portfolio. Most renowned export companies opt for multi-buyer policies. This kind of policy extends insurance coverage for all sales on credit conducted in a concerned year. Single sale policies are typically more expensive as it is assumed that concerned exporters when insuring single sales usually go for risky ventures. In comparison to single sale policies, their multi-buyer counterpart offers a wider coverage and lower rates. Export Credit Insurance policies are widely used in Europe and parts of the United States. Export credit insurance mitigates the risks of international trade practices. It extends coverage for issues ranging from commercial losses, currency inconvertibility, buyer insolvency, revolution, default, terrorism to war.
Export credit guarantees are of various types. Coverage extended can be categorized into types like manufacturing risk cover and revolving specific cover. Manufacturing risk cover offers protection against risks involved during the manufacture of goods. The period under review here extends from the start of the manufacturing process till dispatch. This kind of coverage is advisable for customized goods. Manufacturing risk cover consists of actual prime costs, which are incurred by exporters. Exporters who deliver to foreign buyers on a regular basis on short span credit terms are offered to revolve specific guarantee schemes by some governments.
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This glossary post was last updated: 26th March, 2020 | 1 Views.