kathy edwards global business solutions corp n.
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Export Credit Insurance for Managing risk, Improve Financing Facilitating Trade PowerPoint Presentation
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Export Credit Insurance for Managing risk, Improve Financing Facilitating Trade

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Export Credit Insurance for Managing risk, Improve Financing Facilitating Trade - PowerPoint PPT Presentation

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Export Credit Insurance for Managing risk, Improve Financing Facilitating Trade

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  1. Kathy Edwards Global Business Solutions Corp. Export Credit InsuranceforManaging risk, Improve Financing Facilitating Trade

  2. What is Credit Insurance? Insurance against non-payment of accounts receivable Protection of a major asset on your balance sheet Collateral Sleep Insurance

  3. What it is Not A means to make a bad credit good Primary source of repayment

  4. Advantages of Credit Insurance Protection Against Bad Debt Loss Increased Sales Better Borrowing Position with Insured Receivables Credit Information Resource Collection Services Factoring

  5. Types of Coverage Commercial Risks Buyer goes bankrupt Death Default of payment for any reason other than product dispute Political Risk Transfer risk Government preventing release of funds war/revolution currency inconvertibility loss of import/export license (Contract Frustration)

  6. Catagories of Insurers • Public Underwriters • Private Underwriters

  7. Public Underwriters • Export-Import Bank of the United States • Defined programs and costs • Subject to US Government policies • Small business policies • Short term, medium term, long term • Single buyer or multi-buyer • Pay as you go to improve cash flow • Export Credit Agencies (ECA’s) • OECD guidelines • Insurance builds customer loyalty • Documentary Collections • Cover risk with credit insurance

  8. Underwriting Philosophies Exporter • Length of time in business • Financial information • Credit approval experience • Losses • Underwriting Buyers • Trade References • Credit reports • D&B International • Coface • Graydon • Financial information

  9. Private Insurance Market Export & Domestic Coverage AIG Coface (f/k/a CNA) Euler Hermes ACI (f/k/a Euler ACI) Altradius Trade Credit Insurance (f/k/a Gerling NCM Credit Insurance) FCIA

  10. Private Underwriters • Less stringent underwriting of exporter • Greater exporter responsibility for credit evaluation of buyer • Deficient exporter credit files may result in refusal of claim payment • Minimum premium payable up front • Lower rates but greater possibility of purchasing unnecessary coverage

  11. Policy Limit  $1 mil $2 mil $3 mil $1.5 mil Indemnity 90% 90% 90% 95% Annual Deductible $0 $50,000 $0 $40,000 Discretionary Credit Limit -DCL $20,000 $150,000 $0 $100,000 Premium Rate .55% .50% .49% .45% Estimated Premium on sales of $6 Mil $33,000 $30,000 $29,400 $27,000 Quotes from Private Insurers

  12. Policy Assignment Benefits of policy can be assigned to a bank or lending institution Immediate availability of funds Pass cost of funds to importer Claims will be paid directly to the lender

  13. Credit Insurance as a Sales Aid • Open account sales • Better credit terms • Develop new markets • Less “Creative” sales terms from sales staff

  14. Replace Letters of Credit Letters of Credit L/C’s do NOT guarantee payment L/C’s require expertise L/C may cost the sale if a competitor offers open account terms L/C’s tie up buyers’ funds or credit facilities Insurance eliminates high local interest costs Insurance eliminate bank fees, amendment fees, and discrepancy fees

  15. Final Word Every asset on a balance sheet is insured except accounts receivable which, in some cases, account for 50% of the assets of the business Would that keep you awake at night?

  16. Dollars and Sense

  17. Sale to Mexico • Sale EXW $100,000 • SHIPPING $5000.00 • DAF(LARADO) $105,000 • TERMS: • SHIP 60 DAYS FROM REC OF IRR COMF LETTER OF CREDIT.

  18. BUYER’S VIEW • LOC $105,000 • BANK FEE 5% $5,250 • SUBTOTAL $110,250 • COST OF $$ * $3,325 • LANDED COST $113,575 • *I=prt. $105x19%/12x2=

  19. 60 DAY OPEN ACCT WITH INSURANCE • EXWORKS $100,000 • SHIPPING $5,000 • DAF $105,000 • CREDIT INSURANCE* $1,000 FINANCE % $1,000 LANDED COST $107,000 *premium at 1% for 60 days

  20. LOC PRICE $113,575 • 60 DAY OPEN ACCOUNT $107,000 DIFFERENCE IN DELIVERED PRICE $6,575

  21. IS YOU “STUFF” WORTH • $6575 MORE THAN YOUR COMPETATORS