Short-term Export Credit Insurance
Short-term export credit insurance (STECI) refers to an insurance policy that provides cover for resulting losses when buyers of exporters goods and services fail to pay or cannot pay upon maturity. It protects exporters against financial risks that arise due to commercial and political/country risks associated with customers based in overseas markets. This type of insurance is beneficial for exporters as it minimizes their export-related risks such as default in payments and forex fluctuations.
The insurance can be taken by exporters from the insurer against losses due to non-payment by overseas buyers. It can be taken for a single transaction or for any particular period of time (e.g. three-year rolling policy) and generally provides cover for customer non-payment up to 90% of the insurable value of the goods and services provided. The policy also covers legal costs incurred by the exporter for debt recovery.
STECI can be used to minimize the inherent foreign exchange risk as the insurer will pay out in the currency of the invoiced amount. The exporter can also have discretion in terms of choice of buyer. Coverage can be limited to a specific country, or cover extended over multiple countries. In addition, the policy may also offer cover against political risks (e.g., currency inconvertibility or expropriation) and commercial risks such as buyer’s insolvency, contract repudiation, or other similar events.
Apart from the financial protection, STECI provides exporters with several other advantages as well. It will minimize the hassle of chasing overseas customers for payment and thus help to improve the focus on marketing and sales activities. It also strengthens the credit position of the exporter, with insurers typically favorable in granting credit limits when an exporter has coverage under a STECI policy.
STECI is one of the most popular types of credit insurance to exporters seeking to protect their trade and investments from unforeseen contingencies, such as changes in foreign exchange rates, political risks, and buyer’s insolvency. The coverage provided by STECI enables exporters to conduct their business with confidence and keeps their business protected. As such, it is essential for exporters who want to be protected against the risks associated with their overseas trades to consider purchasing a STECI policy.
