Export transactions, risks and financing: where can I go for help?
Doing business across borders gives you a lot of commercial opportunities. However, the downside is that exporting also creates additional risk, such as political risks. In addition, because the buyer's market is more difficult for you to fathom than the Dutch market, the commercial and financial uncertainties are also more significant. As an exporter, you want to minimize these risks as much as possible because a transaction is not successfully completed until you have received payment from your debtor after delivery. One way to mitigate the forenamed risk is to take out credit insurance for your transaction.
Credit insurance companies
Credit insurance companies are private companies that insure the risk of a supplier not receiving payment from its customer after the delivery of goods or services. In 95% of the cases, this insurance involves a policy taken out for your total turnover, under which all your debtors are the subject of the insurance. The policy is customized specifically for your business and is valid for all transactions you do with countries included in the policy.
When taking out the policy, you have the choice whether to cover your transactions against the risk of non-payment from the moment the order is issued or to cover only the credit risk. The first option is particularly interesting for the manufacturing industry, where raw materials are processed into a new product, while the second option is a good choice for a trading company.
One of the conditions with credit insurance is that you obtain a limit for all your debtors in the insured countries. The credit insurer has a special underwriting department that assesses whether your buyer's risk is "healthy". In examining whether a limit can be set, it checks whether your buyer is expected to be able to meet its payment obligations. If so, you will receive confirmation of this in a limited appendix. Of course, it is also possible that the insurer does not consider the risk sufficiently good. In that case, no limit (a 'zero limit') will be set, and your transactions with that customer will fall outside the cover.
The credit insurance market is competitive, and providers in this market have similar propositions and 'rules of the game'. Together with your insurance intermediary, you choose the party that best suits your business.
When is credit insurance of interest to you? If you deliver based on supplier credit, your buyer does not immediately pay for the goods and services received. The agreed payment terms depend on the industry and the economic lifetime of the product. Often, they involve payment terms of 30, 60 or 90 days, but sometimes 180 days or longer also occur. The risk of your buyer not being able to pay on the agreed terms, for example, due to setbacks on their side, you can use credit insurance to cover the risks. The policy covers commercial risks, such as bankruptcy, suspension of payments and homologation of agreement. Moreover, there is coverage if the invoice is not paid 90 days after the due date. In addition, if you export, you also have the choice of covering political risks for your transactions to a specific country.
Export credit insurer Atradius Dutch State Business
What to do if your buyer is in a challenging country? Or, if you supply capital goods or will carry out a contracting job for your buyer? Often, your buyer, for whom the transaction is an investment, requires long credit terms. In addition, these types of projects also need a longer production or execution period, which means you will be at risk for a long time. That is difficult for a commercial credit insurer to insure, as the country and the long maturities mean there is a risk that often companies do not want on their books.
However, there is a solution: the Dutch state, with Atradius DSB as the executor, can cover, the political and commercial risks of these transactions for you. In addition, they insure the financing of the transaction, making banks and other financiers willing to finance the transaction. As a result, your buyer enjoys long payment terms, while you, the supplier, receive your money, at least immediately after delivery.
A condition for this state insurance is, that it does not compete with commercial parties. This means that only transactions with a credit period of more than 12 months can be supported. Atradius Dutch State Business has several solutions for export transactions. These range from solutions for the buyer (long payment terms at low-interest rates) to liquidity products for the exporter of the transaction (working capital solutions and the provision of counter guarantees). In short, Atradius DSB has a wide range of products that can help Dutch exporters execute transactions and provide certainty that you will receive payment. Click here for our product page
Zoals gezegd, Atradius Dutch State Business is aanvullend aan de markt. De belangrijkste reden om in 1932 met deze faciliteit te starten was dat de export vanuit Nederland ondersteund moest worden en dat financiering door de private markt belangrijk was. Zonder staatsgarantie was en is dit niet haalbaar, gezien de hoge risico’s die kleven aan uitdagende landen en lange betalingscondities.
Anno 2023, besides export support, it is also important to contribute to a livable world. To promote export of sustainable solutions, export credit insurance has an important role to play. So, for a transaction, which contributes to climate mitigation, climate adaptation or provides significant energy savings, Atradius Dutch State Business has developed the so-called 'green label'. If a transaction qualifies for this label, there are wider possibilities under export credit insurance and more attractive premiums apply.
There is also the so-called Green Cover. This product was developed especially for Dutch companies that want to invest in new green technologies or production capacity for green capital goods or projects. If these can eventually lead to green export transactions, there are possibilities for working capital insurance, which makes the bank willing to provide financing for this. Thus, this product supports and facilitates green export transactions while making a positive contribution to projects focused on sustainability and the environment.
To sum up
Both regular credit insurance companies and Atradius Dutch State Business, have an important role in mitigating political and commercial risks exporters face in international transactions. Although Dutch State Business is the executor on behalf of the Dutch government and is complementary to the market, the regular credit insurers are private parties that can offer cover in the private market. Whereas for credit insurance companies it is important to have as less risks on the books as possible, the support provided by Atradius Dutch State Business is set on a single contract base, insuring risks that the market cannot and will not bear.
Business Developer/Credit Insurance Specialist at Atradius Dutch Business