The Export-Import Bank of the United States (Ex-Im Bank), the U.S government's export finance agency, has a mandate to support "new and small" U.S. exporters of U.S. products by, among other programs, insuring them against non-payment by an overseas buyer, a.k.a. "credit insurance."
However, to qualify for Ex-Im Bank credit insurance, an exporter usually needs to have been in the same line of business for at least three years, have at least one year of exporting experience, had an operating profit in their most recent fiscal year, etc. Exceptions are sometimes made.
In addition, Ex-Im Bank insures only sales of product exported from the U.S. and whose U.S. content is 51 percent or more (calculated using the product's Cost-of-Goods-Sold). Private sector credit insurers are generally more flexible (and do not require U.S. content or U.S. export) but their minimum annual premiums are $10,000--$20,000, payable in advance.
What can new or small exporters who do not meet those standards do to protect themselves if they must sell on open account credit terms? Use the free credit-decision-making guidelines available on Ex-Im Bank's website to make informed credit decisions and begin to develop a track record. Start by going to www.exim.gov and click on or ask for the following online guides:"Country Limitation Schedule" tells you what countries Ex-Im Bank considers safe enough to insure open account credit terms. For example, for sales to private sector buyers in Mexico, Ex- 1m Bank will support open account terms, but in the Philippines, Ex-Im Bank's support is typically limited to Bank Letters of Credit."Special Buyer Credit Limit Application, item #11" tells you what minimum credit information Ex-Im Bank requires to consider granting a buyer open account terms. For example, Ex-Im Bank will want to see at least one "favorable" credit agency report on the buyer or one "favorable" trade reference before insuring a credit of $50,000 or less. Higher credit limits usually require, in addition, buyer financials."Trade reference form" tells you what questions to ask the reference about the buyer's credit and payment history. Trade references are free; credit reports are not. The Ex-Im Bank trade reference form is set up to enable you, the credit analyst, to call the trade reference and interview them while filling out the form. Alternatively, you can email a copy to the trade reference and wait for an answer."Short Term Credit Standards" tells you how to interpret/analyze the buyer's credit information. Pages 14- 16 cover the criteria Ex-Im Bank "generally" looks for in approving buyer credits and includes financial statement ratios. Pages 19--22 define, in detail, these criteria. Pay special attention to how Ex-Im Bank defines "favorable" trade references and credit reports."Specimen Multibuyer policy" can help you anticipate and prepare to deal with buyers who do not perform as promised. For example, Article 6, C, tells you to stop shipping to any buyer more than 90 days past due. Article 10 defines a "buyer obligation", i.e., the documents typically needed to pursue a debt in the courts of law, should you need to engage an outside collections agency. The federal government has a lot of experience supporting export credit. Its accumulated knowledge can be put to work for you....
T. John Keevan-Lynch, an export finance consultant and licensed export credit insurance broker, is president or Provident Traders, Inc. in Philo. He can be reached at 707-895-9353 or jkl@providenttraders.com.
