commercial transactions on short credit terms covered by export credit guarantees

Transcription

1 commercial transactions on short credit terms covered by export credit guarantees

2 Commercial transactions on short credit terms In the era of globalization exports are the most natural thing in the world. But few people think of the possible risks. With this booklet we wish to give you an overview of how German exporters can protect themselves against these risks with export credit guarantees of the Federal Republic of Germany. There is a broad range of cover options available for export transactions on short credit terms of up to two years, which we will present to you in this booklet. In many cases, individualized advice is the guarantee for a smooth transaction of business. You can get this advice from the staff of Euler Hermes Aktiengesellschaft at any time. Not only the staff at the Head Office in Hamburg will be pleased to assist you but the sales representatives will also visit you at your offices whenever you want if you request so. 24 hours a day and seven days a week informa - tion in German and English is available online on the Internet for you and your customers. Throughout Germany information workshops are regularly held and we would be pleased to invite you to one of them.

3 what exactly are export credit guarantees? federal export credit guarantees Federal Export Credit Guarantees Hermes Cover protect your export business against the risk of bad debt losses. The export credit guarantees of the Federal Re - public of Germany offer an array of insurance options which are mainly targeted at exports to developing countries and emerging markets. Thus they help to create a level playing field for German exporters in international competition. An Interministerial Committee (IMC) de cides on the cover policy for exports to the various countries and on the granting of export credit guarantees. The Interministerial Committee is formed by representatives of the Federal Ministry for Economic Affairs and Energy, which has the lead function, the Federal Ministry of Finance, the Federal Foreign Office and the Federal Min - istry for Economic Cooperation and Development. Back in 1949 the Federal Government entrusted two private companies with the management of the export credit guarantee scheme: Euler Hermes Aktiengesellschaft (Euler Hermes) and PricewaterhouseCoopers Ak - tiengesellschaft Wirtschaftsprüfungsgesellschaft (PwC). Since Euler Hermes is the lead partner in this con sor tium, the Federal Export Credit Guarantees soon became known as Hermes Cover. Long years of experience in export matters have given the staff of the two companies a comprehensive knowhow base in the field of export finance and export credit cover. They offer a customer-focused consultancy service to exporters and banks and support the on-going pro - jects with advice.

4 4 what can we do for you? a broad range of options for exporters and banks Different export transactions require different types of cover. The export credit guarantee scheme of the Federal Republic can offer a matching type of cover for each of your export transactions: This includes cover of risks before and after shipment of the goods as well as flexible solutions for varying credit periods or the bundling of several shipments under revolving or wholeturnover cover. And the most important aspect: There is no minimum contract value required for export credit guarantees. For exports on medium and long credit terms (more than two years) the Federal Government offers supplier credit cover as well as buyer credit cover for the financing of export deals with tied buyer credits. These types of cover are in demand mostly for individual export transactions. Specific types of cover for project financed transactions and other structured finance constructions are products which will be used in special circumstances. There is a wide range of cover options available for export transactions on short credit terms (payment periods of up to two years): wholeturnover policies and wholeturnover policies light insure exports on short credit terms of an exporter who supplies several buyers in different countries. revolving supplier credit guarantees and revolving buyer credit guarantees provide protection against bad debt losses in cases of repeated deliveries to one buyer. One-off transactions can also be covered with an export credit guarantee on short credit terms. January 2011 the Federal Government introduced buyer credit cover-express, a fast-track procedure that facilitates the financing of exports transacted by small and medium-sized enter - prises. However, there are export transactions on short credit terms which do not qualify for Hermes Cover. Cover is only available for supplies destined for non-eu and non-oecd countries (exceptions: Chile, Israel, Mexico, South Korea and Turkey). Since private insurance companies provide sufficient cover facilities for exports on short credit terms to EU and OECD countries the so-called marketable risks, the Federal Government is not al - lowed to offer cover for such business.

5 Export credit guarantees make it possible to open up difficult offer protection from make export financing create a level playing field in international support also small and medium-sized preserve jobs in Germany Insurable risks Export credit guarantees provide protection against bad debt losses mainly due insolvency of the non-payment of an account within 6 months after the due date (protracted legislative or administrative measures and warlike non-conversion/non-transfer of amounts paid in local confiscation of the goods for political frustration of the contract for political reasons

6 our products for the cover of transactions on short credit terms 6 Short-term supplier credit cover When raw materials, semi-finished goods, components, consumer goods and spare parts are supplied, the accepted credit period is normally only up to a six months maximum. For high-value components, con - sumer durables as well as fertilizers and pesticides, the acceptable credit period is 12 months. In these cases of short credit periods we will cover your cross-border supplies under short-term supplier credit guarantees. Occasionally, your foreign buyers also wish to order capital goods supplies (machinery and plant) on short credit terms. It goes without saying that Hermes Cover is available in such cases too, provided that the supplies are destined for countries which are classified as nonmarketable risks. Every German exporter can apply for supplier credit cover. The same holds true for foreign business en - terprises who transact export business through their branch offices registered in the German Companies Register. Cover takes effect with the shipment of the goods and/or the commencement of service, and ends with full payment of the covered amount owing to you. For the provision of cover we will charge you an administrative fee and a premium, the amounts of which depend on the order value. The premium level will depend on the foreign buyer s credit rating, the general country risk and length of the credit period.

7 7 the advantages of the various cover options Supplier credit many possible customized cover cover before shipment possible Wholeturnover and revolving flexible insurance simple and swift easy low costs Buyer credit immediate easing of the strain on the balance enhanced no negotiations about credit revolving: simple and swift handling

8 our products for the cover of transactions on short credit terms 8 Revolving supplier credit cover Revolving supplier credit guarantees cover repeated deliveries of goods and the provision of services to one foreign buyer on short credit terms of up to 24 months. Their scope of cover and the premium rate are the same as for short-term supplier credit cover, however, it is much easier for you to handle. If a positive decision is taken on your application for a revolving supplier credit guarantee, you will receive a policy in which the maximum liability accepted ( max - imum amount or limit ), the permissible payment terms and other general conditions are specified. Be cause of this limit, which is fixed at the outset, you can use the amount freed up once your covered shipment has been paid for further supplies the policy revolves. There is no need to file separate applications for supplier credit cover for each order and you can react much more flexible to market trends. The Federal Government continues to be liable for these covered trade receivables even if the revolving supplier credit guarantee is not renewed upon the expiry of the policy year. It is up to you to decide whether you wish to include receivables secured by a letter of credit. In this context you have, for example, the option of restricting cover of receivables secured by L/C payable at sight to political risks only.

9 9 Revolving buyer credit cover If you continually supply a foreign business partner on short credit terms and these supplies are financed by a bank, the bank can insure the credit under a revolving buyer credit guarantee. This type of cover frees up additional liquidity for the exporter.

10 our products for the cover of transactions on short credit terms 10 Paul Georg Meister/PIXELIO Paul Georg Meister/PIXELIO Wholeturnover Policies In particular semi-finished goods, consumer goods, raw materials and agricultural produce are usually traded on short credit terms. For all companies with a turnover that qualifies for cover amounting to at least EUR 500,000 and a number of foreign buyers in several countries the obvious choice would be a Wholeturnover Poli - cy (APG) as comprehensive cover. An online link makes this type of cover of supplies on short credit terms of up to 12 months easy to handle and cost-effective. It protects you from bad debt losses due to foreign buyer insolvency, non-payment of receivables within six months following due date as well as due to political risks, especially lack of hard currencies or restrictions on the international payments system. In most cases wholeturnover cover can be provided at a much more favourable price than supplier credit guarantees for individual transactions. Besides, there are no individual application or handling fees. The premium

11 11 amount will be determined mostly by the country risk and the terms of payment you agreed with your buyers. The higher the risk attached to countries and buyers included in your Wholeturnover Policy, the higher the premium rate will be. On the other hand, the premium will be the more favourable, the better the risks are balanced. In addition, a system of no-claims bonuses/risk surcharges rewards you for entrepreneurial diligence exercised when choosing your business partners. The Wholeturnover Policy runs for one year. The flexibility of wholeturnover cover is proven by a great variety of options for inclusion. You can have receivables from business with customers in Chile, Israel, Korea, Mexico, Turkey and all other non-eu and non-oecd countries included in wholeturnover cover. You can choose freely which of these countries you want to include in the cover. However, you have to offer all deliveries to private buyers domiciled in the countries chosen for cover, with the exception of receiv ables se - cured on a letter of credit. You apply for limits (maximum amounts) for commercial and political risks respectively for each buyer, which will be fixed without any extra costs. Hence you will always know which of your cus - tomers are included in the cover and with what amounts. In addition, you can optionally include certain types of receivables for the entire policy period. You can exercise these options on a country-by-country basis. Receivables due to your foreign subsidiaries from their foreign cus - tomers can be included in the wholeturnover policy irrespective of whether the goods are delivered by your subsidiary to a third country or an end buyer within the country it is domiciled in. You additionally have the op - tion of including your turnover with your foreign affiliates or amounts due from public buyers. A further option is the inclusion of receivables for which a letter of credit has been opened prior to shipment of the goods. No difference is made here between sight letters of credit and deferred payment credits.

12 our products for the cover of transactions on short credit terms 12 options for inclusion in a wholeturnover policy Inclusion not possible for buyers New EU member states Right of inclusion in OECD member states for buyers Turkey Right of inclusion in non-eu/oecd member Public Affiliated Letters of Private buyers options for inclusion in a wholeturnover policy light Inclusion not possible for buyers New EU member states Inclusion mandatory for buyers all other countries

13 13 Wholeturnover Policies light Wholeturnover Policies light (APG-light) are ideal for exporters who normally agree short credit terms of up to four months. Hence they are aimed at small and medium-sized companies whose turnover from ex - port business is not yet big enough to qualify for normal wholeturnover cover or at larger companies which have only a minimal percentage of their turnover in export business. A Wholeturnover Policy light is even easier to handle than a standard Wholeturnover Policy but does not offer the same comprehensive options for in - clusions. The Wholeturnover Policy light also runs for one year, however, all insurable business has to be included in the policy. The Wholeturnover Policy light is handled exclusively via the Internet. You declare your turnover by reporting your turnover for the previous month online and also carry out all other transactions you need to manage your cover, such as making requests for credit limits, via the Internet. When cover commences, the premium rate will be fixed for two years, afterwards the premium may be reduced due to a system of no-claims bonuses/risk surcharges depending on the loss experience. The conditions for an indemnification payment have been simplified, too: The Federal Government indemnifies any insured account if it remains unpaid six months after due date.

14 other products 14 Manufacturing risk cover If you already need cover during the good s manufacture, our manufacturing risk guarantees are an appropriate safeguard. In particular customized goods should be insured because it may be almost impossible to sell them to another buyer if they cannot be delivered. Manufacturing risk cover includes the actual prime costs you incurred. These are estimated in advance by you and form the basis for the maximum cover amount given. If an insured event occurs, the actual amount of the loss is ascertained by a specially prepared expertise. The guarantee covers all political and commercial circumstances in the buyer country which prevent the completion or the despatch of the goods. The risk of an embargo being imposed is also covered. In combination with short, medium or long-term supplier credit cover, a manufacturing risk guarantee provides comprehensive protection against risks from the commencement of manufacture right through to the pay ment of the receivables.

15 15 Counter-guarantees Frequently your business partners will request you to provide contract bonds, such as advance payment, performance or maintenance bonds, for the transaction of export business. These bonds can considerably restrict your liquidity and put a major strain on your credit line. For example, in many cases the total amount of the down payment has to be deposited as collateral. This restriction can be lifted with the Federal counter-guarantee. With this guarantee the Federal Government guarantees your bank the payment of up to 80 percent of the bond amount if the contract bond is called. On the basis of this guarantee, the bank will forgo further collateral restricting your liquidity and your credit line will only be debited with the remaining 20 percent. Peter Wiegel/PIXELIO

16 16 how much does cover cost? fees and premiums For supplier credit guarantees and revolving supplier credit guarantees you pay administrative fees and premium for cover. The administrative fees de pend primarily on the order value. The premium rate is also determined by the country risk category into which the country of the buyer falls. Besides, the premium rate is influenced by other parameters such as the term of the contract, status of the buyer and, where applicable, the per - centage of cover. In addition to the buyer s credit stand - ing certain types of security interests, which reduce the creditor s risk, may affect the calculation of the premium. While under manufacturing risk cover your prime costs are covered, the amount of receivables due is the basis for the calculation of the premium in the case of credit risks. With the Entgeltberechnungs-Tool on the Homepage of the Federal Export Credit Guarantees ( you can quickly calculate the pre mium payable. Our field staff and the employees at the Head Office will be pleased to assist you if you wish to calculate the costs of an export credit guarantee. The premium for wholeturnover policies and whole turnover policies light is calculated on the basis of your monthly declared turnover. For Wholeturn - over Policies the premium will be fixed on the basis of the risks covered in each individual policy, while fixed pre mium rates apply to Wholeturnover Policies light. For both types of policies the premium rates will be adjusted in accordance with the claims experience under a system of no-claims bonuses/risk surcharges, which results in premium reductions or increases in subsequent years. However, both types of cover are normally cheaper than an individual supplier credit guarantee.

17 calculation examples for the premium payable for export credit cover (table) 17 case 1a: Order value: EUR 1 million Covered amount: EUR 850,000 Risk period: six months Delivery to a country with medium risk level: Country Risk Category 4 Public buyer: SOV Cost of cover: EUR 8,755 plus fees* or 1.03 % of the guaranteed amount Paul Georg Meister/PIXELIO case 1b: Order value: EUR 1 million Covered amount: EUR 850,000 Risk period: six months Delivery to a country with medium risk level: Country Risk Category 4 Private buyer: CC3 Cost of cover: EUR 11,220 plus fees* or 1.32 % of the guaranteed amount case 2a: Order value: EUR 1 million Covered amount: EUR 850,000 Risk period: five years Delivery to a country with medium risk level: Country Risk Category 4 Public buyer: SOV Cost of cover: EUR 25,925 plus fees* or 3.05 % of the guaranteed amount case 2b: Order value: EUR 1 million Covered amount: EUR 850,000 Risk period: five years Delivery to a country with medium risk level: Country Risk Category 4 Private buyer: CC3 Cost of cover: EUR 40,545 plus fees* or 4.77 % of the guaranteed amount * For transactions of this volume an application fee of EUR and an issuing fee for the guarantee declaration of EUR 250 will be charged in addition.

18 18 how much foreign content is permissible? cover of supplies The export credit guarantee scheme is intended to promote German exports. This means that the goods to be exported ought to originate for the most part in Germany. Nevertheless supplies from foreign countries can also be included in the cover. The uniform OECD limit for the cover of local costs is 23 percent of the contract value. In addition to that foreign content (including local costs) worth up to 30 percent of the contract value may be included in the cover of medium and long- term transactions without the necessity to give specific rea - sons. If sufficient reasons can be put forward, the supplies from foreign countries may even account for 49 percent of the contract value. In special cases the value may even exceed 49 percent. The Federal Gov ernment is prepared to give an early indication whether the threshold of 49 percent may be exceeded on the basis of a preliminary inquiry. Under Wholeturnover Policies and Wholeturnover Policies light foreign content worth up to 100 percent can be included in the cover under cer tain circumstances. This holds also true for short-term supplier credit cover unless the goods to be supplied are capital goods. In that case foreign content of up to 49 percent can be included in the cover; if their share is higher, the Interministerial Committee will decide on an inclusion on a case-by-case basis.

19 where and how can you submit an application? 19 applying for hermes cover Before the commencement of the risk you, as exporter, or your bank which is financing the export transaction apply for an export credit guarantee to Euler Hermes. For the sake of a swift processing of the application you should submit information material on your buyer, where available. Such information material will be, above all, your buyer s annual reports but e.g. pre s - entations showing its business development will also be possible. If cover of a transaction with a contract value of more than 15 million Euros is applied for, a memorandum giving details of financing, infrastructure, environmental aspects and the macro-economic significance of the proj ect is also required. After the export contract has been signed, you will re - ceive a certificate of guarantee. This document contains all material details, such as the type and the amount of the risks insured and a description of your business transaction.

20 20 what happens in case of a loss? indemnification procedure If there are any payment delays, please contact the employees of Euler Hermes early on in order to discuss the specific situation and the necessary steps to be taken. The purpose of this is to assist you with your obligation to take all measures required to collect the outstanding receivables. Because if a loss is looming, team-work between the Federal Government, the exporter, the bank providing the credit and Euler Hermes frequently makes it possible to stabilize a project which has become economically instable and to avoid indemnification payments at least partially. In most cases the restructuring will be in the form of a prolongation. This has also advantages for you as exporter. If an account due from a foreign buyer is not paid as agreed in the contract, you submit a claim for indemnification to Euler Hermes. We check whether the export business was transacted in accordance with the terms of the guarantee and then indemnify you within one month of the claim being ascertained. Your claim, in the amount indemnified, is then subrogated to the Federal Republic of Germany. You or the bank retains the uninsured percentage agreed for your/its own account. Only legally valid claims can be indemnified. If a foreign debtor disputes his liability to pay, the Federal Government is entitled to suspend indemnification pend - ing final clarification. The Federal Government participates in the costs, e.g. court costs or lawyers fees. In the case of political claims it normally tries to recover the sums indemnified in the form of a rescheduling agreement with the country concerned. This procedure may lead to the recovery of your unin - sured percentage. exporters and banks share in a loss There are different uninsured percentages that you have to bear for your own account for political and commer - cial losses. An exact classification of an event of loss determines the uninsured percentage and the amount of the indemnification.

21 21 uninsured percentage in case of a loss Export credit cover 5 % for political risks 15 % for commercial risks* 15 % for protracted default Manufacturing risk cover 5 % for all types of risks Wholeturnover Policy 5 % for political risks 10 % for commercial risks Wholeturnover Policy light 10 % for protracted default * For a limited period up to the end of 2016 the uninsured portion can be reduced upon application to 5 % against the payment of a premium surcharge.

22 22 Export Credit Guarantees of the Federal Republic of Germany are granted under the control of the federal ministry for economic affairs and energy. Bundesministerium für Wirtschaft und Energie Referat VC2 Scharnhorststr Berlin Internet: The Federal Government has appointed a consortium formed by euler hermes aktiengesellschaft, Hamburg, as lead partner, and pricewaterhouse coopers ak tiengesellschaft wirtschaftsprü fungs gesell - schaft, Frankfurt am Main, branch office Hamburg, to manage the official export guar antee scheme. You can find out more details and request information material as well as advice on the options and procedures open to you under the export credit guarantees scheme of the Federal Republic of Germany either from the Euler Hermes Head Office or from the regional branch office for your area. You can also dial up more information via the Internet: e.g. the latest AGA-Report, General Terms and Conditions and information leaflets, the Annual Report in German and English as well as information on events.

23 Federal Export Credit Guarantees head office Euler Hermes Aktiengesellschaft Gasstraße Hamburg Phone: +49 (0)40/ Fax: +49 (0)40/ berlin liaison office Friedrichstadt-Passagen Quartier 205 Friedrichstraße Berlin Phone: +49 (0)30 / Fax: +49 (0)30 / aga-berlin@exportkreditgarantien.de branch offices Berlin Friedrichstraße Frankfurt Theodor-Stein-Kai Hamburg Gasstraße Köln Hohenzollernring München Radlkoferstraße Stuttgart Löffelstraße 44 For all branch offices Phone: +49 (0) 40/ Fax: +49 (0) 40/ info@exportkreditgarantien.de

24 Euler Hermes Aktiengesellschaft Export Credit Guarantees of the Federal Republic of Germany e 0316 Postal address Hamburg, Germany Office address Gasstraße Hamburg, Germany Phone: +49 (0)40/ Fax: +49 (0)40/ Branch offices: Berlin, Frankfurt, Hamburg, Cologne, Munich, Stuttgart