The guarantee that takes the worry out of selling overseas
| DOI | https://doi.org/10.1108/eb057168 |
| Date | 01 January 1981 |
| Pages | 24-25 |
| Published date | 01 January 1981 |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
EXPORTS
The guarantee that
takes the worry out
of
selling overseas
ALTHOUGH exports constitute the
life blood of the British economy, the
individual exporter who sells his
goods abroad is regularly presented
with a whole series of often quite
complex problems. In selling to fore-
ign markets, information and exper-
tise are at a definite premium.
Export finance has been an impor-
tant part of the business of the English
and Scottish clearing banks for many
years.
During this time, new techni-
ques have been developed to meet
changing commercial conditions.
Banks are usually happy enough to
provide facilities to help finance
export sales, but the knowledge that
the debts have been insured in
advance naturally increases their wil-
lingness to do so.
The Export Credits Guarantee
Department, which is a separate
Government department responsible
to the Secretary of State for Trade,
was formed in 1919 and began offer-
ing credit insurance in 1930. Since
then its activities have expanded con-
siderably, and currently the Depart-
ment provides insurance for three
main categories of risk - the credit
worthiness of the buyer, the transfer
risk and the political risk.
In controlling the terms on which
credit is offered by UK exporters,
ECGD operates within the
framework of the recommendations
laid down internationally by the
Berne Union of credit insurers. The
assignment of ECGD's basic insur-
ance cover may be acceptable as col-
lateral for bank advances. In addition
to providing direct protection for the
exporter, ECGD may guarantee the
exporter's bank which is then able to
provide facilities at preferential inter-
est rates. Indeed it is probably true to
say that without the medium and long
term bank guarantee support offered
by ECGD the banks would be unable
to provide the finance required, thus
placing UK exporters of capital goods
at a serious disadvantage.
ECGD guarantees to exporters
include comprehensive policies.
These apply to trade of a continuous
nature, often conducted over the
years with a standard range of goods
and the same regular buyers, where
the spread of risks is wide and where
the exporter undertakes to cover
either the whole of
his
export business
for not less than twelve months, or all
his business in an agreed range of
good and bad markets, for all types of
risk.
The ECGD comprehensive short
term guarantee provides cover in
respect of goods exported on credit
terms of up to six months. If required,
the exporter can arrange for all his
exports to be covered from the date of
contract ("the pre-credit risk") pro-
vided the goods are to be exported
within twelve months of the date of
contract. With the comprehensive
guarantee, ECGD is not informed of
individual transactions unless sub-
stantial delays in payment or events
likely to cause loss arise. The exporter
ensures that his outstandings on each
buyer are kept within an agreed credit
limit; if he wishes to give substantial
credit to a new buyer or abnormally
increase credit to an old one, he seeks
ECGD agreement.
A suppplemental (Extended
Terms) guarantee is available to cover
goods sold on credit terms in excess of
six months (e.g. engineering goods),
but not normally exceeding five years,
or to provide "pre-credit risk" cover
for goods sold on less than six months'
credit but having a delivery period
longer than twelve months but not
normally exceeding two years. It is
only available to policy holders
already in possession of a short term
guarantee. Under this guarantee,
each individual contract must be
approved by ECGD in writing.
Another category, specific policies,
24 INDUSTRIAL MANAGEMENT + DATA SYSTEMS
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