Magazine article Business Credit

Transform Your Foreign Receivables into Borrowing Power

Magazine article Business Credit

Transform Your Foreign Receivables into Borrowing Power

Article excerpt

Exporting is a growth industry. However, those companies that rely upon foreign receivables to obtain working capital financing may find borrowing difficult.

Many banks are reluctant to accept foreign receivables as collateral unless they are from a highly-rated, well known corporation or they are supported by a letter of credit issued by an acceptable foreign bank and confirmed with a U.S. bank rating of "A" or better. Alternatively, bankers may accept certain foreign receivables for inclusion in an exporter's borrowing formula if they are government insured.

GOVERNMENT INSURANCE IS AVAILABLE

The U.S. government's export insurance arm, previously the Foreign Credit Insurance Association (FCIA), which has been incorporated into Eximbank (the Export-Import Bank of the United States), offers a Multi-Buyer Insurance Policy which insures an exporter's short-term export sales (excluding cash-in-advance or confirmed letter of credit sales) with repayment terms up to 180 days (360 days for capital equipment with prior Eximbank approval).

Two different coverage options are available to exporters, depending upon their specific needs:

* split coverage, which covers 90 percent of commercial risks and 100 percent of all political risks with a deductible for commercial losses only; or

* equalized coverage, which covers 95 percent for both commercial and political risks. The deductible also applies to commercial losses.

In all cases, receivables from approved sovereign obligors are 100 percent insured without application of a deductible.

The claim filing period is from 90 to 240 days from the date of default, during which the receivable remains fully insured. In addition, Eximbank provides interest coverage to the exporter up to the earlier of 180 days from default or the date of claim payment.

LENDING MADE EASIER

When assignment of the proceeds of an insurance policy is acknowledged by Eximbank, a domestic bank with trade finance experience can more comfortably lend against the approved foreign receivables up to the coverage percentage and for the terms offered by Eximbank. Coverage also remains in effect during the waiting period prior to filing a claim. In settlement of a claim, Eximbank will issue a joint check to the exporter and the bank.

MONTHLY REPORTS REQUIRED

Eximbank requires exporters to provide monthly reports of shipments and premiums payable to Eximbank on the insured shipments. …

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