Commercial Transactions on short credit terms

covered by export credit guarantees

commercial transactions on short credit terms

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 Deutschland AG 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.

federal

export credit guarantees

Federal Export Credit Guarantees – Hermes Cover – pro-

tect 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 coun-

tries 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 of Economics and Technology,

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 Deutschland AG

(Euler Hermes) and PricewaterhouseCoopers Aktienge-

sellschaft 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 know-

how 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.

what exactly are export credit guarantees?

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 mini-

mum contract value required for export credit guaran-

tees.

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 compa-

nies 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.

what can we do for you?4

Insurable risks

Export credit guarantees provide protection against

bad debt losses mainly due to

@ insolvency of the buyer

@ non-payment of an account within

6 months after the due date (protracted default)

@ legislative or administrative measures

and warlike events

@ non-conversion/non-transfer of amounts

paid in local currency

@ confiscation of the goods for political reasons

@ frustration of the contract for political reasons

Export credit guarantees …

@ make it possible to open up difficult markets

@ offer protection from non-payment

@ make export financing easier

@ create a level playing field

in international competition

@ support also small and medium-sized

enterprises

@ preserve jobs in Germany

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our products for the cover of transactions on short credit terms

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 non-

marketable 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.

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Wholeturnover and revolving cover

@ flexible insurance cover

@ simple and swift handling

@ easy administration

@ low costs

Buyer credit cover

@ immediate easing of the strain

on the balance sheet

@ enhanced liquidity

@ no negotiations about credit terms

@ revolving: simple and swift handling

Supplier credit cover

@ many possible combinations

@ customized cover options

@ cover before shipment possible

the advantages of the various cover options

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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.

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


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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 addi-

tional liquidity for the exporter.

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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 coun-

tries 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


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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 all private 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 secured 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 customers 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.

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options for inclusion in a wholeturnover policy light

Inclusion not possible for buyers in

@ Australia

@ Canada

@ Iceland

@ Japan

@ New Zealand

@ Norway

@ Switzerland

@ USA

@ EU member states

Inclusion mandatory for buyers in

@ all other countries

options for inclusion in a wholeturnover policy

Inclusion not possible for buyers in

@ Australia

@ Canada

@ Iceland

@ Japan

@ New Zealand

@ Norway

@ Switzerland

@ USA

@ EU member states

Right of inclusion in OECD member states for buyers in

@ Chile

@ Israel

@ Korea

@ Mexico

@ Turkey

Right of inclusion in non-EU/OECD member states

@ Public buyers

@ Affiliated companies

@ Letters of credit

@ Private buyers

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Wholeturnover Policies light

Wholeturnover Policies light (APG-light) are ideal for

exporters whose annual turnover in export business is

less than one million Euros and who normally agree

short credit terms of up to four months. Hence they

are aimed at small and medium-sized companies

whose turnover from export 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 com-

prehensive options for inclusions. 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.

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Manufacturing risk cover

If you already need cover during the good’s manu-

facture, 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 com-

mencement of manufacture right through to the pay ment

of the receivables.

other products

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Counter-guarantees

Frequently your business partners will request you to

provide contract bonds, such as advance payment, per-

formance 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 restric-

tion 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.

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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 con-

tract, 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 “Prämienberechnungs-Tool” on the Homepage of

the Federal Export Credit Guarantees (www.agaportal.de)

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.

how much does cover cost?16

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calculation examples for the premium payable for export credit cover (table)

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 Private buyer: CC3

Cost of cover: EUR 11,220 plus fees* or 1.32 % of the guaranteed amount

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 Public buyer: SOV


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 Private buyer: CC3


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 Public buyer: SOV


* For transactions of this volume an application fee of EUR 1.000 and an issuing fee for the guarantee declaration of EUR 250 will be charged in addition.

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how much foreign content is permissible?18

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 local costs and foreign

content worth up to a total of 30 percent of the contract

value may be in cluded 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 de -

serving particular promotion, which require careful in -

vestigation, the value may even exceed 49 percent.

Under Whole turnover Policies and Wholeturnover Poli-

cies light foreign content and/or local costs worth up

to 100 percent can be included in the cover. This holds

also true for short-term supplier credit cover unless

the goods to be supplied are capital goods. In that case

foreign content and/or local cost 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.

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.

where and how can you submit an application? 19

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 insta-

ble 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 indemnifi-

cation 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 per-

centage 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 con-

cerned.

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.

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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

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* For a limited period up to the end of 2013 the uninsured portion can be reduced upon application to 5 % against the payment of a premium surcharge.

The Federal Government has appointed a consortium

formed by euler hermes deutschland ag, Ham-

burg, as lead partner, and pricewaterhouse coopers

ak tiengesellschaft wirtschaftsprü fungs gesell -

schaft, 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.

Export Credit Guarantees of the Federal Republic of

Germany are granted under the control of the federal

ministry of economics and technology.

Bundesministerium für

Wirtschaft und Technologie

Referat VC2

Scharnhorststr. 34-37

10115 Berlin

Internet: www.bmwi.de

22

head office

Euler Hermes Deutschland AGFriedensallee 25422763 Hamburg

Phone: +49 (0)40/88 34-90 00Fax: +49 (0)40/88 34-91 75

[email protected]

berlin liaison office

Friedrichstadt-PassagenQuartier 205Friedrichstraße 6910117 Berlin

Phone: +49 (0)30 / 20 94 - 53 10Fax: +49 (0)30 / 20 94 - 53 20

[email protected]

branch offices

10117 BerlinFriedrichstraße 69

60311 FrankfurtGroße Gallusstraße 1-7

22761 HamburgGasstraße 27

50672 KölnHohenzollernring 31-35

81373 MünchenRadlkoferstraße 2

70597 StuttgartLöffelstraße 44

Federal Export Credit Guarantees

For all branch offices

Phone: +49 (0) 40/ 88 34-90 00Fax: +49 (0) 40/ 88 34-9141

[email protected]

09 2

401e

031

2

www.agaportal.de

Euler Hermes Deutschland AGExport Credit Guarantees of the Federal Republic of Germany

Postal address22746 Hamburg

Visitors should call atGasstraße 27Hamburg - Bahrenfeld

Phone: +49 (0)40/88 34-90 00Fax: +49 (0)40/88 34-91 75

[email protected]

Branch offices: Berlin, Frankfurt, Hamburg, Cologne, Munich, Stuttgart

Commercial Transactions on short credit terms

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