Credit Insurance – Exports and Domestic

 Q. What is Export/Credit Insurance?

A. Export Credit Insurance provides risks protection to the exporter who sells on credit terms against non-payment by his buyers. Non-payment may by due to buyer's insolvency, protracted default, non-acceptance of goods or economic and political conditions which are out of the control of the exporter and buyer.

Q. Why should I avail credit insurance service as I have no bad debts in the past?

A. The Credit Insurance Policy is a risk management tool and it helps you to stabilize your cash flow and protect your trade receivables in the ever-changing competitive and economic business climate. Also you can enhance your borrowing power from financial institutions.

Q. Can I insure a buyer in my own country?

A. Yes, a Domestic Credit Insurance Policy addresses the payment risks from buyer in the same country.

Q. How does credit limit operate?

A. The credit insurer issues a credit limit for every buyer with whom the policyholder trades. The level of the limit is set at the maximum amount that can be owed by the buyer at any time. The granted credit limit is the maximum insured credit line for a specific buyer which operates on revolving basis and the policyholder can trade within the approved credit limit throughout the policy period without further reference to the Insurer.

Q. What is the insured percentage under Credit Insurance Policy?

A. The insured percentage is up to 80% of loss against commercial risks and 85% against non-commercial risks.

Q. Why does ECGA charge premium on total business declared, when it exceeds the credit limit amount?

A. As per the policy, the premium is payable on actual export and domestic sales made to various buyers on whom credit limit have been issued and not on the credit limit amount. However, the Agency charges premium on sales declared by the policyholder in excess of credit limit due to the fact that those export sales made in excess of credit limit also be automatically covered once previous shipments are paid. If no premium is charged on those sales, it is off cover in accordance with the terms of the Policy in the event of non-payment by the buyer.

Q. Why should I consider insuring my business under Irrevocable Letter of Credit?

A. An Irrevocable Letter of Credit provides guarantee / security for receiving your payment of export bills provided the terms and conditions of the letter of credit are strictly complied with. However, certain events of political nature in buyer's country could prevent performance of sales contract or transfer of funds. In such circumstances, the Export Credit Policy of ECGA provides you protection against such losses.

Q. Do you provide credit insurance cover for all countries?

A. Yes, ECGA provides credit insurance cover to a wide spread of countries worldwide and ECGA also insurers domestic sales.

Q. What action to be taken by the exporter if the buyer requests for extension of due dates of payment?

A. If a buyer who is unable to make payment of the due date and requests for more time to pay the amount, the exporter should make a good commercial judgment on the request based on facts and circumstances of the case. If it appears that extending the due date of the bill is the proper course of action, then the exporter should seek the approval of the Insured (ECGA), giving in details the reasons justifying such action.

Q. What will be the consequences of late submission of declaration of business?

A. As it is a violation of a specified terms of the Policy, ECGA of Oman, as Insurer, has the right to refuse the business declaration after stipulated time. Thus, your sales already made will be off cover. Hence, it is highly important that all your sales whether it is domestic or exports are declared in time.

Q. What are the benefits of export and domestic credit insurance to exporters?

A. - Minimize the credit risks and maximize opportunities by exporting goods abroad

- Sell safely on credit terms and compete effectively to other suppliers

- Derive better credit control by keeping tab on the buyers and credit limits as approved by ECGA of Oman

- Assign your export Credit Policy as additional collateral to a bank in order to obtain additional financing at better terms

- Discount export bills as with Banks

- Provides greater financial liquidity and flexibility administering foreign receivables portfolio

Q. How can a policyholder assists ECGA in processing credit limit application more quickly?

A. First, the amount of the credit limit application should be realistic and close to the credit insured exporter’s probable requirements in the foreseeable future.

Second, the policyholder should provide (ECGA) with full and correct details of the buyer's trading style, address and the name and address of his banker.

Third, it is important that the policyholder gives full and actual details of previous trading experience with the buyer.

Fourth, if the policyholder has up-to date credit information on the buyer he can attach such reports together with any other additional information to the application.

Q. What is the validity period of a Buyer Credit Limit?

A. A credit limit does not have expiry date and it remains in force during the validity of the policy as it operates on revolving basis unless any credit limit is canceled and advised by ECGA due to adverse information on the buyer or due to unutilization for specific period.

Q. Are canceled or suspended credit limits applicable to existing outstanding debts?

A. Canceled or suspended credit limits continue to be applicable to outstanding debt pertaining to shipments effected prior to the date of cancellation or suspension of credit limit but no future shipments will be covered.

Q. Is it necessary to limit the value of my export contract to the value of the credit limit agreed by the Agency?

 A. Not necessary. Shipments could be effected over a period of time so that the amount outstanding for goods exported is, at any one time, within the approved limit.  In other words you can undertake contracts of a value greater than that given of your credit limit, since it is revolving.

Q. Upon receiving ECGA's credit limit approval what should I do?

 A. You should ensure that the approved buyer whose name and address is shown on the credit limit is the same party with which you have entered into the contract of sales. A slight variation in the name of a company can mean another separate legal entity. Should you wish to trade with the buyer's parent or associate or subsidiary companies, it is necessary for you to send in separate Credit Limit Application (CLA) since members of the buyer's group of companies are different legal entities. You should also pay particular attention to the amount, the payment terms, the expiry date (if any) as well as any specific conditions shown on it, e.g. the credit limit covers specific shipment only or you must report overdues to ECGA immediately or any other endorsement attached to the credit limit approval.

Q. As a policyholder, should I apply for a new credit limit for each new export order from buyer?

A. Not necessary as the credit limit is "revolving" provided that the maximum credit outstanding at any given time does not exceed the credit limit amount already approved.

Q. Why exporters sometimes do not get larger credit limits on certain buyers or ECGA refuses or reduces cover on a buyer?

A. ECGA may restrict or refuse cover on certain buyers for various reasons.  For example, it could happen if the buyer is not sufficiently credit worthy based on their financial standing or if his total commitment with other suppliers are already too high in relation to its size and financial capability or we may have recorded or received adverse payment experience or disputes with those buyers.  Thus ECGA is of the view that such restriction of cover on buyers will safeguard the interest of the exporters against possible losses. However, ECGA always try to decide on cover as objectively and pragmatically as we can in order to promote and enhance Omani exports while evaluating the risks on buyers.

Q. Can you afford to grant credit to your customers?

A. On an average, 40% of company’s assets are tied up in the form of commercial debt. All it takes for an otherwise well run business to become insolvent is for one major customer not to meet its payments. Even smaller debts can have a destructive effect. For example, if your profit margin is 5% and your client’s debt is just RO.10000, your company will have to achieve additional sales of RO.100000 just to make up for the loss. A credit insurance policy from ECGA can protect from the consequences of such an event.

Q. What risks are off cover by ECGA?

A. ECGA will not cover disputes between the buyer and the exporter regarding the supply e.g. quantity, quality, packing, etc, unless the policyholder gets a court ruling in his favour in buyer’s country. Also it does not cover causes inherent in the nature of goods, default of any agent of the exporter or of the collecting bank, and fluctuation in the exchange rate.

Claims & Recovery

Claims

Q. When should the policyholder submits Default Declaration Form?

A. Notification of all payments not received within 2 months of their due dates should be sent to the Agency on the Overdue Declaration Form. The declaration should be sent on or before the 10th of every month.

Q. When payments are not realized due to exchange transfer delay, when should the claim be filed?

A. Where payments are not realized due to exchange transfer delay, claims can be filed with the Agency after six months from the date on which the buyer has, after making the payment in local currency, completed exchange control formalities necessary for the transfer of funds to Oman. Where the Agency has stipulated a longer waiting period, claims can be filed only after completion of such period.

Q. What if they are disputes with the buyer with regard to the quality of the shipped products? 

A. If the buyer raises any disputes regarding quality of goods exported, the claim for the resultant loss will be considered once the disputes are settled amicably by the exporter with the buyer or the exporter obtains judgment in his favour from the court of low in the buyer country.

Q. In case the buyer requests for extension of due date of payment what action to be taken by the exporter?

A. If a buyer who is not in a position to make payment on the due date of the export bill and requests additional time to settle the amount, the exporter should make good commercial judgment on the request of the buyer based on facts and circumstances of the case. If the exporter is convinced that extending the due date of the bill is the proper course of action, then the exporter should seek the approval from ECGA of Oman giving in details the reasons justifying such extension.

Q. How and when do I file a claim?

A. You can file your claim when you are aware of any adverse information which may affect the payment of your invoices related to credit insured sales. Our Claim and Recovery Department will provide full assistance to you to file a claim and recommend appropriate measures to minimize your losses.

Q. What documents do I need when filing a claim? 

A. - Copy of the sales contract

 - Sales invoices

 - Proof of debt/non-payment of sales proceeds

 - Proof of dispatching goods

- Proof of insolvency if applicable

- Documentation outlining the action you have taken to collect the overdue amount

Q. What is Date of Ascertainment of Loss (DAL)?

A. As per the Export Credit Policy, it specifies a minimum period of time after which loss is ascertained to indemnify a claim for loss. This particular point of time is known as the "date of ascertainment of loss" which must be reached before any claim is paid

Recoveries

Q. What is the role of exporter and ECGA of Oman with regard to Recovery of claim paid?

A. The exporter has a prime responsibility as per the Policy to vigorously pursue recovery action and to keep the Agency informed of such action from time to time. As and when any amount is recovered, the amount will have to be shared with the Agency in the ratio in which the loss was borne.

In case of recovery expenses, documentary evidence of recovery expenses inquired by the exporter with the approval of the Agency should be furnished to the Agency to reimburse the recovery expenses in the same proportion in which losses were apportioned between the Agency and the exporter.

Q. Apart from indemnifying the exporters for losses, does ECGA contribute towards recovery costs? If so, what nature of costs incurred by the exporter?

A. Yes. ECGA normally reimburses the legal fees paid to the appointed lawyer and the court, in the buyer's country in the proportion of its liability to the total outstanding debt provided the claim for loss is admitted by ECGA. It does not contribute other expenses such as travel expenses, auditor's fees, translation charges and any overhead expenses, etc. However, ECGA is not obliged to share recovery costs, as per the policy. Also being an insured, you should inform ECGA, on the legal fees agreed upon in advance.

Q. What is the role of the exporter in the recovery and sharing of such recovery?

A. The exporter is required to vigorously pursue recovery action and to keep the Agency informed of such action from time to time. As and when any amount is recovered, the amount will have to be shared with the Agency in the ratio in which the loss was borne.

Q. What is expected from the exporter with regard to the recovery?

A. The exporter should keep the Agency informed of all actions taken to recover amounts in default. The Agency also will assist the exporter towards recovery action and suggest certain course of action based on the development against the action already taken by the exporter. The exporter is required to act on the basis of such advice provided by the Agency in accordance with the terms of the Export Credit Policy.

Q. Once the claim has been paid by ECGA, will it take over recovery action?

A. After payment of a claim, ECGA has the right to take over the debt, but normally ECGA requires the Policyholder to proceed with the recovery action along the path already advised and agreed by ECGA considering the insured being the contractual party with the buyer for the export sales made.

Q. What is expected from the exporter towards maximizing the recovery?

A. The exporter should keep the Agency informed of all steps already taken towards recovery of amounts in default. The Agency will also suggest certain course of action for recovery based on the development and circumstances.

Q. Does ECGA contribute to recovery costs?

A. Yes, the Agency will reimburse the policyholder the legal fees paid to lawyers in the buyer’s country up to the proportion in which liability for the debt has been admitted by ECGA. Also the policyholder should obtain concurrence form the Agency to initiate legal action for recovery.

Q. What action as policyholder should take when recoveries are received from buyer?

A. All proceeds of recovery action must be remitted in full promptly to ECGA for allocation. The Agency will then allocate proportion in which the original loss was shared.

Q. Does ECGA take over recovery action once a claim has been paid?

A. After payment of a claim, ECGA has the right to take over the debt, but while it does exercise this right in some instances, it will normally require the policyholder to continue recovery action along the path already agreed with ECGA subject to any further requirements it may have.

 Q. What recovery costs are not admissible?

 A. ECGA will not contribute any costs involved in settling disputes. Also ECGA does not contribute any in-house costs and overheads such as administration, travel expenses.

Q. In the event of non-payment of any bill, the exporter is expected to take what action?

A. He is expected to take necessary action to minimize the possible loss. Action should be prompt and effective.

Q. What percentage of recovery made by ECGA of the claims it has paid since its inception?

 A. The Agency has managed to recover16% of the total claims it has paid to its policyholders since its inception of its operations. This is in line with the average for other emerging ECAs where the recovery ranges from 10% to 20%.

Post-shipment Financing

 Q. How does the Export Credit Policy help to raise financing?

 A. The Export Credit Policy is normally recognized by the commercial banks as a valuable form of an additional security. If necessary, the exporter can assign the benefits of the Policy to his financing bank which allows ECGA of Oman to pay claims directly to the Bank. In consequence, the credit insured exporter can enjoy improved financial facilities through relatively lower interest rates.

Q. What measures are expected you bank to do in order to minimize losses?

A. (1) You must use all reasonable and usual care and skill and take all practical measures, including any measures which may be required by us, to prevent or minimize loss and we shall not be liable for loss if you fail to take all such practicable measures to prevent or minimize loss within a reasonable time after you have learned of the occurrence of a cause of loss or of any event likely to cause loss;

 (2) You must promptly notify us in writing when you become aware of the occurrence of any cause of loss, or of any event likely to cause loss, or that the Issuing Bank is unable to pay its debts as and when they fall due or that the Issuing Bank is in financial difficulties.

 (3) You must provide us with all information and documents that we may require.

Q. How can Banks play a greater role in the process of enhancing the services that the Agency provides to exporters?

A. Export Credit Guarantee Agency of Oman has signed MOUs with most commercial banks operating in Oman under the post-shipment financing program whereby credit insured exporters can discount their export bills with commercial banks against preferential interest rates, thus reducing their post-shipment financing cost. ECGA of Oman can also issue pre-shipment export credit guarantees whereby banks are able to provide financing at a pre-shipment stage for working capital needs of exporters. In addition, the Agency will be launching a new product during the first half of 2014 titled “Documentary Credit Insurance Policy” whereby the commercial banks in Oman add their confirmation on irrevocable letters of credit after obtaining the Agency’s guarantee in order to protect them against the risk of non-payment of an irrevocable letter of credit issued by the importer's bank. Therefore, these products offered to commercial banks in the Sultanate of Oman will play a great role in the process of encouraging and promoting export insurance.

 Q. What can ECGA do if the exporter faces difficulties in discounting export bills with the commercial banks for which the Agency has entered MOU?

 A. Upon receipt of intimation from the exporter to this effect, ECGA would contact the concerned bank to ascertain the reasons for not discounting the export bills which are credit insured under the Policy and endevour to assist the exporter. Sometimes, the banks may have some restriction in extending further credit facilities due to past due facilities with them, or with the other banks which are under litigation.

 Q. What are the benefits of bills discounting to eligible credit insured exporter under the ECGA’s Post-shipment Financing Scheme?

A. The post-shipment financing allows the exporters to improve on their liquidity or cash flow position as they get necessary funding from the commercial banks through bills discounting of their export receivables and at a concessional interest rate as agreed between the Export Credit Guarantee Agency and the commercial banks in the country.

 Pre-shipment Financing

 Q. As an small sized exporter, how to obtain pre shipment financing from ECGA of Oman?

 A. The exporter should first obtain export credit insurance cover against the buyer to whom shipments are to be made under the Policy in order to be eligible for pre shipment financing. Then, the eligible exporter who wishes to avail pre shipment financing facilities should contact his bank who in turn would apply to ECGA of Oman for guarantee to provide such financing. ECGA of Oman is not involved in providing such financing directly to the policyholder.

 Q. Why does Export Credit Guarantee Agency issue pre-shipment credit guarantees on behalf of credit insured exporters to commercial banks?

 A. The Agency issues pre-shipment credit guarantee to commercial banks in order to assist the exporters in obtaining pre-shipment financing for the purpose of purchasing raw materials, processing/manufacturing and packing of goods to be exported.

The guarantee fills the security gap needed especially for small sized exporters who are in need of such financing but lack necessary collateral.

Q. As a credit insured exporter to ECGA how can I obtain cover for pre-shipment as well as post-shipment periods?

A. Export credit indemnity cover is available prior to shipment if your company is carrying any risk of loss. A contract policy can be issued by ECGA to the exporter for such shipment. The extent of pre-shipment risk will depend upon the type of goods produced. If non-standard or made to individual specification pre-shipment cover will be given. Otherwise post shipment only. The interest rate subsidy will be available from date of export only.