Account order is the most common transaction method in foreign trade business, and it is also the place where bad debt risk is most concentrated. Export credit insurance (policy insurance represented by China Credit Insurance) is a standard tool to deal with this risk, but many factories have either never heard of the secret of quota application, or they still step into the trap after they have insured it. This article explains the process and the five most common pits at once.
1. First find out what it protects and what it does not protect
There are two types of core risks covered by export credit insurance:buyer credit risk(delinquent payment, bankruptcy, rejection of goods) andpolitical risk(Exchange restrictions, import controls, war turmoil resulting in inability to pay). It does not cover commercial disputes per se-such as quality disputes and non-payment due to quantity shortages, which are commercial contract issues. Understanding this boundary is the prerequisite for avoiding the pit later.
2. Five-step standard process
- Step 1: Insured and agree on the insurance coverage.The factory signs an insurance policy with the credit insurance agency, stipulating the scope of the buyer insured, the compensation ratio (generally between 70% and 90% of the loss amount, as agreed) and the annual limit framework. The insured entity is the factory itself, and it can also be insured through an export agent, but the beneficiary of the policy and the operating authority must be clear.
- Step 2: Apply for credit limits for specific buyers.Each buyer with the account period must apply for a separate limit-the limit is the highest risk exposure that Credit Insurance is willing to bear for this buyer. When applying, you must provide the buyer's name, country, historical transaction, and proposed settlement method (OA30/OA60/D/P, etc.). Limit approval usually takes one to two weeks, and the amount depends on the buyer's credit standing.
- Step 3: Shipping declaration.Each ticket of insured goods must be declared within the specified time limit after shipment (mostly within 15-30 days after shipment, subject to the policy agreement), and shipments that are underreported are not included in the coverage. This is the most prone to accidents in the process, which will be discussed later.
- Step 4: Receivables tracking.The policy usually stipulates how many days the buyer is overdue will constitute a "possible loss." It needs to start paying attention and report the loss after the expiration reaches the agreed number of days (usually a certain period of time). Accounts receivable aging management should be started on the first day it is overdue, and should not wait until the loss reporting node.
- Step 5: Report losses and settle claims.Submit trade documents (contracts, invoices, bills of lading, customs declarations, collection records) as agreed in the policy and enter the loss assessment, verification and compensation process. Cooperating with investigation and retaining complete collection evidence during the claim settlement period are the key to the speed of payment.
3. What kind of orders are suitable for placing
| order type | recommendations | reason |
|---|---|---|
| New customers use credit for their first order | Recommend insurance and apply for limits | A gap in credit history is a scenario with high incidence of bad debts |
| Old customers suddenly increase their order volume | recommended that the insured | Financial pressure and moral hazard behind the heavy volume are rising |
| High-risk countries or markets with unstable exchange rates | recommended that the insured | Political risks and exchange risks are beyond the factory's control |
| Full prepayment (pre-TT) order | No insurance required | The credit risk has been transferred when the payment is delivered |
| letter of credit settlement | Judgment based on the credit standing of the issuing bank | Banks have low credit risk and can be insured selectively |
4. The five pits most commonly stepped on by factories
- Pit 1: Ship first, then insure.Goods shipped before the policy takes effect are not covered. The correct order is to confirm the validity of the policy before signing the contract, and confirm that the buyer's limit has been approved before shipping. Insurance that comes up on the last minute cannot save goods that are already in transit.
- Pit 2: The quota was 500,000 yuan, and the actual credit sales were 800,000 yuan.The limit only covers the exposure within the approved limit, and the excess is naked. When the amount is not enough, either reduce the account period, ship the goods in batches, or require partial prepayment, so that the actual exposure is always within the limit.
- Pit 3: Missing shipping declarations and evening papers.This is the hardest hit area for claims disputes. It is recommended to designate a person to be responsible for the declaration and add a checkpoint in the delivery process: the declaration and registration will be completed on the day of customs declaration and release, and the declaration records and shipment records will be reconciled at the end of each month.
- Pit 4: Treat commercial disputes as credit risks.The buyer's refusal to pay for quality issues is a commercial dispute, and the settlement path is negotiation, inspection, and arbitration, rather than directly seeking a letter for protection and compensation. If there is a problem with the goods, the certificate will be retained as soon as possible, a third-party inspection agency will issue a report, and a written collection will be made at the same time-only by clearly cutting out the "quality problems" and "arrears" can we go to the right channel.
- Pit 5: Treat credit insurance as a collection agency.Credit Insurance is a risk compensation mechanism, not a collection company. Buyers must start their own collection actions the first week after overdue: emails, phone calls, formal reminder letters, and keep all records. Collection records are not only necessary evidence for claims settlement, but may also directly urge the money back.
Summarize the principles of use in one sentence:The accounting period is within the limit, and the amount must be paid in advance outside the limit; shipment declarations are not carried out overnight, and overdue collections are not carried out every week.Only by implementing these four sentences into the process can credit insurance change from "a policy" to a real risk barrier.
common problems
1. The export volume of small factories in one year is not large. Is insurance cost-effective??
Calculate an account: The premium is charged in proportion to the amount insured, usually in the order of a few thousandth, and fluctuates with the buyer's credit rating, account period, and country. For factories that export millions of dollars a year, premium costs are usually far less than the loss of a moderate bad debt. The real criterion is not the size, but whether there is credit in your order-as long as the accounting period, the role of a small insurance policy is equally real. You can start with the two or three buyers with the highest risks first, and then expand the smooth process.
2. What should I do if the buyer's quota application is rejected or the quota is given low??
The low limit indicates that the buyer's credit rating is not optimistic, which in itself is a valuable signal. Options: Accept the limit and control exposure; require the buyer to increase the prepayment ratio or switch to a letter of credit; introduce medium-term financing arrangements from the exporting bank; or abandon the customer. The most undesirable thing is to bypass the limit and sell directly on credit-that is equivalent to spending the premium and only buying psychological comfort.
3. The buyer is overdue, what should he do in the first week?
Do four things in order: on the first day, give written notice (email + signable letter) and start to interest; on the third day, make phone calls to confirm the reasons for the overdue period and request a written repayment commitment; on the fifth day, evaluate whether to suspend subsequent in-transit shipments; At the end of the first week, the contract, documents, and collection records are compiled into a book. If the overdue period persists, the loss will be officially reported within the time limit agreed in the policy. For fast-moving factories, a considerable part of the overdue period can be recovered before reporting losses.
--Qihang AI Foreign Trade Research Institute·Let China Intelligent Manufacturing Set sail to the sea| Foreign trade customer consultation: 180-0327-6609
