Credit insurance protects the seller of goods or services in a situation where invoices with a payment term issued to the buyer remain unpaid due to the buyer’s payment difficulties (commercial risks) or, in the case of export, due to the risks arising from the buyer’s country of residence (political risks), i.e. credit losses.
Commercial risks mean the buyer’s inability or, in some cases, unwillingness to pay.
Political risks are risks related to the buyer’s country of residence that are out of the buyer’s or the exporter’s control. Political risks include, for example, a foreign government’s measure that prevents the payment of a claim by the buyer, a moratorium or other political events that prevent or delay the transfer of amounts due.
Cross-border credit insurance on the Estonian market is offered by international insurance companies and Estonia's only credit insurance company Aktsiaselts KredEx Krediidikindlustus.
Types of credit insurance
Credit insurance can be used to insure a single buyer, selectively insure multiple buyers or cover the entire sales turnover, for both domestic and export transactions.
Both short-term and long-term credit transactions (transactions with a payment term) can be insured.
Short-term credit insurance is intended for companies that sell goods and services on both the domestic and export markets, for which the payment period offered to the buyer is less than 24 months.
Credit insurance for long-term export transactions is targeted at export transactions with payment terms starting from 24 months. These are normally sales of capital goods (e.g. appliances and plant equipment) or large-scale services (e.g. IT services), where the transactions can be divided into stages, different transaction investors can be included and payment for delivered goods or services can be made on the basis of an agreed-upon payment schedule.
AS KredEx Krediidikindlustus offers credit insurance for long-term export transactions on the Estonian market, in accordance with the State Export Guarantees Act, taking into account compliance of the insured transactions with the European Union and OECD’s export credit rules. Read more: Insurance of long-term export transactions
The cost of credit insurance
The costs associated with credit insurance are:
- expenses relating to the risk assessment of the buyer
- insurance premium
Application for insurance compensation
Compensation can be applied for, if an insured event occurs. This could be, for example, the bankruptcy of the buyer, or a situation where the buyer is in long-term debt, i.e. has not paid the claim within 180 days of the due date. To apply for the insurance compensation, the client has to complete the insurance compensation application form and add documents that prove damage.
For more information about credit insurance and the insurance solutions offered, please visit the AS KredEx Krediidikindlustus website.