Questions and Answers - Short-Term Trade Credit Guarantee
Page updated 3 Apr 2009
What is short-term trade credit insurance?
Short-term trade credit insurance is used to guarantee that the exporter will be paid in accordance with the supply contract. If the buyer fails to pay due to specified commercial or political events, the trade credit insurer must pay the insured (the exporter or their bank) the value of the contract (up to 95%). The trade credit insurer then seeks reimbursement from the buyer.
What is short-term trade credit re-insurance?
Short-term trade credit reinsurance is provided to the private sector to enable them to continue to provide insurance to its clients. If a trade credit-insurer has to pay out on a claim, then they are reimbursed by the reinsurer for a percentage of the claims amount. The reinsurer usually then manages the recovery process from the buyer (or its government).
Why is the government providing a short-term trade credit guarantee?
The current Global Financial Crisis has constrained the provision of short-term trade finance. Private trade credit insurers have reduced their lines of cover and some banks are reaching internal limits for accepting overseas letters of credit. This has had a corresponding negative impact on New Zealand exporters’ ability to continue trade in some countries, particularly small-to-medium exporters.
Who can apply for the NZECO’s short-term trade credit guarantee?
The NZECO short-term trade credit guarantee is provided to exporters for open account transactions and banks to support the acceptance of a letter of credit with payment terms less than 360 days.
The applicant must show that the private sector is unable to provide support on commercially reasonable terms and conditions.
In assessing a transaction, the NZECO will apply its existing criteria for cover. Key aspects of these underwriting criteria include:
- Credit-worthiness: Support will be provided for commercially sound transactions with credit-worthy buyers in normally insurable countries.
- Private Sector Participation: There must be evidence that the private sector is unable to provide support on commercially reasonable terms and conditions.
- NZ Content: The New Zealand business is exporting goods or services with at least 30% NZ value-added content.
- Exporter Capability: The New Zealand exporter has a proven trading history, managerial, technical, and financial capability.
How do I apply for the short-term trade credit guarantee?
The NZECO works with you and your bank. You should discuss your short-term trade finance requirements with your bank and the NZECO as quickly as possible.
For direct trade credit insurance, the NZECO requires an application form to be completed by the exporter and/or its bank. An application form is available on NZECO’s website or alternatively, you can contact +64-4-917-6060.
The NZECO will be contacting private sector trade credit insurers to discuss options for reinsurance.
How much does it cost to get a short-term trade credit guarantee?
Pricing for NZECO’s cover will be commensurate with the risk and costs associated with each transaction. Each transaction will be priced on a case-by-case basis.
Why would I use NZECO rather the private providers?
It's not an either/or question. If the private sector (either a trade credit insurer or bank) is able to assist you on reasonable terms and conditions, then NZECO is unable to provide you support.
Which countries are covered?
The NZECO is able to cover most countries. If you or your bank are concerned about the risks of the market you are moving into, NZECO’s services may be able to help.
NZECO assesses country risk using its existing criteria and guidelines applied for repayment terms longer than 360 days. These criteria will be applied on a case-by-case basis.