COFACE-Guaranteed Trade Credit: A Comprehensive Guide for International Importers

If you are searching for ways to enhance your cash flow and obtain postponed payment conditions with your foreign suppliers when purchasing goods, all the information you require about this is contained in this article.

This article focuses on how you can work alongside COFACE as an importer. It is a critical article because it can be a significant challenge to find the key facts you need about working with COFACE readily – as this information is not widely available.

With this lack of information, importers like yourself may struggle to understand how to work with the COFACE credit insurance tool as a Buyer. For this reason, you might miss out on the chance to maximize the success of your business.

As with all export credit insurance companies, COFACE is important for guaranteeing that your exporter doesn't experience non-payment risks – it insures against such risks. For this reason, COFACE works in the interest of the supplier you choose.

The key beneficiary, however – the company that will reap the rewards of COFACE's insurance guarantees – is the importer, who will receive their goods under credit terms and postponed payment conditions guaranteed by COFACE.

There might be some confusion as to how COFACE works for importers in particular. This is due to the non-existence of available information on this topic.

With this in mind, we have put together this comprehensive guide and a set of information specifically for importers. We have covered details on how you can use the COFACE credit insurance tool to establish deferred payment terms with your foreign supplier (who will be insured by COFACE).

Working with international exporters, COFACE is an international credit risk insurance company. It ensures exporters who sell goods internationally and offers them a guarantee that they will get paid.

The result of this insurance guarantee is that exporters can offer their COFACE-insured importers a time-capped trade credit arrangement. The trade-credit arrangement can last for 90, 120, or 180 days.

The key advantage of COFACE is that it has a global presence. The international credit risk insurance company was established in 1946, and it is now one of the globe's biggest insurers against credit risks.

COFACE boasts more than 4,100 employers located in 66 countries. It offers guarantees for exporter-importer trade in terms of the transactions they make, in 160 countries.

COFACE's global presence means that regardless of your company's location, and regardless of the location of your supplier, getting a COFACE guaranteed trade credit from your supplier is simple.

There is one main reason why suppliers offer trade credits that are guaranteed by COFACE. The reason is that offering deferred payments is not an issue for them, as they are in a good position financially. Most export companies are big factories with significant working capital backing them. They can also claim borrowed funds, and some manufacturers might even be listed on the stock exchange. They therefore can access capital markets.

Some factories with state participation have access to practically unlimited funds.

But there is one main problem that exporters face when offering deferred payment terms. This problem is credit risk, which refers to the potential non-payment of goods from the importer if they suddenly become financially insolvent.

There are three potential problems to consider relating to credit risks:

1. Manufacturing companies or exporters are often unable to gain access to foreign importers' financial reports independently. They might require assistance in this regard.

2. Exporters might not have the knowledge or ability to carry out an in-depth credit investigation to analyze potential credit risks at the hands of the importer. They, therefore, find it a challenge to decide to offer importers trade credits.

3. In some cases, if the exporters offer a deferred payment term, they might encounter a non-payment risk. This non-payment risk might not be a one-off; more than one importer might become insolvent and the supplier could, as a result, potentially become bankrupt because they would not be getting paid.

Therefore, in many situations like these, exporters might not be able to provide postponed payment terms to importers due to insufficient financial stability. But by approaching COFACE for an insurance guarantee, exporters can issue trade credits with no concerns of risk to their international importers.

There are five steps involved in getting a COFACE-insured credit term from your supplier:

1. The supplier acquires an insurance policy with COFACE

The insurance policy obtained by the supplier is generally an insurance contract. The contract provided by the insurance company insures against credit risks and also confers the supplier's customers postponed payment terms.

2. Your company will need to undergo a credit investigation, after which it will be granted a credit limit

In terms of the credit investigation, this is a process where your financial statements, information and reports will be analyzed by the insurance company. Once analyzed, the credit limit will be decided upon. The insurance company will then insure the transactions carried out by your business under a deferred payment condition.

The credit limit itself refers to the highest number of trade credits offered to you by the supplier, which are backed up by COFACE insurance.

For example, a business whose credit limit is the equivalent of $1 million, will be able to order goods under postponed payment conditions from one or more suppliers amounting to $1 million.

3. Your company will agree to and sign a sales contract, issuing you a postponed payment agreement with your supplier

The contract corresponds to the supply of your goods. It stipulates the period in which payment needs to be made and outlines the key conditions that the grace period has been issued.

4. Your supplier will then insure the invoices via COFACE. They will ship you the goods under postponed payment conditions.

5. You will then take delivery of your goods, after which you will pay for them under the postponed payment period, which might be 90, 120, or 180 days.

Here are the four steps you need to go through to get started with COFACE

1. Obtain your COFACE credit rating (also referred to as a credit score)

Given that it is not always easy to successfully procure a COFACE-guaranteed credit limit from your supplier, we advise you to optimize your time by getting a credit rating ahead of time. Some of the advantages of this include:

• You will be guaranteed a COFACE-guaranteed credit limit from your supplier in the future

• Finding a supplier with the COFACE proof of credit rating, that has already established, is less challenging. You will be able to settle on a grace period with COFACE's insurance tool without any difficulties

• The credit analysis or investigation process will be plain sailing because you will have already undergone analysis and received a credit score

Solicit a credit evaluation or ask for a consultation for free

2. Search for an exporter who already uses a COFACE insurance guarantee

We advise that searching for an exporter who has established a COFACE insurance policy and has one in place with existing customers is an ideal approach to setting up your credit limit. Keep reading for more information on this.

3. Agree with your supplier to establish the postponed payment conditions that will be backed by a COFACE guarantee

4. Undergo a credit investigation process

If you want to qualify and get your company approved for a credit limit, your supplier will solicit a credit evaluation of your business. They will subsequently establish the credit limit when you have been approved. The credit analysis consists of a thorough examination of your company's financial reports, carried out by Coface`s underwriting team. They will then deliberate and determine the outcome of your credit limit.

5. Sign a contract with your supplier to establish postponed payment conditions

All that is required now is for you to sign the contract and establish the postponed payment terms with your exporter.

This is the final step and nothing further will be required afterwards.

Our expert consultants advise and recommend that:

1. COFACE-guaranteed credit lines issued by suppliers are not easily obtained by all importers. For this reason, getting a credit rating beforehand is one way to ensure that you will be successful and approved for a credit limit. After this, all that is left is for you to negotiate with your supplier.

Book a consultation with our expert to get your Coface Credit Rating

2. Our other piece of advice is that you should start the search for suppliers with valid COFACE insurance policies. It is important because you should keep in mind that exporters might find it a challenge to offer credit terms to you if they still yet to obtain a Coface credit insurance policy (since the procedure is not very easy for the suppliers as well).

So, searching for and reaching a deal with those suppliers who are part of the COFACE network and who have already procured a valid COFACE insurance policy is ideal.

1. What is the price?

For the importer, it is free. This is because it is the exporter (the insurance company's client) will have already paid for the insurance. There is a possibility that the exporter might include the interest rate and bundle this with the goods' price to provide an extension. You will find that these points will need to be negotiated with the exporter.

2. Which types of companies qualify for credit lines and what is required?

The minimum perquisites for credit lines slightly exceed those of some credit insurance companies. Therefore, some of the conditions you will need to meet, and businesses who qualify for credit lines include:

· Those companies that have been operating over a full financial year

· Those businesses whose turnover is equal to or more than $10 million, and

· Those companies that are profitable

3. How long does it typically take to be approved for a credit limit?

The process of going through an evaluation and subsequently making an application for a credit limit can typically last between 15 and 21 days, with the maximum amount of time you can expect to wait being a month.