What Is Export Credit Insurance?

What Export Credit Insurance Covers

Export credit insurance typically responds when an overseas customer does not pay an agreed invoice. This may happen for commercial reasons, such as insolvency or cash-flow difficulties, or due to political or economic events beyond the customer’s control.

For example, if a UK business supplies goods to an overseas buyer on 60-day payment terms and the customer becomes unable to pay, the policy may cover a percentage of the unpaid invoice. Cover levels commonly range between 80% and 95%, depending on the policy terms and risk profile.

This allows businesses to limit potential losses and avoid carrying the full financial impact of non-payment.

The Two Types of Risk It Covers

Export credit insurance generally protects against two broad categories of risk.

Commercial Risk

Commercial risk relates directly to the buyer. This includes situations where a customer becomes insolvent, enters bankruptcy, or fails to pay without a valid dispute. The policy can respond where non-payment arises from financial difficulties or default.

Political Risk

Political risk relates to events in the buyer’s country that prevent payment, even if the customer is willing to pay. Examples include war, civil unrest, government intervention, currency transfer restrictions, import or export bans, or nationalisation. These risks are outside the control of both the exporter and the buyer.

Why Export Credit Insurance Can Be Useful

For businesses trading internationally, export credit insurance can provide additional financial resilience, particularly when entering new or higher-risk markets.

Supporting market expansion

Having protection in place can make it easier to trade with new customers or in unfamiliar regions, where payment risk may be harder to assess.

Helping to protect cash flow

Unpaid invoices can disrupt cash flow and affect day-to-day operations. Export credit insurance can help reduce the financial impact of non-payment and support business continuity.

Improving access to finance

Some lenders and trade finance providers take a more favourable view of businesses with export credit insurance in place, as it demonstrates active risk management.

Managing growth-related risk

As export sales increase or become more concentrated among a small number of overseas customers, the potential impact of non-payment grows. Export credit insurance can help manage this exposure.

Is Export Credit Insurance Right for Every Business?

Export credit insurance is not essential for every exporter. Businesses trading with long-standing customers in stable markets, or those operating on advance payment terms, may have less need for cover.

However, it may be worth considering where businesses are:

• entering new international markets
• offering credit terms to overseas customers
• relying heavily on a small number of export clients
• working on larger or longer-term export contracts

For smaller businesses in particular, a single unpaid overseas invoice can place significant pressure on cash flow.

This information is provided for general guidance only and does not constitute insurance advice. Insurance requirements vary depending on individual circumstances, policy terms and insurer conditions.

Export Credit Insurance FAQs

Is export credit insurance the same as trade credit insurance?

Export credit insurance is a form of trade credit insurance that applies specifically to overseas customers. While trade credit insurance can cover domestic and international trading, export credit insurance focuses on protecting businesses against non-payment by foreign buyers.

What percentage of an unpaid invoice does export credit insurance cover?

Policies commonly cover a percentage of the unpaid invoice, often between 80% and 95%. The exact level of cover depends on the insurer, the country involved, the buyer’s risk profile, and the terms of the policy.

Does export credit insurance cover political risks?

Yes. In addition to commercial risks such as insolvency or default, export credit insurance may cover political risks. These can include events such as war, civil unrest, government intervention, currency transfer restrictions, or import and export bans that prevent payment.

Can small businesses use export credit insurance?

Export credit insurance is available to businesses of all sizes, including small and medium-sized enterprises. Smaller businesses may find it particularly useful when entering new international markets or offering credit terms to overseas customers.

Is export credit insurance mandatory for exporters?

No. Export credit insurance is not a legal requirement. However, some businesses choose to take out cover to help manage payment risk, particularly when trading internationally or working with new customers.

Does export credit insurance cover all overseas customers?

Cover depends on the policy terms and insurer approval. Insurers typically assess each overseas buyer and country before agreeing to provide cover. Some high-risk countries or customers may be excluded or subject to specific conditions.

Can export credit insurance help with securing finance?

In some cases, yes. Lenders and trade finance providers may view export credit insurance positively, as it can reduce the risk of non-payment and demonstrate that the business has measures in place to manage international trading risk.

What is not covered by export credit insurance?

Export credit insurance does not usually cover disputes arising from contractual disagreements, poor product quality, or services not delivered as agreed. Intentional non-payment or fraud by the insured business is also excluded. Policy terms should always be reviewed carefully to understand exclusions.

Do I need export credit insurance if I ask for payment in advance?

If customers pay in full before goods or services are supplied, export credit insurance may be less relevant. However, businesses offering credit terms or staged payments may still wish to consider cover.

How long does export credit insurance last?

Policies are typically arranged on an annual basis and reviewed regularly. Ongoing cover depends on continued approval of customers and countries, as well as compliance with policy conditions.