Sole trader Jan Kladívko comes home from an exhibition in Azerbaijan with the success of having found a new customer wishing to purchase nails and other materials for 20 million crowns, provided that there is a 30-month payment window for goods supplied. While this is a huge triumph for Mr Kladívko, it comes with risks attached. What if the new customer doesn’t pay for the nails? For Czech sole traders, a twenty-million-crown default could put them out of business. What’s more, Mr Kladívko can’t wait 30 months for his money, because these are funds he needs for further production. He enters into an export contract with the importer and contacts his bank, which runs a solvency test at EGAP. The bank then concludes an insurance contract with EGAP and a factoring contract on the purchase of an export account receivable with Mr Kladívko. However, EGAP requires an upfront payment of at least 15% from the Ukrainian importer. Mr Kladívko exports the goods and sells his account receivable to the bank, for which he receives immediate payment. As far as Mr Kladívko is concerned, that is the end of the matter. Any default by the Azerbaijani importer is handled by EGAP and the bank.
The export supplier's credit financed by the bank is the credit provided by the exporter to the importer (foreign entity) in the form of deferral of payment for the delivered goods or services (export claim), bought from the exporter subsequently by the bank without possibility of retroactive sanction.
The insurance terms and conditions shall follow the rules of OECD Consensus (Arrangement on Officially Supported Export Credits). The maturity of the middle-term and long-term export supplier's credit is longer than 2 years and the importer shall pay in advance (advance payment) minimally 15 % of the total export value (price agreed in the export contract). The insured entity is bank against the risk that the importer does not pay properly the whole owing sum, i.e. the price for the delivered goods and services (export claim) in the due date. The insurance policy shall be signed also by the exporter acknowledging all his obligations following from the insurance policy, especially to assure a proper performance of export contract.