Minimize export risk, optimize liquidity

Wow would anyone have expected the near-bankruptcy of an EU country five years ago? Who saw the "Arab Spring" coming? And what will happen with Russia and Ukraine? Every entrepreneur is aware that a customer could get into financial difficulties. He checks his customer's creditworthiness and, if necessary, builds additional security elements into his contracts. In addition to the normal economic risk - the insolvency of a customer - unforeseeable political events abroad can also lead to non-payment for an export delivery or a service rendered.

Secure receipt of payment

The most common reason for payment defaults is economic risk - a private buyer is in financial difficulties or a public sector client is facing national bankruptcy. However, the political situation in a country can also prevent payment. In Iran, for example, international payment transactions have been virtually blocked for years due to the intensified boycott measures. The outbreak of unrest or even civil war, as in Libya three years ago or Syria today, can make it impossible to deliver on time - and thus for the exporter to fulfil the contract.

However, different business practices, an unclear legal situation or non-transparent administrative measures in countries with corrupt administrative apparatuses can lead to problems. The foreign customs authority, for example, detains the goods at the border for months. Or the government imposes new restrictions on foreign exchange trading, making it impossible for the customer to pay for the goods. To ensure that the exporting company does not go away empty-handed in such cases, it can insure itself against this with SERV.

Supplier credit insurance and manufacturing risk insurance are particularly interesting in this context. With supplier credit insurance, the exporter covers his claim against the customer after the delivery has been made. It allows the manufacturer, for example, to dispense with an advance payment as security and, if necessary, to offer the customer longer payment terms. With manufacturing risk insurance, the exporter insures his prime costs in the development and production phase. These are particularly common in mechanical engineering or infrastructure projects where the manufactured export good cannot be sold elsewhere.

Liquidity for new export business

SERV also supports exporters in overcoming liquidity bottlenecks and advises them on the financial structuring of new export transactions. For many SMEs, it is difficult to obtain new loans to expand into new foreign markets. It is not uncommon for their guarantee and credit limits with the bank to have already been exhausted. As a result, the company has to deposit additional collateral in order to obtain the required loans or guarantees. In extreme cases, this can restrict its liquidity to such an extent that it is unable to take on attractive and otherwise unproblematic orders simply because it lacks the liquid funds to cover production costs. Particularly worthy of mention here are the counter guarantee and working capital insurance. These SERV products protect a bank that grants a loan to an exporter or provides a guarantee against a default by the exporter. This enables the exporter to obtain additional credit or guarantees from a bank without burdening its existing credit limit. Or the bank may even be prepared to grant the exporter an additional loan thanks to the cover provided by SERV.

Prime example

Bond guarantee A fictitious small company, let's call it Muster Lasertech AG, produces a high-precision laser grinding device for an Italian car manufacturer that is specially adapted to its production process. Muster Lasertech AG has to invest a lot of money in the development and production of this custom-made product; it therefore requires a down payment from the customer. However, the Italian customer is only prepared to do this in return for a bank guarantee. The house bank of Muster Lasertech AG could provide such a guarantee, but in return it would burden the credit limit of Muster Lasertech AG - money that Muster Lasertech AG urgently needs for the production of other orders. With a counter guarantee, SERV covers the guaranteed amount for the exporter vis-à-vis the bank. This allows the bank to issue the required guarantee for the exporter without burdening its credit limit or requiring cash cover. In this way, Muster Lasertech AG receives part of the costs for production in advance and still has sufficient liquid funds to accept new production orders.

If the down payment is not sufficient to cover the manufacturing costs, SERV can also make it easier for the exporter to obtain additional credit with a manufacturing credit insurance policy. With this insurance, the bank in our example protects itself against Muster Lasertech AG not being able to repay the loan, for example, if the Italian car manufacturer were to unexpectedly file for insolvency in the aforementioned export business.

SERV cover as a market advantage

At SERV - a federal institution under public law - the focus is on promoting the Swiss economy. Since most industrialised countries support their companies with comparable institutions (so-called export credit insurances or export credit agencies), SERV's offers contribute to Switzerland's international competitiveness as an export nation. For example, SERV supplier credit insurance enables an exporter to meet the payment terms of a foreign customer, which can sometimes be a decisive factor in winning an order in the face of fierce international competition. SERV cover also makes it easier for an export company to assign its receivables to a bank and refinance them. In this way, exporters can offer their buyers longer-term instalment payments, but receive their money immediately.

Effective export risk management

For SMEs in particular, it is worth checking the possibility of SERV cover as standard for every export transaction. On the one hand, this enables them to minimise the risks in export business, and on the other hand, the liquidity available for export transactions can often be optimised with insurance or a guarantee from SERV. SERV works together with the exporter and, if applicable, his bank to develop an insurance solution that is suitable for the export transaction in question. New customers are best advised to clarify the options in advance in discussion with a SERV advisor. Existing customers can use an electronic application portal to simplify the processing of insurance applications.