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Article Overview:
- Dutch capital goods exporters to sustain a trade balance
- Netherland’s eligibility criteria for credit insurance
- Categories of risk coverage included
- Concept of buyer risk and country risk
Credit and investment insurance are incentives the governments offer for promoting exports and investments abroad. A recent example is the Netherlands government offering small and medium-sized Mexican companies insurance against political and commercial risk to finance imports of capital goods by the Dutch companies. The Dutch government’s arrangement for long-term financing for Mexican companies was already in place for many years. The recent announcement signals the re-launch of the product so that the businesses can reach out for a loan from any financial institution in Mexico and take the insurance through Atradius Dutch State Business. Atradius Dutch State Business NV managed the export credit facility officially on behalf of the Dutch State since 1932.
Balance of Trade
Atradius Dutch State Business offers credit insurance to Dutch capital goods exporters to maintain a trade balance. Balance of trade is the difference in the value of imports and exports of a country in a given period. ‘Trade deficit’ is a term used to describe a condition when a country’s import volume exceeds the volume of exports. Trade surplus results when a country exports a higher value of goods than imports. The more significant trade surplus is more robust is the country’s economy.
In 2019, the trade war between the US and China resulted in the most significant trade deficit for the United States. Germany recorded the largest trade surplus in the same year, with Japan and China behind it. In August, the Netherlands recorded a trade surplus of USD 5.3 billion, which was USD 6.8 in the previous month.
Eligibility Criteria for Credit Insurance in the Netherlands
The insurance is available for medium and long-term export transactions for capital goods like ships or greenhouses, machinery with a credit period exceeding 12 months, or transactions that take longer than 12 months. The latter is applicable for construction projects that take much longer to complete. To avail of insurance for short-term trades, exporters must take insurance from private companies.
Insurance Covers the Risk of Non-Payment
The most important protection that exporters get from the insurance is non-payment by foreign buyers, which is the most considerable risk in exports. The risk coverage allows exporters to offer competitive open account terms to overseas buyers because the cost of financing can be much more competitive. Although buyers’ creditworthiness indicates their reliability about timely payments, it might not always happen, and buyers might face situations beyond their control and falter on cost.
Incentive for Exporters
Credit insurance offered by the Dutch government is an excellent incentive for exporters who can plan for increased export targets without worrying about payments. Exporters can expand their presence in foreign markets and establish a larger share in emerging markets of developing countries, and they can compete better on the global stage. Secure payment improves exporters’ credibility and borrowing capacity as lenders are willing to offer more attractive financing terms. The enhanced financial strength allows exporters to aim for higher exports that benefit their business and economy.
Type of risk Coverage
The non-payment risk policy is the central policy offered by Atradius Dutch State Business that covers both credit risk and manufacturing risk. All other agency policies like the Buyer Credit Insurance Policy and for banks that provide finance and the Policy for contractors for overseas constructions projects follow the same basis and provide similar coverage.
Buyer Risk and Country Risk
The insurance policies within the framework of credit insurance are for medium and long-term transactions that can cover borrower or buyer risk and the country risk. Buyer risk arises from the buyer’s inability to fulfill the financial obligations mentioned in the contract. Such situations occur if the buyer goes bankrupt or receives an order for suspension of payment or a court ruling. The buyer could fail to pay despite being solvent even if there is no dispute about the quality of the goods or contract execution. This type of default by buyers who fail to make payment even after the stipulated waiting period in the contract is known as protracted payment.
The policy of the Netherlands government in the context of the Mexican contracts will surely boost exports to that country.
