Receivables Purchase Guarantee
Receivables Purchase Guarantee
The guarantee is typically suited to continuous deliveries or a one-off transaction that has a short payment period. Owing to the EU rules, short-term (less than 2 years) guarantees are normally granted for export transactions where the buyer is located outside the EU and other Western industrialised countries.
The exporter and the buyer agree on the terms of the export transaction by signing a written and legally binding sales contract. Once the delivery defined in the contract is completed and the exporter thus has the right to payment, the exporter can sell the corresponding invoice receivables to the bank. The Receivables Purchase Guarantee enables the exporter to provide the foreign buyer with time for payment while being able to convert the receivables to cash.
The guarantee provides the bank with a solid security against risks associated with the buyer and the buyer’s country. The guarantee also secures the bank against a possible misconduct of the Exporter, e.g. commercial disputes and documentation risks.
Risks covered for the bank
- Commercial risks, which include the buyer’s inability and unwillingness to pay.
- Political risks, which are usually attributable to the buyer’s country and are beyond the control of the financier and the buyer, e.g. restrictions on transfers of the credit currency, rescheduling of debts or force majeure events, war, civil war etc.
- Risks related to possible misconduct by the exporter.
Accordingly, prior to issuing the guarantee, Finnvera investigates the preconditions for granting the guarantee based on the information provided by the exporter. The exporter and Finnvera also need to agree on common principles. Primarily the financing is done without right of recourse against the Exporter. Exceptions to this rule include events such as commercial dispute, contested claim or the buyer not being liable for payment under the contract.
Terms and conditions of the Receivables Purchase Guarantee
The guarantee can be granted when the credit limit of a single buyer does not exceed EUR 2 million. The guarantee is granted without collateral requirements.
The maximum coverage is 90% and the residual risk of 10% rests with the bank. The bank can transfer the remaining liability to the exporter or demand some kind of security, such as cash collateral.
Preconditions for granting the guarantee
- The export transaction meets the requirement for Finnish interest.
- Based on financial information and analysis, the buyer is creditworthy.
- The buyer’s country has an acceptable credit standing, and there are no known obstacles to selling invoice receivables related to the country.
- The exporter is eligible for a guarantee based on the following factors: the results of the exporter’s operations, the financial standing of the exporter and its ability to carry out the export transaction. Also the risks involved in the transaction affect eligibility.
- Finnvera and the exporter agree on a counterindemnity.
- The payment terms are in accordance with international practice.
Finnvera can grant new ST guarantees (risk period less than 2 years) for the following marketable risk countries until 31.12.2021:
- Austria, Bulgaria, Belgium, Croatia, Cyprus, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Italy, Ireland, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, USA
- New buyers can be approved until 31 December 2021 and export transactions with the approved buyers can be covered until 29 June 2022
Normally, as an official export credit agency Finnvera can’t grant guarantees with a risk period of less than 2 years (manufacturing period + repayment period) to the so-called marketable risk countries due to EU state aid rules. As a part of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, the EU Commission has announced the above countries as temporarily non- marketable until the end of December 2021. Consequently, the official export credit agencies of the EU countries are able to provide credit insurance as one way to address the impacts of the corona virus crisis.
Finnvera’s role is to to complement the private market during the corona crisis. The private credit insurance companies are the primary source of services in this field.
Contact information for the credit insurers operating in Finland:
Atradius Credit Insurance N.V.
Tel. (09) 6811 2422
Tel. +358 (0)50 596 7431
Euler Hermes Luottovakuutus
Tel. 010 850 8500
Tel. +358 (0)20 7805 790
The bank charges the exporter a guarantee premium when the exporter sells invoices to the bank. The amount of the premium depends on the payment period and the credit rating of the buyer and the buyer’s country.
The beneficiary of the export credit guarantee, i.e. the Guarantee Holder, usually the exporter or the bank, submits a claim for indemnification based on an export credit guarantee with a signed written application. The applicant may also be the transferee of an indemnity right.