What is a credit guarantee?

The credit guarantee is a form of insurance that helps protect the seller's interests from the possibility of non -payment to the buyer. This type of coverage is often used when the goods are imported and provide exporters with a certain degree of protection that would be difficult to achieve differently. In some cases, this type of warranty is extended through a government organization. Other times, the credit guarantee is made available through banks that manage import and export transactions.

The exact structure of the credit warranty depends on the government regulations that control the transaction. In a situation where the buyer and the seller are in the same nation, it is not uncommon for this type of coverage to be issued in the so -called legal document that confirms that if the buyer fails to offer an agreed compensation for the purchase that the insurer will honor the debt. The warranty letter may be in the Form of the personal warranty provided by a third party or a financial entity that has expanded the credit line to the buyer.

If the credit guarantee includes imports of goods, the purpose of the document is to provide the exporters for sure that it will be compensated if the importer fails in the shipping payment. The document is often prepared by an export promotional agency in the country where the exporter lies. The amount of the warranty usually depends on the assessment of the agency on the buyer's faithfulness and the risk of transporting goods to the country where the buyer is located. There is also the possibility to obtain this type of warranty from an import export bank, a strategy that can sometimes provide an additional advantage in granting a discount to any other banking service that the seller wishes to win the same financial institution.

While the focus of the loan warranty is to protect the interests of the seller or exporter, the conditions are also in the best interest of the buyer. For example, if political riots lead to the inability of the buyer's payment, insurance coverage ensures that the seller does not have to waitfor a replacement. From this point of view, this warranty allows the business relationship to be suspended during the unrest and maintains the opportunity to do business again after the political crisis.