Receivables Purchase Guarantee
Receivables Purchase Guarantee
The guarantee protects the bank against credit risks when the bank purchases invoice receivables from the exporter in connection with foreign trade.
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.
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.
Finnvera may temporarily grant new export guarantees with a short-term risk period (repayment period + manufacturing period less than 2 years) until the end of 2025 to the following countries (“marketable risk” countries):
- The Netherlands, Australia, Belgium, Bulgaria, Spain, Ireland, Iceland, Italy, the United Kingdom, Japan, Canada, Greece, Croatia, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Norway, Portugal, Poland, France, Romania, Sweden, Germany, Slovakia, Slovenia, Switzerland, Denmark, the Czech Republic, Hungary, the United States, New Zealand, Estonia
Due to the EU State aid rules, as an official export credit agency Finnvera cannot normally grant guarantees with a risk period of less than two years to the markets listed above. The service is provided by private credit insurance companies.
Export guarantees are an exception to the rule when:
- the applicant is an exporter that is an SME with an annual export turnover of less than EUR 2.5 million (group review), or
- it is a question of an individual transaction with a risk period of at least 181 days.
Please note that Finnvera’s role is to complement the private credit insurance market, and, even in the exceptional cases mentioned above, the service should be primarily sought from private credit insurance companies.
Guarantee costs
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.
Claiming indemnification
The beneficiary of the export credit guarantee, i.e. the Guarantee Holder 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.
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