How to Deal with Sinosure as an Importer
Explore our in-depth guide on handling the Sinosure export credit insurance services and getting deferred payments for your imports from Chinese suppliers.
Foreign companies looking to import goods from China often face a hurdle to executing these international transactions. This is the need to pay for a large part of their order up front. Payment terms in contracts with Chinese suppliers can require as much as 30% of the total up front as a hedge against the importer’s nonpayment, also known as its credit risk. The remainder of the payment is usually due before the Chinese exporter ships the goods.
Funding this can tie up the importer’s working capital, which can make some otherwise attractive deals uneconomical, even if the importing company has a demonstrably established market for the goods. If the importer must wait for one purchase be sold to raise the working capital to fund the next order with a Chinese exporter, it can slow down the entire process, depressing demand for the Chinese goods and reducing profits for the foreign buyer.
The reason for Chinese companies’ reticence to give generous payment terms to their customers is they are unable to do deep-dive credit analyses of all their overseas buyers. This is particularly the case for importers that have not done business with an exporter in the past since there is no track record of successful transactions to establish trust.
Sinosure, the China Export & Credit Insurance Corporation, is an official financial institution designed to help in cases like that. It provides export credit insurance to companies in China seeking to do business with foreign buyers without having to bear the risk of nonpayment. While Sinosure’s clients are the exporting Chinese companies, its business benefits importers outside of China by eliminating cash flow issues and extended delivery times.
What Is Sinosure
Sinosure is an export credit agency, or ECA. It is owned by the Chinese government, which set it up in 2001 to support China’s foreign economic and trade development and cooperation. It operates as an independent legal entity.
It is similar to those maintained by other large exporting nations. For example, its counterparts in the U.S. and U.K., respectively, are the US Export Import Bank (US Exim) and UK Export Finance (UKEF).
In China Sinosure’s mission is to “work to actively expand the coverage of export credit insurance and provide comprehensive risk protection for exports of Chinese goods, technologies, and services, as well as overseas contracting and investment projects.”
Sinosure’s primary role is to provide export credit insurance and guarantee services to Chinese exporters and their overseas buyers. For these Chinese companies, the insurance company acts as a crucial risk mitigation factor, offering protection against potential trade uncertainties.
Sinosure extends its services to a diverse range of small and medium-sized enterprises (SMEs) and large corporations. Typically, when Chinese sellers engage in international trade, they seek payment in advance. As noted above, the conventional contract’s payment terms often include an initial down payment of around 30% before commencing production, with the remaining 70% due once production concludes, but before the order is shipped.
The basis of such payment structure lies in the fact that many exporters may lack the capability or resources to evaluate the creditworthiness of foreign buyers accurately. Consequently, they might be hesitant to extend deferred payments altogether, opting for upfront payments as a safeguard against the considerable risk of non-payment.
However, this approach poses challenges for importers. Their capital may be tied up in existing orders, making it difficult to prepay for new orders. This financial constraint can limit an importer’s ability to meet market demand and expand their businesses.
Sinosure is a company that works with issues like that. The agency offers trade credit insurance coverage to protect exporters against the risk of non-payment by buyers. With this insurance safeguard, suppliers are more willing to extend deferred payment terms and trade turnover with their foreign partners, to the mutual benefit of both parties.
Typically, Sinosure’s short-term credit insurance plans allow for a deferred payment period of around 90-120 days. However, the exact terms can be adjusted, depending on the specific relationship between the buyer and the seller.
In the year 2022, Sinosure ensured export credit worth more than $700 billion for approximately 240,000 Chinese exporters. This compares with only $2.61 billion insured that year by US Exim. Sinosure insures so much more because it is a key part of the country’s export drive, and it maintains a large sales and customer service network throughout China, whereas US Exim generally focuses on a few large-scale industries like airplanes, power generation, and infrastructure.
Sinosure’s credit analysis acumen is notable. It paid out claims to companies and banks totalling only $1.4 billion in 2022, or one-tenth of one percent of the amount it insured. This proves that the agency has facilitated China’s international trade ventures without putting much of the government’s capital at risk.
Sinosure has five main products.
Short-term export credit insurance.
This protects enterprises from the loss of A/R resulting from commercial risks or political risks when they export goods and services from China. The covered credit period is generally within one year, and not more than two years.
Medium and long-term export credit insurance.
This covers risks in relation to the collection of the accounts receivable (A/R) for financial institutions, exporters or financial leasing companies under the export-related loan agreement, commercial contracts or leasing contracts respectively. The tenor is generally 2-15 years.
Overseas Investment Insurance.
This protects investors and financial institutions from economic losses resulting from political risks such as expropriation, exchange and transfer restrictions, war and political violence, and breach of contract in the host country. The tenor is not more than 20 years.
Short-term project insurance.
This protects exporters from the loss of costs incurred or A/R due to the buyer’s failure or inability to fulfill its payment obligations under the export contracts or engineering contracts. The covered credit period is generally within two years (included).
Domestic trade credit insurance.
This protects enterprises from the loss of A/R or advance payment resulting from commercial risks in domestic trade. The covered credit period is generally within one year.
How Sinosure Works
The process to obtain a Sinosure guarantee is fairly rapid – fast enough so that it does not typically delay transactions back. Here are the usual steps.
1. An importer goes through Sinosure’s investigation process to determine its creditworthiness. This takes about three weeks. (See below.)
2. A Chinese supplier applies for an insurance policy with Sinosure, if it does not have one already.
3. The supplier registers the sales contract with Sinosure.
4. The buyer fulfills the initial payment requirement, usually from 10% to 30% of the total invoice price, and the exporter starts the production of the ordered goods, and proceeds to ship them.
5. Once the shipment arrives at its destination, the importer takes receipt of the order. The deferral period typically extends up to 90 days, although it may vary.
6. At the end of this deferred period, the importer pays off the debt owed to the supplier.
How Importers Can Get Sinosure Credit Limit
A Sinosure credit limit is the maximum amount of insurance that ECA is willing to offer an exporter for contracts with a particular importer. If you, as an importer, have a Sinosure credit limit of $1 million, this means you can get $1 million in trade loans from your Chinese partners, secured by Sinosure.
When seeking a Sinosure credit limit, global buyers face a challenge: Sinosure does not engage in direct communication with foreign companies. It is barred from doing so by China law. Even if a buyer finds Sinosure contact details online, they won’t respond. Therefore, enlisting the services of a specialized consultancy, like Axton Global, is vital for importers who want to prepare to do business with a Chinese exporter under a Sinosure guarantee.
How Much does Sinosure Insurance Cost?
The cost of Sinosure insurance depends on the credit limit amount, the importer’s risk, as determined by the underwriters, and the terms of the policy. The fee typically ranges from 1% to 3% of the credit limit amount.
How Axton Global Facilitates Sinosure Transactions
Axton Global operates as the essential intermediary between your import business and Sinosure. The company has expertise to streamline the entire process of applying for a credit limit. The journey starts with the provision of your company’s financial documentation, a first step in Sinosure’s investigation process. It leads to the successful assignment of a credit limit.
In addition to this, Axton Global helps clients:
1. to increase their Sinosure credit limits
2. to find reliable Chinese suppliers for their business needs
3. to negotiate deferred payment terms with suppliers and arrange the necessary paperwork
4. to transfer a client’s credit limit from one supplier to another.
Founded in 2008, Axton Global is the market leader in trade finance services for companies that import goods from China. The primary goal is to boost its customers’ business growth by enabling them to get the best possible terms from their Chinese suppliers, improving their cash flow and helping them to run their businesses more efficiently.
Axton Global has unparalleled experience working with – and access to – Sinosure, meaning its clients can benefit from years of experience bridging the cultural and financial gap between Chinese exporters and buyers around the world.