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Overview AGP: An open account export credit guarantee

To cover economically and politically induced bad debt losses against payment of risk-based fees, the German government supports German companies with so-called export credit guarantees, also known as government Hermes Cover. A less familiar form of cover in the mechanical and plant engineering sector is the wholeturnover policy (APG).

The wholeturnover policy provides cost-effective and easy-to-use cover for short-term receivables for German exporters who repeatedly supply several buyers in different countries. The special feature: The countries concerned are not the EU or industrialized countries, but the cover applies to developing and emerging countries.

ProduktionNRW offered North Rhine-Westphalian companies from the mechanical and plant engineering sector a virtual information event on wholeturnover policy cover with a limited number of participants on March 29, 2022, specifically introducing this form of cover to newcomers.

Opportunities offered by wholeturnover policies for the mechanical and plant engineering sector

In a keynote speech, Dr. Susanne Engelbach, a VDMA foreign trade officer, shed light on wholeturnover policies from the VDMA’s point of view. To consider wholeturnover policy, the type of goods and the payment term must be looked at more closely. In mechanical and plant engineering, wholeturnover policies are primarily considered for securing components or spare parts. However, capital goods can also be covered under a wholeturnover policy, such as construction machinery, which is traded on short-term payment terms of up to twelve months.

With wholeturnover policies, the state-owned Hermes Cover offers attractive collective cover for deliveries on open account and short-term payment terms. It is also frequently used as a supplement to private credit insurance.

In the ensuing discussion, it became clear that wholeturnover policies offer a range of possibilities for the mechanical engineering sector, for example enabling short-term cover for spare parts business.

Basic features of export credit guarantees and wholeturnover policies

Eva Stupp, corporate consultant at Euler Hermes AG, then presented the federal government’s export credit guarantees. These are a guarantee provided by the Federal Republic of Germany to cover the political and economic risks involved in export transactions by German exporters. The aim is to safeguard jobs in Germany, prevent payment defaults, enable access to difficult markets, preserve export opportunities in the event of crises, facilitate export financing and create equal opportunities among German exporters.
Unlike the cover for individual transactions usually found in the mechanical and plant engineering sector, the Wholeturnover Policy is a framework agreement with a mix of risks from various export transactions. The prerequisite is an eligible business model with sufficient reference to Germany and the customers must have sufficient creditworthiness.

The SGA requires a minimum risk mix: there should be at least three countries with a total annual turnover of at least 500,000 euros per year. If these requirements are not met, alternative forms of cover are available. Once a customer is included, this means an obligation to offer cover for the entire country. The Wholeturnover Policy is compiled together with the company in an individual consultation with the company advisors for export credit guarantees.

Cover for short-term business accounted for half of all federal cover in the Corona year 2020. The TOP country list for Hermes cover included Russia, Turkey, Brazil, China and Mexico – many of these countries are among the most important sales markets for mechanical and plant engineering.

In the concluding discussion, different export experiences with customers in China and Latin America were expressed. In particular, opinions differed on the Chinese market. In addition, one participant was interested in which department in the company should deal with export financing, such as sales or finance. It became apparent that both departments are necessary. The exchange in the concluding discussion made it clear that the possibilities of export credit guarantees are also of great relevance for the mechanical and plant engineering industry in NRW.

Further Information

The event was offered by ProduktionNRW. ProduktionNRW is the competence network for mechanical engineering and production technology in North Rhine-Westphalia and is run by VDMA NRW. ProduktionNRW sees itself as a platform to connect, inform and market companies, institutions and networks among each other and along the value chain. Significant parts of the services provided by ProduktionNRW are funded by the European Regional Development Fund (ERDF).