Nowadays, when trading with foreign partners, exporters can be required to sell goods on credit terms when payments are received after shipment takes place. Deferred payment sales is always connected with risk of non-payment or credit risk which is difficult to assess and diversify without financial products.
To protect the receivables of the Armenian exporters against the non-payment of their foreign buyers, Export Insurance Agency of Armenia provides short-term insurance of receivables against commercial and political risks.
Commercial risks are connected directly with the Foreign Buyer and take a form of general inability of the Foreign Buyer to fulfill his payment obligations (insolvency/bankruptcy) or refusal to pay without any legal reason.
Political risks cause the default of payment by the Foreign Buyer as a result of events in the Foreign Buyer’s country such as: administrative decisions or legislative measures, restrictions in conversion of currency, war, revolution, civil disorders, natural catastrophes etc.
While large enterprises can mitigate the risks of default and may not appear in financial distress as a result, small companies are particularly vulnerable. The non-payment in this case may cause significant financial distress or even doubt further provision of business activities.