Export Credit Insurance vs Export Factoring: What Each Covers
Export credit insurance is a policy that pays a percentage of your loss if an overseas buyer fails to pay for covered reasons, whereas export factoring is a financing arrangement that gives you cash against an invoice before the buyer pays. They answer different questions: insurance is about loss if the buyer does not pay, and factoring is about cash while you wait. They can be used together, but neither is a substitute for the other.
Key facts
- Insurance pays a loss; factoring advances cash. An insurance policy on its own does not put money in your account when you ship.
- In India, ECGC Ltd is one provider of export credit insurance. Its Shipments (Comprehensive Risks) policy is a 12-month, whole-turnover, declaration-based policy covering commercial (buyer) risk, political risk and L/C opening bank risk, with a stated percentage of cover of 90% for exporters whose anticipated annual export turnover is above Rs 5 crore and whose projected premium is under Rs 20 lakh, subject to the policy schedule.
- The same ECGC product excludes shipments backed by Letters of Credit, and exporters must obtain valid credit limits on buyers and LC-opening banks from ECGC.
- Insured percentages are set per policy. They are not the full invoice value in every case, and payment is subject to the policy's terms and claims process.
- Neither insurance nor non-recourse factoring covers a genuine commercial dispute over the goods or services delivered.
What does export credit insurance actually cover?
An export credit policy covers specified risks if a covered event happens: for ECGC's Shipments (Comprehensive Risks) policy these are commercial or buyer risk, political risk and the risk of the bank that opened an LC. It pays a percentage of the loss after the policy's conditions are met. Conditions typically include having a valid credit limit on the buyer, declaring shipments on time, notifying overdue payments and taking loss-minimisation steps. The exact percentage and conditions are in the policy schedule.
How does that differ from factoring?
Factoring is a sale of the invoice for an advance. Whether the facility is with or without recourse decides who bears the loss if an eligible buyer fails to pay for credit reasons. With recourse, the exporter can be asked to refund the advance. Without recourse, on an eligible buyer and invoice, the finance provider takes the credit loss. Some finance providers support non-recourse with the help of credit insurance; whether that is available for a given buyer is decided in the facility terms and never assumed.
| Export credit insurance | Export factoring | |
|---|---|---|
| What you get | A claim payment for a covered loss | An advance against an invoice |
| When you get it | After a covered loss and a claim | After funding approval, subject to the facility terms |
| Pays for | A percentage of the insured loss | Cash timing; credit loss only if non-recourse and eligible |
| Needs | A policy and buyer credit limits | A facility and an approved buyer |
Do they work together?
They can. An exporter might hold its own policy and use factoring for cash, or a finance provider might rely on credit insurance to support non-recourse treatment on eligible buyers. How the pieces fit depends on who holds the policy, who is the insured and what the policy permits to be assigned. Do not assume cover continues after an assignment of the invoice; check with the insurer and the provider.
What does neither of them cover?
- A commercial dispute. If the buyer withholds payment over short shipment, quality or late delivery, that is a dispute risk, not a credit risk.
- Invoices outside the approved buyer limit.
- Anything excluded by the policy or facility terms. Read the exclusions and conditions before shipping.
This is why documents and proof of delivery matter before an invoice ever falls due. See also buyer credit limits explained.
Frequently asked questions
Does export credit insurance cover 100% of the invoice?
Not necessarily. The percentage is set by the policy. ECGC's Shipments (Comprehensive Risks) policy, for example, states a 90% percentage of cover for exporters whose anticipated annual export turnover is above Rs 5 crore and whose projected premium is under Rs 20 lakh, subject to its schedule and terms.
Who provides export credit insurance in India?
ECGC Ltd is one provider of export credit insurance in India. Its product terms are published on ecgc.in.
Is non-recourse factoring the same as credit insurance?
No. Non-recourse factoring is a feature of a financing arrangement. Credit insurance is a separate contract. They are sometimes used together.
Does insurance pay me when I ship?
No. Insurance pays a loss after a covered event and a claim. For cash at shipment you need financing, for example export factoring.
Is a buyer dispute covered?
Generally no. Insurance and non-recourse treatment address credit risk, not disputes over the goods or services delivered.
Sources
- ECGC Ltd, Shipments (Comprehensive Risks) Policy product sheet: ecgc.in.
- RBI, Frequently Asked Questions on NBFCs (Factoring Regulation Act, 2011): rbi.org.in.
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Check eligibility → Takes 60 seconds · no obligationGeneral information for exporters, not legal, tax or financial advice. Regulations change: check the current text with your Authorised Dealer bank or adviser. Any advance is set after credit review and under the facility terms.