As an importer, you’ve likely dealt with the cash flow problems that can hold back your business.
You may find your working capital is tied up in existing orders, making it more difficult to take on new orders – even if you know there’s a market for these orders in your home country. This problem can be made worse by long shipping times.
This can limit your ability to grow your business and market share, even in good times when business is strong.
Fortunately, for those doing business with suppliers in China, there is a solution: Sinosure.
What is Sinosure?
Commonly referred to as Sinosure, the China Export & Credit Insurance Corporation is a state-owned export credit agency. Its role is to minimize risk to Chinese exporters by providing insurance against non-payment by customers outside China.
For many importers, working with Chinese suppliers can sometimes be difficult.
This is because, generally, Chinese exporters will want payment for a purchase order in advance. The typical arrangement is a 30% down payment before production begins, with the remaining 70% paid after production is completed, but before the order is shipped.
This arrangement exists because many exporters may not be able to assess the creditworthiness of the buyer with whom they are doing business. They may not have the experience or the resources to investigate a buyer in a foreign country. So they request payment in advance to eliminate the significant risk of non-payment.
But this poses a problem for many importers, who may have their working capital tied up in existing orders. Importers may have to pass on orders that they know they can sell, simply because they don’t have the money to prepay right now. This limits the importer’s ability to meet market demand and grow their business; it limits the exporter’s potential sales; and in general, it slows trade and economic growth.
Sinosure’s job is to solve this problem. It provides exporters with insurance against a buyer’s non-payment, i.e., trade credit insurance. With that guarantee in place, suppliers are willing to grant deferred payment. This allows those suppliers to increase their trade turnover with foreign business partners – and does the same for importers.
If an exporter lacks the capital to offer deferred payment to a buyer, with a Sinosure policy, they can go to a lender that deals with trade credit and get financing for the deal.
Sinosure’s portfolio of products insures against credit, commercial and political risks to Chinese firms doing business abroad. It insures against such credit risks as insolvency and bankruptcy, commercial risks such as fraud, and also against political risks such as war, sanctions, restrictions on money transfers, and expropriation and nationalization.
Sinosure’s trade credit insurance plans typically allow for a deferred payment period of 90 days, though this can be longer or shorter, depending on an importer’s relationship with the supplier.
Sinosure offers credit insurance to exporters who work with small and medium sized enterprises (SMEs), as well as large corporations.
Sinosure was formed in 2001, when the export credit insurance departments at the People’s Insurance Company of China and the China Export and Import Bank were marged as part of China’s accession to the World Trade Organization.
In 2020, Sinosure insured more than $700 billion in export credit for 140,000 Chinese exporters.
Sinosure has an “A+” (strong) credit rating from Fitch Ratings and S&P Global Ratings.
How importers can use Sinosure to get trade credit
Sinosure offers insurance policies to Chinese suppliers, not buyers abroad, but an importer outside China will still have to be accredited by Sinosure so that their Chinese trade partner can have their trade contract insured.
For this to happen, the importer outside China has to pass through Sinosure’s credit investigation, a process that typically takes 21 days. Once the investigation is complete, Sinosure will assign a credit limit – also known as a Sinosure credit rating – to the importer.
Once the importer has a credit limit, the Chinese supplier can then apply some or all of this credit limit to their contract with the importer, allowing them to offer deferred payment terms for the order.
However, there’s a catch: Sinosure doesn’t deal directly with buyers outside China. This means that, as an importer, you will have to hire a company that specializes in obtaining Sinosure credit limits for importers. The market leader in this field is Axton Global.
The Sinosure process
Obtaining a Sinosure credit limit begins with the importer going through Sinosure’s credit investigation, which, as mentioned before, typically takes 21 days. Once the investigation is complete, Sinosure assigns a credit limit to the importer.
Once this credit limit is in place, the supplier in China opens an insurance policy with Sinosure, assuming they don’t already have one. The supplier then registers their contract with the buyer with Sinosure, and gets insurance coverage for the invoice.
Typically, the importer will be required to make a down payment of 10% to 30% of the total purchase price. Once the supplier receives the deposit, they produce the goods and ship them without further payment.
The importer receives the order, and has until the end of the deferral period to pay for it. This period typically lasts 90 days, but the period can vary depending on several factors, including the length of the relationship between the import and the supplier.
At the end of the deferral period, the importer pays the remaining balance owed to the supplier.
What is a Sinosure credit limit?
The credit limit is the maximum amount that your imports from China can be insured for by Sinosure. This credit limit can be shared by more than one supplier.
If you, as an importer, have a Sinosure credit limit of $1 million, then you can get $1 million in trade credit from your Chinese suppliers, secured by Sinosure.
Your credit limit can be divided up between different orders and suppliers.
If you have a credit limit of $1 million, one supplier can use, for example, $300,000 of that limit for their insurance policy on a particular order, while another supplier can use $500,000 to insure a different order, and so on, until the $1 million limit is reached.
Your credit limit as an importer is determined by several factors.
Sinosure will look at your business’s financial indicators – your revenue, profitability, assets and so on. It will also take into account your credit history – your record of payments to past suppliers, whether or not your company has defaulted on any debts, and so on.
Finally, Sinosure will also consider whether or not you have done business with companies inside China before, and how much.
How to get a Sinosure credit limit
As mentioned before, as an importer, you will need the services of a consultancy that specializes in credit limit applications for companies outside China, such as Axton Global.
This company acts as the intermediary between your import business and Sinosure. It takes you through the process of applying for a credit limit, which will begin with you providing your company’s financial documentation for the Sinosure credit investigation, and end with Sinosure assigning you a credit limit.
In the case of Axton Global, you will have access not only to services that will allow you to be accredited with Sinosure, but also services that can help you increase your Sinosure credit limit, negotiate the terms of your payment deferral with a Chinese supplier, using Sinosure to arrange the necessary paperwork, and transfer your credit limit from one supplier to another.