Unlocking Trade Credits with Sinosure: A Handbook for Importers Dealing with Chinese
In today’s global market, China reigns supreme as the largest supplier; however, importers engaging with Chinese suppliers often grapple with a pressing issue: the insistence on upfront payment.
This dilemma proves particularly daunting for countless buyers, especially when their financial resources are tied up in active orders and faced with extended shipping periods. The demand for immediate cash upfront severely hampers an importer’s scope for business growth.
Fortunately, there’s a viable solution for importers partnering with Chinese suppliers: Sinosure.
What is Sinosure?
Sinosure is the commonly used name of the China Export & Credit Insurance Corporation, a state-owned export credit agency, Asiantrader.biz says. Like other such agencies around the world, its job is to minimize risk to Chinese exporters by providing insurance against non-payment by customers outside China.
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 that they are doing business with. They may not have the experience or the resources to investigate a buyer in a foreign country. By ensuring they are paid in full before shipping, exporters protect themselves against the very real risk of non-payment.
But this creates problems for many importers, who may not be able to put up the cash in advance. A demand for payment upfront may mean they will have to forego buying goods that they know they can sell, simply because they don’t have the money to prepay for a new order 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 solves this problem by providing 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.
Sinosure’s portfolio of products insures against credit, commercial, and political risks to Chinese firms trading internationally.
It insures companies 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 was founded in 2001 with the merger of the export credit insurance departments at the People’s Insurance Company of China and the China Export and Import Bank.
Sinosure works with small and medium-sized enterprises (SMEs), as well as large corporations. In 2022, it insured more than $700 billion in export credit for 240,000 Chinese exporters.
How Sinosure works
The process begins with the importer going through Sinosure’s credit investigation, which typically takes 21 days. Once the investigation is complete, Sinosure assigns a credit limit to the importer.
Then the supplier in China opens an insurance policy with Sinosure (or they may already have one). The supplier registers their contract with the buyer with Sinosure and gets insurance coverage for the invoice.
The buyer pays a deposit, typically 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 off the debt owed to the supplier.
How importers can use Sinosure to get trade credit
Sinosure insures Chinese exporters, not their partners abroad, but an importer working with a Chinese supplier will still have to be approved by Sinosure so that their partner inside China can have their trade contract insured.
For this to happen, the importer outside China has to pass through Sinosure’s credit investigation procedure, which, as mentioned before, 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 an important element to be aware of: Sinosure doesn’t work directly with buyers outside China. This means that importers who need a Sinosure credit rating will have to hire a company that specializes in obtaining Sinosure credit limits for importers, such as Axton Global, the market leader in this field.
How does a Sinosure credit limit work?
The credit limit is the maximum amount of insurance that Sinosure is willing to offer to exporters doing business with a particular importer.
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.
An importer’s credit limit can be divided up between different orders and suppliers.
Let’s say an importer has a credit limit of $1 million. One of their suppliers can use – for example – $200,000 of that limit for their insurance policy on a particular order. This leaves $800,000 in available trade credit. Another supplier can insure their trade credit with this importer up to $800,000, or any portion thereof, to insure another order. This can continue until the $1 million limit is reached.
Your credit limit as an importer is determined by several factors. First of all, your company’s financial indicators – your revenue, profitability, assets, and so on.
Secondly, your credit history – your record of payments to past suppliers, whether or not your company has defaulted on any debts, and so on.
Sinosure will also take into account whether or not you have a history of trade transactions with companies inside China.
How to get a Sinosure credit limit
To get accredited by Sinosure, you will need the services of a consultancy that specializes in credit limit applications for importers, such as Axton Global.
This company will be the intermediary between your import business and Sinosure. It will take 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 deferred payment terms with Chinese suppliers using Sinosure to arrange the necessary paperwork, and transfer your credit limit from one Chinese supplier to another.
About Axton Global
Axton Global is the market leader in trade finance services for companies that import goods from China. Founded in 2008, Axton’s 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 has unparalleled access to – and experience working with – Sinosure, meaning its clients will benefit from Axton’s years of experience connecting Chinese exporters with buyers around the world.
Axton’s clients range from small business owners to large enterprises and are located in the U.S., Canada, Europe, Brazil, Mexico, India, the UAE, and Australia.
With the support of Sinosure, Axton provides importers with access to favorable credit terms with their Chinese suppliers, leading to improved cash flow, enhanced supplier relationships, reduced financial risks, and increased competitiveness, paving the way for their client’s success.