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Export credit agencies are institutions that work with domestic companies to arrange trade financing for any type of offshore activities. Sometimes referred to simply as an ECA, this type of institution may be a bank, a financial clearing house, or even an agency that functions as the broker for financial services obtained from a variety of sources. The underlying function of this type of agency is to minimize the degree of risk that the client assumes when arranging to provide goods and services to consumers who live outside the nation where the business operates.
Minimizing the risk associated with engaging in exports can take on a number of different forms, depending on the circumstances surrounding the client. At times, an export credit agency may take on risk that is associated with political situations that prevail in the nation where the customer resides. At other times, the risk may be focused on the potential for shifts in the rate of exchange between the currencies involved in the transaction. There are also situations in which the export credit agency provides assistance in guaranteeing the payment of the customer, effectively reducing the risk to the supplier that payment for the exported goods would not be rendered.
The use of an export credit agency by businesses that wish to sell goods on international markets is very common. While working with an agency does create an additional up-front expense in most cases, the cost is usually offset by the assurance that the business has of successfully completing a transaction in a timely manner. The benefits also include the conducting of transactions without a series of delays that could materialize in some situations, and offsetting possible losses from foreign currency trading that reduces the profit that the supplier would earn from the transaction. While somewhat unusual, an export credit agency may also mediate in situations where unforeseen circumstances affect the shipment or the delivery of the ordered goods. From this perspective, an export credit agency offers resources that ultimately benefit both the buyer and seller, and increase the chances of establishing a business relationship that remains profitable for all concerned for many years.
An export credit agency can take on many different forms and offer either a specific suite of services or provide a wide range of support to their clients. An ECA may be a government entity, or a privately owned organization. Some focus on short-term business transactions only, while others specialize in aiding clients with long-term business relationships.
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