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  • Home
  • About
  • Podcast
    • Summaries
    • Articles
  • Invoice Finance
    • Basics
      • What is Invoice Finance?
      • What is Reverse Factoring?
      • What are Trade Receivables?
      • What is the Cash Conversion Cycle?
      • What is Days Inventory Outstanding?
      • What is Days Sales Outstanding?
      • What is Days Payable Outstanding?
    • Advanced
      • Invoice Validation and Fraud Detection
      • Reasons Why Invoice Finance is Better than a Bank Loan
      • How to Choose the Right Factoring Firm for Your Business
      • A Closer Look at Factoring Agreements
      • What is Trade Receivables Securitisation?
      • Breakdown of the Costs for Factoring
    • Factoring
      • Why Companies Use Invoice Factoring
      • What Companies are Suitable for Invoice Factoring?
      • Factoring and Invoice Discounting
      • How Factoring Works
      • Asset Based Lending
      • Is Factoring Right for Your Company?
      • Accounting for Factoring
      • How a Company Enters into a Factoring Agreement
      • The Costs Involved in Factoring
      • Changing Factoring Company
      • The Relationship Between the Factoring Company and the Debtor
      • Legal Aspects of a Factoring Company Pursuing Payment Through the Courts
      • Factoring in the Construction Industry
    • Fraud
      • Types of Invoice Fraud
      • How to Combat Invoice Fraud
    • E-Invoicing
      • Legal Status of Electronic Invoicing
      • The Benefits of E-Invoicing
      • Implementing an E-Invoice System
      • E-Invoicing Adoption in Mexico and The Rest of the World
  • Brokers
    • UK Brokerage Firms
  • Factoring Firms
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      • UK
      • France
      • Germany
      • Italy
      • Spain
      • Holland
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      • USA
      • Canada
    • Australasia
      • Australia
      • New Zealand
  • Hi-Tech
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    • UK Fintech
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      • Enhancing Fintech Interoperability: Digitalizing Trade Documents for Efficiency and Security
      • The 7 Types of AI and Their Implications for the Future
      • Transforming Trade Finance: The Role of AI
      • The Different Programming Languages Used in Fintech Companies and Financial Institutions
      • UK and US Authorities Intervene in AI Sector
      • Web3 Applications and the Future of Trade Finance
      • What is Web 3?
      • What Can Fintech do for You?
      • What is Fintech?
      • Tokenisation of Finance
      • Payment Services in the Invoice Finance Sector
      • What is ChatGPT and Why the Fuss?
  • Rating Agencies
  • Securitisation
    • Deal Arrangers
    • Book Runners
    • Articles
      • The Roles of Deal Arrangers and Book Runners in Securitization
      • What is Trade Receivables Securitisation?
      • The Appeal of Trade Receivables Securitisation
      • Risk Mitigation for Trade Receivables Securitisation
  • Legal
    • Law Firms
    • Articles
      • A Guide to Accounts Receivable Purchase Agreements and Invoice Discounting Agreements
      • The Challenges of KYC and AML Checks
      • What is The Model Law on Electronic Transferable Records (MLETR)?
      • Snapshot of Factoring Legal Schemes in England and Wales
      • How are UK Factoring Firms Regulated?
      • What is ISO20022 and Why is it Important?
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    • Economic Indicators
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      • Economic Forecast for the UK in 2023
      • Economic News for 2022
      • Financial Crisis or Not?
      • Credit Suisse Bailout
  • Credit Insurers
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      • Credit Insurance Legal Aspects
      • Credit Insurance in Trade Receivables Financing
      • The Benefits of Credit Insurance in Invoice Finance
      • Eligibility Requirements for Capital Relief by Using Credit Insurance
      • What are Export Credits and Country Risk Classifications?
      • How the War in Ukraine Affects the Price of Credit Insurance for Trade Finance
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Home Credit Insurance

How the War in Ukraine Affects the Price of Credit Insurance for Trade Finance

John Goodden by John Goodden
July 18, 2023
in Credit Insurance
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credit insurance war in Ukraine
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Trade credit insurance (TCI) is a policy that protects businesses from the risk of non-payment by their customers due to various reasons, such as insolvency, bankruptcy, default, or political events. TCI covers a percentage of the trade debt owed to the business, usually up to 95%. TCI can help businesses secure their cash flow, capital, and financing terms. TCI may also include political risk insurance, which covers the risk of non-payment by foreign customers due to currency issues, expropriation, or unrest.

The war in Ukraine is an ongoing international conflict between Russia, alongside Russian-backed separatists, and Ukraine, which began in February 2014 and which continues up to the time of writing (July, 2023). The war has resulted in more than 13,000 deaths, over 1.5 million displaced people, and severe damage to infrastructure and environment. The war has also disrupted trade and investment flows between Ukraine and Russia, as well as other countries involved in sanctions or counter-sanctions. According to the World Bank, Ukraine’s GDP contracted by 6.8% in 2014 and 9.8% in 2015 due to the war and its aftermath.

The war has a significant impact on the price of credit insurance for trade finance. The price of credit insurance reflects the level of risk associated with the trade transactions covered by the policy. The higher the risk, the higher the premium. The risk is determined by various factors, such as the country risk, the sector risk, the buyer risk, and the payment terms.

Country Risk

The Ukrainian war increases the country risk for both Ukraine and Russia, as well as other neighbouring countries that are affected by the conflict. Country risk refers to the likelihood of a country experiencing political or economic events that may impair its ability or willingness to honour its financial obligations. The war in Ukraine creates political instability, economic recession, currency devaluation, trade restrictions, and social unrest in the region. These factors increase the probability of default or delay in payment by Ukrainian or Russian customers or suppliers. As a result, the price of credit insurance for trade finance involving these countries rises accordingly.

Sector Risk

The occupation of parts of Ukraine also affects the sector risk for certain industries that are dependent on trade with Ukraine or Russia. Sector risk refers to the likelihood of a sector experiencing adverse events that may affect its performance or profitability. Some sectors that are particularly vulnerable to the war in Ukraine are agriculture, energy, metals, chemicals, and machinery. These sectors face supply chain disruptions, reduced demand, increased costs, and regulatory uncertainties due to the war. These factors increase the probability of non-payment or insolvency by businesses operating in these sectors. As a result, the price of credit insurance for trade finance involving these sectors increases as well.

Buyer Risk

The ongoing conflict in Ukraine also influences the buyer risk for specific customers or suppliers that are involved in trade with Ukraine or Russia. Buyer risk refers to the likelihood of a buyer failing to pay its trade debt due to its financial situation or behaviour. Some buyers that are more exposed to the war in Ukraine are state-owned enterprises (SOEs), small and medium-sized enterprises (SMEs), and exporters or importers with high concentration of trade with Ukraine or Russia. These buyers face liquidity problems, solvency issues; they are faced with the need to diversify their markets or sources. These buyers seek credit insurance to mitigate their exposure and enhance their creditworthiness.

Payment Terms

The recent conflict also affects the payment terms for trade finance transactions involving Ukraine or Russia. Payment terms refer to the duration and conditions of the trade debt repayment. Longer payment terms increase the risk of non-payment or default, as well as the financing costs for the seller. The war in Ukraine may force sellers to offer shorter payment terms or demand advance payments to reduce their risk, which may affect their competitiveness and profitability. Alternatively, sellers may use credit insurance to extend payment terms and offer more flexible conditions to their buyers.

In Summary

The war in Ukraine has had a significant impact on the price of credit insurance for trade finance, as it increases the risk of non-payment by customers or suppliers involved in trade with Ukraine or Russia, as well as other neighbouring countries affected by the conflict. The price of credit insurance reflects the level of risk associated with the trade transactions covered by the policy, which is determined by various factors, such as the country risk, the sector risk, the buyer risk, and the payment terms. The war in Ukraine increases the country risk for both Ukraine and Russia, as well as other neighbouring countries; affects the sector risk for certain industries that are dependent on trade with Ukraine or Russia; influences the buyer risk for specific customers or suppliers that are involved in trade with Ukraine or Russia; and affects the payment terms for trade finance transactions involving Ukraine or Russia. The war in Ukraine also increases the demand for credit insurance by Ukrainian businesses who want to protect their receivables from potential losses or diversify their markets or sources.

Tags: buyer riskcountry riskpayment termssector riskTCITrade Credit Insurancewar in Ukraine
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  • Home
  • About
  • Podcast
    • Summaries
    • Articles
  • Invoice Finance
    • Basics
      • What is Invoice Finance?
      • What is Reverse Factoring?
      • What are Trade Receivables?
      • What is the Cash Conversion Cycle?
      • What is Days Inventory Outstanding?
      • What is Days Sales Outstanding?
      • What is Days Payable Outstanding?
    • Advanced
      • Invoice Validation and Fraud Detection
      • Reasons Why Invoice Finance is Better than a Bank Loan
      • How to Choose the Right Factoring Firm for Your Business
      • A Closer Look at Factoring Agreements
      • What is Trade Receivables Securitisation?
      • Breakdown of the Costs for Factoring
    • Factoring
      • Why Companies Use Invoice Factoring
      • What Companies are Suitable for Invoice Factoring?
      • Factoring and Invoice Discounting
      • How Factoring Works
      • Asset Based Lending
      • Is Factoring Right for Your Company?
      • Accounting for Factoring
      • How a Company Enters into a Factoring Agreement
      • The Costs Involved in Factoring
      • Changing Factoring Company
      • The Relationship Between the Factoring Company and the Debtor
      • Legal Aspects of a Factoring Company Pursuing Payment Through the Courts
      • Factoring in the Construction Industry
    • Fraud
      • Types of Invoice Fraud
      • How to Combat Invoice Fraud
    • E-Invoicing
      • Legal Status of Electronic Invoicing
      • The Benefits of E-Invoicing
      • Implementing an E-Invoice System
      • E-Invoicing Adoption in Mexico and The Rest of the World
  • Brokers
    • UK Brokerage Firms
  • Factoring Firms
    • Europe
      • UK
      • France
      • Germany
      • Italy
      • Spain
      • Holland
    • North America
      • USA
      • Canada
    • Australasia
      • Australia
      • New Zealand
  • Hi-Tech
    • Digital Platform/IT/Software Providers
    • UK Fintech
    • Articles
      • Enhancing Fintech Interoperability: Digitalizing Trade Documents for Efficiency and Security
      • The 7 Types of AI and Their Implications for the Future
      • Transforming Trade Finance: The Role of AI
      • The Different Programming Languages Used in Fintech Companies and Financial Institutions
      • UK and US Authorities Intervene in AI Sector
      • Web3 Applications and the Future of Trade Finance
      • What is Web 3?
      • What Can Fintech do for You?
      • What is Fintech?
      • Tokenisation of Finance
      • Payment Services in the Invoice Finance Sector
      • What is ChatGPT and Why the Fuss?
  • Rating Agencies
  • Securitisation
    • Deal Arrangers
    • Book Runners
    • Articles
      • The Roles of Deal Arrangers and Book Runners in Securitization
      • What is Trade Receivables Securitisation?
      • The Appeal of Trade Receivables Securitisation
      • Risk Mitigation for Trade Receivables Securitisation
  • Legal
    • Law Firms
    • Articles
      • A Guide to Accounts Receivable Purchase Agreements and Invoice Discounting Agreements
      • The Challenges of KYC and AML Checks
      • What is The Model Law on Electronic Transferable Records (MLETR)?
      • Snapshot of Factoring Legal Schemes in England and Wales
      • How are UK Factoring Firms Regulated?
      • What is ISO20022 and Why is it Important?
  • Rates
  • Economy
    • Economic Indicators
    • Articles
      • The Collapse of the Russian Rouble: An Historical Analysis and Current Implications
      • The Current State of the UK Economy
      • Economic Forecast for the UK in 2023
      • Economic News for 2022
      • Financial Crisis or Not?
      • Credit Suisse Bailout
  • Credit Insurers
    • Credit Insurers
    • Articles
      • Credit Insurance Legal Aspects
      • Credit Insurance in Trade Receivables Financing
      • The Benefits of Credit Insurance in Invoice Finance
      • Eligibility Requirements for Capital Relief by Using Credit Insurance
      • What are Export Credits and Country Risk Classifications?
      • How the War in Ukraine Affects the Price of Credit Insurance for Trade Finance
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    • ESG Resources
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    • Ripple (XRP) Wins Latest Battle with SEC
    • UK Passes Financial Services and Markets Act 2023
    • Latest about the UK Regulatory Proposal for Crypto Assets
    • How will MiCA (Markets in Crypto Assets) Regulation Affect Trade Finance and the Banking System?
    • Markets in Crypto Act (MiCA) Becomes EU Law
    • An Introduction to EU’s Markets in Crypto-Assets (MiCA) Law 
    • Supply Chains and Blockchain Technology
    • The DeFi Revolution
    • How DeFi Fulfils the Functions of Finance
    • Taxonomy of Crypto Assets
    • Crypto Currencies
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    • Interview with Kyriba
    • Interview with Orbian
    • Interview with Crossflow
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