Right of pledge is a low-cost, easy to use legal tool that can help an exporter reduce his exposure to credit risk not covered by credit insurance with importers and trading partners.
When an exporter does not receive full payment before delivering goods to his customer, and credit insurance fails to provide coverage for 100% of the amounts due, the exporter assumes a credit risk. A right of pledge minimizes this risk.
What is a pledge
A pledge is a right that provides a privileged position to the exporter in the event of the bankruptcy and default of the customer.
Moveable assets and economic or pecuniary rights (e.g. accounts receivable, shares in limited partnerships and insurance benefits) can be pledged under Dutch law. A pledge is comparable to a mortgage but is not tied specifically to real property.
A pledge can be either possessory or non-possessory. Non-possessory pledges provide attractive risk management solutions in international trade, as they protect the exporter's interests while not requiring changes to normal business practices.
How to use a pledge
Any exporter who wants to ensure he receives payment in full from a customer may negotiate a right of pledge as collateral. The procedure for pledging is not complicated and the costs are minimal. Furthermore, if it is a non-possessory pledge, it has no practical implications on the normal business operations of both the exporter and the customer.
ABLD, through its Secure Payment Program™, offers a complete service to establish such collateral.
A non-possessory right of pledge provides a security interest to the exporter without the customer losing the unhindered use of the goods or having to inform his buyers. A non-possessory right of pledge is easily established by an agreement between the exporter and the customer that is subsequently registered.
Furthermore, a non-possessory right of pledge may be converted into a possessory right in the event of default or the bankruptcy of the importer.