Export Credit Insurance - The Trade Financing Edge
Probably one of the most noted and often commented observations in the business context is that standing still, is to let the world pass you by. Among all certainties of life, is the basic premise that change will occur, usually far more rapidly than you would wish or even expect. Those who are able to adjust to and manage for change, usually reap the profits from that foresight.
Such dramatic changes are occurring daily throughout the entire United States marketplace. No what your product, service, or endeavor, the future is the international market arena, which, through virtually instant advances in technology, offers almost unlimited commercial opportunities for the astute businessman.
The uncertainty of how to conduct that business and follow those opportunities is made much easier due to application of a straight forward concept - export credit insurance. The question of how and when will I get paid can be directly answered, leaving management to pursue new and increased sales opportunities in previously unexplored markets world-wide.
The basic concepts and practical applications of commercial receivable insurance have been separately covered and explored in a separate article in this Guide regarding domestic business applications. Those very same attributes and benefits are equally applicable to international business transactions - exporting your goods and services abroad.
It allows your firm to expand sales and reduce transaction time. By definition, dealing in a business transaction in a foreign marketplace there is a basic two-fold risk. If you insist on full payment in advance (cash, letter of credit, etc.), you may very well minimize your sales opportunities (lower and less frequent orders, allowing your foreign competitors with credit terms to take the business). If you grant liberal credit terms or even allow an open account, you then risk slow or no payment at all. Each country or market has its set of rules, standards and business laws making collection a very unsettling, if not impossible process.
All of that can be eliminated through export credit insurance:
- With the insurance company as your credit department, reliable information is immediately available on whether to make the sale and provide an informed basis for its size and frequency.
- With commercial credit export insurance, the financing sources will be far more available to quickly support the transaction at lower costs than would otherwise be the case.
- Properly structured, there is no risk for loss due to customer default for foreign sales.
- Standard letter of credit procedure approach (irrevocable commitment by both overseas and confirming U.S. banks to pay the seller once proper documentation is received), can be time consuming and expensive. Typically, letters of credit demand strict compliance to contractual details and can not easily respond to significant changes for either the buyer or seller. For multiple transactions and/or time sensitive sales opportunities, private commercial export insurance can provide very real and solid advantages - cost, speed, and more transaction flexibility.
In summary, export credit insurance alleviates the competitive disadvantage of conducting business in the international marketplace, providing your firm the ability to substantially expand sales, obtain greater and less costly working capital support, and protect your foreign receivables against unexpected customer default. Credit insurance allows you to "master change and new opportunities" with confidence with a definite edge on profitability.
Copyright/W. Wollesen/Execunet