When you sell to a new customer overseas, do you worry that you’ll get paid in a timely fashion, or worse yet, not paid at all? If you’re like most exporters, the answer is yes. So what can you do about it? For many exporters, credit insurance is the answer — an alternative you might wish to consider if you haven’t done so.

Credit Insurance Guarantees Payment

Using credit insurance is easier than you may think. Used extensively in Europe for years and now becoming more popular in the United States, credit insurance can almost guarantee you’ll be paid for the goods and services you export.

When the foreign importer doesn’t pay for a variety of reasons, such as insolvency and bankruptcy, credit insurance covers your accounts receivable. Thus, the insurer will pay the balance owed. This will allow you to confidently plan your future growth, reduce administrative expenses, and get a tax deduction for the premiums.

Expand Sales and Improve Cash Flow

Manufacturers, service providers, banks, and transporters in the United States use credit insurance to expand sales and keep the non-payment of receivables to a minimum. Credit insurance speeds up turnover of accounts receivable and improves cash flow.

Once a credit insurer accepts your account, he investigates the credit background of your customers by using Credit Alliance, a global network operating in 39 countries which collects data from banks, trade organizations, government agencies, and credit and rating groups.

Political Risk Is Included

Credit insurance covers commercial risks which involve non-payment by buyers due to insolvency. It also insures payment for losses from a customer’s insolvency while the goods are in transit. Political risk also can trigger credit insurance payments. If the buyer can’t pay because political or economic events prevent or delay transfer of payments, credit insurance provides protection.

Collection and Recovery Service

If a customer is slow to pay, or doesn’t pay, the credit insurer also acts as a collection and recovery service. In short, credit insurance provides a lender with a secondary source of repayment. It enhances your ability to borrow and speeds up the approval process so your production isn’t slowed or stopped pending credit approval of the buyer.

There are a variety of credit insurance policies. One type is the whole turnover policy. It covers an exporter’s entire customer base against a number of risks, but the exporter usually retains a small share of a loss to reduce the premium.

Catastrophe Policy Costs Less

The catastrophe type of policy covers losses above a specified amount. Exporters whose customers pay their bills on time often buy catastrophe credit insurance to insure against any sudden bad debt that could cripple the exporter.

The premium is a small percentage (usually less than 1%) of covered sales, although the credit worthiness and location of your customers is also a factor. Credit insurance policies typically cover a one-year period.

Credit Insurers Around the World

Among the major underwriters of credit insurance are CNA of Chicago, American International Group Inc. of New York, Export-Import Bank of Washington, D.C., American Credit Indemnity in Baltimore, Coface Group of Paris, NCM Group of Amsterdam, Euler Group of Germany, Trade Indemnity in the United Kingdom, SFAC and SFF Factoring in France, COBAC in Belgium and Holland, SIAC in Italy, and Hermes in Germany.

This article appeared in January 2000. (CB)
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author of several books, and a nationally syndicated columnist on global business, trade policy, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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