Export credit insurance is a great way to mitigate the uncertainty inherent in international trade. The product, also known as trade credit insurance, insures businesses against customer nonpayment and gives companies the power to build a lasting and profitable international book of business.
Default, insolvency, political dissidence, expropriation, and bankruptcy all present significant financial risk to high-value and/or high-volume sellers. Without insurance, one six-figure nonpayment can cost a company far more than the invoice value in total profit loss. A lack of insurance often forces businesses to remain small and only conduct business with low-risk prospects. Export credit insurance breaks geographical, relational, and financial barriers to growth.
How Export Credit Insurance Works
In an export credit insurance arrangement, an insurer accepts the task of risk management evaluation. Using a number of resources, the insurer (typically an EXIM Bank product provider) examines the creditworthiness of a seller’s customers. Using the information, the insurer approves a policy limit and evaluates receivables foreign buyer and country risk to calculate a viable policy premium. Unlike other forms of insurance, policyholders only pay export credit insurance premiums when they use the policy to protect sales ventures.
Once in place, a seller can relax knowing the business will receive payment for shipments even in the event of customer nonpayment. Insurance also increases a business’s ability to access export factoring services and receive upfront payment for not-yet-collected receivables.
3 Tips for Leveraging Export Credit Insurance
Export credit insurance enables businesses to do more with each transaction. With a policy in place, use the following tips to leverage insurance as a business-growth tool:
1. Review buyer repayment terms. With access to export factoring services, businesses can extend lines of credit to international buyers. A business operating without insurance may only have the ability to offer a credit limit up to $50,000 or $100,000. Insurance coverage may rate the buyer with a higher level of creditworthiness and protect your ability to extend better credit terms onto the buyer.
Everybody wins. The buyer can purchase more product upfront, and the seller retains confidence in its ability to collect on the invoice.
2. Market your business with confidence. Repeat business depends on a seller’s ability to meet the needs of an international purchaser. With risk-minimizing insurance protecting the deal, a seller can take on more risk, expand into new geographical locations, accept new business relationships, and offer competitive repayment terms.
3. Build lasting relationships. You pay for the insurance to enter more and better business arrangements. Take advantage of the insurance protection to acquire and retain customers who will fuel future business growth and sustainability.
Let Drake Finance Help Your Business
These tips can help you build a strong and competitive export business. Drake Finance offers EXIM insurance products designed to help businesses of all sizes succeed overseas. Combined with our factoring and financing programs, you can maintain operations, minimize risks, and achieve international growth goals. Discover more about our export credit insurance offerings or reach out to us at (305) 854-0101 for a personalized export product recommendation.