Why Your Business Should Consider Export Credit Insurance

Author: Hayley Sheean  //  Category: Financial Services

Most of the time business transactions go smoothly – the seller delivers the product to the buyer, the buyer pays the seller, and the seller uses the money to manufacture more products or grow the company. However, there are risks involved, especially when it comes to the export industry. Imagine sending your products to a foreign buyer who then defaults on payments. What if you needed that money desperately? Now, this is where export credit insurance comes in.

What is export credit insurance? It is a type of credit insurance that acts as a safety net for sellers when their buyers default on payments. Business transactions are risky, especially since they involve money changing hands. The risks double when the buyer and seller are from different parts of the world. Exporting a product or service takes a lot of time, money and effort, and since the transaction isn’t local, there’s a lot of waiting involved. It is always devastating on the part of the seller when the buyer suddenly can’t pay or refuses to pay for a number of reasons.

This is why it’s a must for a company to have export credit insurance, especially when a bulk of their revenue relies on international transactions. This is especially true for smaller businesses. It only takes one or two problematic buyers to stagnate a newer company. Even larger, more established companies had to go through budget cuts and restructuring due to problematic international deals. Export credit insurance lessens the risk, making it easier for companies to recover from bad deals. Click here for NicheTC

Accounts Receivables Safety Net

Export credit insurance acts as a safety net for your accounts receivables. In most international transactions, buyers give the seller a partial payment before the delivery and pays the balance once the product or service has been delivered or fulfilled. Rarely do you see an international transaction that’s purely payment first or product first simply because of the risk involved. In most cases, the seller has to wait for the buyer to receive the shipment before full payment can be made. The seller has to take care of the expenses involved in sending their products overseas with the intention of receiving money once delivery has been made.

When buyers default on payments, this hurts the company’s accounts receivable. And any money that flows into the company as revenue is used for something. For example, the company might be planning to buy new equipment with the money they will receive, or use the money to produce more items for sale. When the buyer defaults, the money that will go to growing and continuing the business disappears into thin air. With export credit insurance, you at least get enough to keep your company afloat and continue offering your products and services to other customers.

Safety From Bad Debts

Let’s say your company receives a large order from a foreign buyer. However, you do not have enough resources to fulfill the order. So you borrow money from the bank to manufacture the needed products and facilitate its export overseas. Now logically, some of the profit you will receive from this transaction will go into paying for your loan. If the buyer defaults on the payments, you may not have enough funds to pay for your loan. Export credit insurance acts as a safety net from bad debt. In fact, the mere fact that your company has export credit insurance acts as a seal of trust for most financial institutions. Lenders are more lenient and generous with attractive rates when a company has export credit insurance.

Yes, it’s true that when it comes to business, you have to take risks. But remember, each risk can eventually lead to your company’s demise. And export deals always involve a lot of resources and money. Safeguard your company’s future by investing in good export credit insurance. For more details just visit http://www.nichetc.com.au/

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