Managing Export Risks
If your business is new to international trade, it is important to assess and plan for the different risks you will face. This guide outlines the key risks you should consider and the available insurance and financing options.
Marine Cargo insurance
Marine Cargo insurance is required for loss and /or damage of goods while in transit. It is important to ensure your infrastructure, vessels and stock is protected with the highest level of risk advisory and insurance placement services. Marine cargo insurance covers the transportation of goods from one place to another. The mode of conveyance can be by sea, air, rail, road, parcel post or courier sending.
Products Liability insurance
Products Liability insurance provides for damage or liability that a product you supply may cause. Liability in products can include design defects, manufacturing defects and instructional defects such as inadequate labelling, instructions for use or warnings which render the product dangerous. Particular care needs to be taken to extend the cover to USA /Canada if exporting to these countries.
Trade Credit insurance
Trade credit insurance should be considered when exporting or expanding your business. Trade credit insurance can provide funding alternatives, where trade debtors have a substantial impact on your balance sheet or if you’re using credit terms with your customers. Credit insurance can help to protect a company’s profits and cash flows, provide additional security for funding lines and allows funding solutions to be geared to sales and not assets. The current financial crisis has raised the risk of customers failing to meet their debt obligations so it’s of immediate interest to exporters in the current climate.
Political Risks insurance
Political Risks insurance is a worthwhile consideration depending on where your business is trading from. Political risk insurance should be considered to protect against regulations, laws or other restrictions that impact on the operations of your business. Other matters to take into account include frustrated contracts or physical damage to assets due to political events. Exporters can expand their geographical footprint via investments such as equity investments, cross boarder loans or contracts for goods and services. These investments can face political risks such as confiscation, currency in convertibility, political violence and contract frustration which can be insured against and risk managed.
Corporate Travel insurance
Corporate Travel insurance is required for management and staff travelling internationally. A comprehensive Travel insurance policy will include cover for overseas medical expenses, medical evacuation, personal baggage, personal accident, travel cancellation and death and disability cover.
Insurance Premium Funding
Insurance Premium Funding can help exporters manage their cash flow. Insurance premiums can be paid in instalments instead of a lump sum. The insurance premium is paid on your behalf and spreads your insurance cost over 6-12 equal monthly payments. All types of corporate insurance policies can be funded such as Public Liability, Business Pack, Professional Indemnity, Motor Vehicle, and Workers' Compensation.
Credit Insurance for Export Receivables
For exporters today, selling goods or services overseas can be tricky and often daunting. Exporters not only have to find their market and understand their buyers’ local customs, but they also need to involve their financial institution and gain their support in business ventures—a variety of hurdles to overcome in order to get successful results. Above all, exporters need to get paid for all their overseas sales to make all the hard work worthwhile.
Letters of credit are no longer the expected payment method in the international marketplace. Creditworthy overseas companies accustomed to buying on open account from their other suppliers will expect the same terms from Australian suppliers.
Buyers in emerging markets, on the other hand, may face problems of insufficient capital and high interest rates, making it very difficult for them to purchase Australian goods without credit terms.
An increasingly popular option for expanding export sales safely and extending competitive terms to overseas buyers is through effective Export Credit Insurance. This is a viable and secure alternative for any exporter and buyer in lieu of dealing with Documentary Letters of Credit.
Benefits Of Export Credit Insurance
1. Preserves Profit & Strengthens the Balance Sheet
Credit Insurance protects and reinforces the balance sheet from the risk of bad debts so that a company’s financial position can remain secure, despite exposure to unforeseen events, concentrations of foreign credit risks, and changing international market conditions. Insuring overseas receivables can assist with reducing bad debt reserves. Shareholders can also appreciate that their assets are being well-protected and their financial corporate obligations are being met or at least, contributed towards.
2. Protects Liquidity & Cashflow
Apart from the long term loss of a buyer and future revenue stream, there is the short term affect on cash flow and the immediate loss of profit, which in the very worst case scenario, can lead to a business failing. With a Credit Insurance claim, policy holders can receive up to 90% of a debt within 30-60 days from Confirmation of Debt in the event of the insolvency of the buyer.
3. Strengthens Credit Management
Whether trading with buyers locally or internationally, their creditworthiness can be affected by many factors. The Credit Insurance review procedure further enhances the quality of decisions made on credit limits. Through working closely with an Underwriter and specialist Broker, a business gains the benefits of huge knowledge databases and can spend less time worrying about venturing into new markets or territories and be ‘in- the-know’ about their buyers.
4. Increases Export Profits
If a business feels safe in the knowledge that any costs as a result of commercial and/or political risks can be avoided, it stands to reason that they can grow in confidence. Sales and marketing can be more aggressive through extending higher credit limits with overseas customers. New markets can be opened up to a business that might otherwise be perceived as too risky for extending credit terms.
5. Adds Security & Enhances Your Borrowing Capacity
More favourable financing can be achieved by including exporters’ insured overseas receivables in their borrowing base. This is more attractive to financiers and banks with the added security available. Export Credit Insurance makes international receivables more attractive to banks, financiers or other lenders.