Export companies can be exposed to the risks of non-payment for goods and services. Credit insurance can help exporters protect themselves from these risks but many don’t understand the competitive edge it can give them.
“When dealing with customers overseas, especially in countries with fluctuating economies or civil unrest, the dangers of non-payment are real,” says Mark Hoppe, managing director of Atradius ANZ. “This can lead to cashflow troubles for exporters, or even insolvency in serious cases.
“Credit insurance lets exporters reduce their vulnerability when dealing with customers in overseas markets that may pose an economic risk. However, while it is common practice for exporters to maintain insurance for the loss or damage of goods, many still consider credit insurance a non-essential investment, so are missing out on the benefits it can provide.”
Hoppe identifies five key reasons why exporters are yet to take up credit insurance:
1) Ignorance
Despite readily investing in other forms of insurance, many organisations still lack an awareness and understanding of credit insurance and its benefits. In Australia, Hoppe says Austrade has issued warnings to exporters about the dangers of offering credit terms to buyers in some markets (See 1). “Yet, many organisations remain ignorant of the warnings. It’s important to stay up to date and educated about the current international economic climate.”
2) Underestimating risk
One of the greatest dangers arising from ignorance is a lack of perception of the real risks associated with payments in the larger global market.
“Without sound knowledge of international markets and their vagaries, exporters can soon find themselves in hot water.”
3) Complacency
Sometimes an exporter may be aware of the risks, but remain complacent about the status of its buyers, with the assumption that they will always pay, no matter what.
“This assumption ignores the consequences of what happens when those further down the supply chain, such as the buyers’ buyers, fail to pay.”
4) Unaware of real costs
Many organisations avoid credit insurance because they believe it is expensive. The truth is that other forms of insurance are often more expensive, with higher percentage cost of cover-per-value of asset.
“It is important for exporters to do the research and develop a sense of perspective when it comes to the potential ROI of credit insurance which, in many cases, can outweigh other forms of insurance.”
5) Incorrect advice
Inaccurate and incorrect advice from advisors and consultants can leave exporters investing in the wrong sort of insurance for their business operations, or considering other risk reduction methodology that might not be as effective as credit insurance.
“Don’t be fooled by the advice of one person. It’s important to talk to many sources of advice, educate yourself, and make a reasoned, balanced decision about the best solution for your business.”
1) https://www.austrade.gov.au/Export/About-Exporting/Risk-management
