As we discussed in our “export credit insurance vs marine insurance” article, export credit insurance offers an exporter protection against the risk of non-payment by a foreign buyer in exchange for a premium payment. This article focuses on the critical role played by the export credit insurer in the early detection of credit risk and the value such a service brings. However, if you want to know more about how export credit insurance works, check out our “export credit insurance explained” article.
Export Credit Insurance and the Additional Value Offered by the Credit Insurer
Suppose an exporter agrees to any payment method other than a confirmed letter of credit or cash in advance. In that case, they are exposing themselves to the risk of non-payment for their goods and, therefore, should consider taking out export credit insurance. However, what is often overlooked in export credit insurance is that an export credit insurer has access to far more information resources to assess the full extent of financial risk you face in a particular transaction. For example, apart from their own database of buyer and country information, a credit insurer has access to details about prospective buyers through its contacts with banks, other credit insurers and governments around the world. Thus, an exporter credit insurer is not only a valuable resource in mitigating financial risk but an extremely valuable partner in identifying risk.
The 4 Functions of the Credit Insurer
The four main functions of an export credit insurer are:
#1 – Investigate and monitor the risks associated with particular countries and buyers
#2 – Provide export credit insurance cover as protection against the risks identified
#3 – Utilise its network to assist in identifying and retrieving outstanding payments from buyers who have defaulted
#4 – Compensate policyholders for valid financial losses incurred due to insured risks
Your ability to manage financial risk and maximise opportunities heavily influences your international success. However, very few exporters know the full extent of the danger they face when engaging in foreign trade. Thankfully, Trade Forward Southern Africa, in collaboration with the International Trade Institute of Southern Africa, has created a free and comprehensive online training course on various aspects of international trade, including identifying and mitigating financial risk. In addition, modules provided include training on international finance, foreign exchange rates, letters of credit and Incoterms®. Click the links below to sign up for free and let us help you grow your business.
To sign up to the School of Export CLICK HERE.
If you already have a profile, CLICK HERE to login to begin the module.