Categories
What Experts Think

Understanding Export Insurance Coverage

Purchasing an export insurance coverage policy, also sometimes called a trade credit insurance policy, is a great way to protect your accounts receivable from payment risks, and short-term losses from companies who fail to pay their invoices on time.

But there is often some confusion about what, exactly, export credit insurance will cover. Is it import/export insurance? Can you use it domestically, or does trade credit insurance only cover a transaction with a foreign buyer in international trade?

So, in this article, we’ll help you understand this type of insurance. Exports, importers, and even domestic companies can benefit from it, so let’s get started now.

What Does Export Insurance Cover?

Trade credit insurance is designed to do only one thing – to protect your business and your cash flow from bad debt, caused by trade partners failing to pay your invoices on time. When a customer fails to pay for your products on time, faces protracted default or insolvency, or otherwise does not pay, your policy will compensate you, based on the value of the invoice.

And, despite the fact that it’s usually called “export insurance,” these types of policies can be used to protect invoices sent abroad and domestically. This is especially important if you work with just a few major customers – and the failure by any customer to pay their invoices on time could put your business in financial trouble.

It’s important to note that, while export insurance does cover default and bankruptcy, it may not cover disputed transactions, such as a customer claiming that your goods were not delivered, or were damaged, and refusing to accept them. To get compensation in this case, you may need to obtain a judgment against the defaulting customer, in order to get your insurance company to pay.

Export Insurance Coverage Is Not Cargo Insurance Or Marine Insurance

It’s important to understand that this type of insurance will not insure you against the loss and damage of your products while they are being shipped. This coverage will be provided by a marine insurance company for export trade.

Anyone selling their product overseas and shipping it via an oceangoing vessel should have marine insurance and cargo insurance, to cover and safeguard their short term profits if the vessel is wrecked, fails to arrive on time, or damages their cargo. Export insurance coverage will not be useful, in these cases.

Export Insurance Coverage Is Not Political Risk Insurance

While many companies who sell export insurance coverage also offer political risk insurance, they are not the same thing. Political risk insurance, as the name implies, is designed to help your company maintain profitability if political events unfold which prevent you from being paid.

Your need for political risk insurance primarily depends on the countries in which you’re doing business. If you work as an Australian importer/exporter, and primarily export to countries like the United States, Canada, the UK, or other developed countries, the risk of political violence and business interruption is quite low.

However, in other areas, such as African nations and some Asian countries like India or China, there is more of a risk that your business could be interrupted by regime change, armed revolution, currency and banking issues, and other such political threats.

That’s what political risk insurance is for. Based on your coverage, you can be compensated if a political event unfolds which interrupts your business, or results in a loss or forfeiture of foreign business assets or shipments.

Still Not Sure If You Need Export Insurance Coverage? Ask Us For More Details!

Niche Trade Credit is an experienced insurance broker based in Sydney, and we have more than 15 years of history, helping our clients understand export insurance and related policies, like political risk insurance.

If you’re still confused, or have other questions about export insurance coverage, please contact us right away, and we’d be happy to clear things up, and provide you with all of the information that you need to choose the right policy for your business.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

Trade Credit Insurance Questionnaire

Trade Credit Insurance Questionnaire: The Most Frequently-Asked Questions (FAQs)

As experts in trade credit insurance, the team at Niche Trade Credit can help you get all of the information that you need to purchase a policy – and protect your accounts receivable and short-term profits if one of your customers goes bankrupt or defaults on their debt.

Got questions? We’ve got answers. Check out a few common FAQs about trade credit insurance now.

What’s Covered Under Trade Credit Insurance?

Trade credit insurance is intended to protect you against bad debt, and the risk that your buyer does not pay, or pays very late. Typically, this means that the buyer has been declared bankrupt or insolvent. In most cases, you are also covered if a customer skips out on payment and is no longer possible to find, or a court judgment is issued against them.

Note that, in most cases, trade credit insurance will not protect against buyers who dispute a shipment or a transaction – by claiming that the contract has been violated, or that the goods or shipment were delayed, or damaged upon arrival. It is only designed to protect against non-payment after successful delivery of goods or services.

What Percentage Of Debt Will Be Covered By My Policy?

Typically, somewhere between 70-95% of the debt that you are owed will be paid out to you by your trade credit insurance policy. The specifics of this depend on your policy, and may be higher or lower, depending on what you agree to when purchasing your insurance product.

How Much Does Trade Credit Insurance Cost? How Is The Cost Determined?

The most common range is between 0.1 to 0.3 cents on the dollar, for every invoice or buyer who is covered by the policy. That means, if your business made $10 million per year, your average premium would be somewhere around $20,000.

However, this can vary based on factors like:

  • Creditworthiness of your customers
  • Percentage of debt that is covered by your policy
  • The countries and areas in which your business operates

To get an accurate quote, we recommend you partner with an insurance broker like Niche Trade Credit.

Can I Insure A Domestic Transaction, Or Just Foreign Transactions?

Trade credit insurance is usually used to insure foreign transactions, as it’s harder to obtain court judgments and pursue bad debt across state boundaries. However, it can also be used to insure domestic transactions, if necessary.

What’s A “Discretionary Limit?”

This term confuses many people who shop for trade credit insurance. Essentially, a “discretionary limit” is a way for your insurance company to mitigate risk.

If you have a policy with a discretionary limit of $100,000, you cannot sell more than $100,000 of items to a customer without telling your insurance company. Then, they will conduct credit investigations to determine if the transaction should be allowed. If approved, you may proceed. All transactions under $100,000 would not need approval.

This is simply a way for the insurance company to defray risk, and ensure that you are not extended large lines of credit to companies who have not proven their ability to pay.

Want To Learn More? Contact Niche Trade Credit Today!

Our team has been working in the field of trade credit insurance for more than 30 years. As a leading insurance broker, we can explain every detail about these policies – and answer any further questions you may have. Contact Niche Trade Credit now, and get in touch with one of our experienced trade credit insurance brokers.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

3 Reasons Trade Credit Insurance Is Critical For Small Businesses

Whether you run an importing and exporting company, or even a domestic small business in Australia, trade credit insurance can be a powerful way to protect your small business, and streamline your credit management processes.

Essentially, trade credit insurance is used to protect you when you sell goods and services on credit, and avoid bad debt, or non-payment due to protracted default. You can insure your unpaid invoices, and if your customer fails to pay on time, you can be compensated for the value of this invoice by an insurance broker.

  1. Protect Your Business And Your Profits

Firstly, getting a trade credit insurance policy allows you to protect your small business from customers who do not pay for your goods or services. This is particularly important for businesses who operate overseas in developing countries, or if you typically sell your goods and services only to a small handful of clients.

Even if your credit terms, such as net 30 days, are not met, you can be compensated if your client fails to pay, which ensures your company is not put out of business by a customer failing to pay.

  1. Ensure Uninterrupted Cash Flow

If you’re extending credit limits to your customers and they are not paying on time, this can cause serious cash flow issues, which can harm your ability to grow your business. You may not have the funds you need to expand until your customer pays – and if they fail to do so, your plans could be derailed entirely. A trade credit insurance policy can help you avoid this situation.

  1. Provide More Services On Credit, And Expand To Developing Nations

Because your invoices are insured, you can provide more services and goods on longer credit terms, depending on the credit worthiness of your partners. This allows you to bring in more customers. Even if a customer has difficulties paying on time, you can rest assured that you’ll be compensated, giving you valuable peace of mind.

And, when combined with political risk insurance, trade credit insurance makes it much less risky to work in a developing nation, where instability and currency issues could otherwise pose a high risk to your continued profitability. This allows you to take advantage of more business opportunities, and expand your company.

Got Questions? Ask Niche Trade Credit!

If you aren’t sure if a trade credit insurance policy is right for you, and you’d like more information about what the policy covers, and how it can benefit your small business in Australia, we’re here to help.

You can contact Niche Trade Credit now online, and get more information about our trade credit insurance services and political risk insurance products. We’re always happy to hear from a potential customer, and discuss our products and services in further detail, so get in touch now!

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

Why Buy Political Risk Insurance?

If you’re considering purchasing political risk insurance from a private insurance company, you’re making a good long term investment in your company. Political risk insurance is a key part of risk management strategies for infrastructure developers and companies who do a lot of business in developing areas of the world.

Purchasing a political risk insurance policy from the insurance market allows you to protect yourself from political violence, upheaval, currency issues, and most other political issues that could result in a failure to deliver payment, or even a seizure of your property and assets. Why invest in a policy? For the following three reasons – and many more!

  1. Ensure Stable, Predictable Cash Flow For Your Company

First and foremost, political risk insurance helps protect your company’s revenue, and ensure that you have plenty of reliable, working capital, and uninterrupted cash flow. Even if your company has hundreds of customers across the world, interruption of business is commonplace in emerging markets.

If you were counting on profits from emerging markets to ensure that your business can continue to expand, you may be at risk of losing this money if you do not purchase political risk insurance. However, if you do have political risk insurance, you can have peace of mind – and know that you will be compensated if something unforeseen results in the loss of your assets.

  1. Avoid A Potentially-Devastating Financial Loss

Political risk insurance is particularly important for smaller companies who work in emerging markets. If you have just a few customers, or several countries in which you sell most of your products or services, political upheaval could mean that your business ends up going bankrupt, or barely has enough money to continue operating.

If the loss of a single customer, or all of the customers in a single country would be financially devastating for your company, purchasing a political risk insurance policy should be one of your top priorities.

It may cost a bit more in the short term, but if something does go seriously wrong and you lose much of your business, you will be compensated – and be able to re-prioritize, and make sure that your company is not destroyed by an unpredictable, devastating political event.

  1. Expand The Reach Of Your Business To Developing Countries

Emerging markets are one of the best places for exporters and infrastructure developers to work. With high populations and growing disposable income even in some of the more underdeveloped areas of the world, there are always business opportunities in these markets for those who are willing to take on a bit more risk.

And political risk insurance is an ideal way to help minimize this risk when expanding to emerging markets, particularly when coupled with a trade credit insurance policy.

A political risk insurance policy will help protect you from any unforeseen political events, while your trade credit policy will protect you if you if one of your customers goes bankrupt or defaults on their payments to you.

This allows you to build your company more quickly, and expand into emerging markets that your competitors may be avoiding. In turn, this leads to higher profits – and a stronger, more diversified business.

Interested In Political Risk Insurance? Contact Niche Trade Credit Today!

As experienced insurance brokers in Sydney, the team at Niche Trade Credit can help you understand political risk insurance – and find a policy that’s right for your company. If you’re interested in protecting your business and your assets while working in potentially-unstable, developing markets, please contact us right away. We’d be happy to provide you with more details, and assist you in purchasing the appropriate policy for your needs.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

What Factors Affect My Trade Credit Insurance Premium Rate?

If you’re interested in purchasing trade credit insurance for risk management of your balance sheet, and to protect your accounts receivable from bad debt, and you’re wondering how much you can expect to pay, we’re here to help.

Learn more below about what trade credit insurance protects, and how much you can expect to pay for this protection, by understanding what affects your premium rates.

  1. The Country In Which You’re Doing Business

Depending on which country you’re planning on doing business, your premiums may be higher or lower. If you’re exporting to North America to the US or Canada, for example, you’ll pay less than if you were exporting to a developing country in Africa, where the risk of non-payment could be greater.

If you work in developing countries, you may also need political risk insurance. This is a separate policy often added to trade credit insurance, to protect from political risks like violence, breach of contract, asset seizure and forfeiture, and currency problems.

  1. The Creditworthiness Of Your Clients And Customers

If you have good internal credit control systems in place, and typically only allow trade debts for customers who have a history of paying on time, you’ll pay less for your trade credit insurance premium.

In contrast, if you work with companies who have a history of defaulting on their debts, or have poor creditworthiness, you’ll pay more for your monthly premiums. In some cases, you may not be able to insure a debt at all, as it may be too risky, and the insurer may refuse to issue a trade credit insurance policy.

  1. Total Value Of An Invoice Or Contract

The more valuable a contract or invoice is, the more it will cost to insure, because the loss for the insurance company will be greater if the company fails to pay.

  1. Percentage Of Compensation

When a transaction falls through, your trade credit insurance company will provide you with a set percentage of its value as compensation. This can be as high as 90-100% of the value of the transaction.

However, if you want a lower premium rate, you could ask to insure only 70-85% of the value of the transaction. This would result in a much lower premium, which can enhance your cash flow – and as long as you are provided with enough compensation to stay in business, you will still be protected.

Get More Details From Niche Trade Credit Now!

This is just a high-level overview of what factors can influence the cost of trade credit insurance services. If you’d like to see an example contract, get a quote for a premium, or just learn more, we recommend you contact Niche Trade Credit right away. We’d be happy to help.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

Understanding Common Types Of Export Insurance, And What They Cover

If you’re new to the world of importing and exporting, or you’d simply like a refresher course on the different types of insurance coverage available to your company, you’re in the right place.  When it comes to insurance, exporters have many options.

There are a lot of different insurance products out there for companies engaging in international trade, and it’s important to know which ones you need for your business, and which insurance company has the right services for you.

Marine Insurance

Marine insurance is carried by every major seagoing transportation provider who engages in international trade, purchased through an insurance broker. In almost every case, it is not purchased by an importer or exporter – but purchased by the transportation company, to protect their vessel and all of the cargo, personnel, and other assets that are located on the vessel.

In the event that a vessel sinks, or another disaster strikes which causes delays, the destruction of cargo, or another covered loss or damage event occurs, the marine insurance policyholder files a claim with their insurance provider.

Then, once the claim is processed, the insurance covers your loss, up to a specified amount. Usually, compensation will be for about three-quarters of the value of your merchandise or lost cargo.

Cargo Insurance

Marine insurance alone may not cover the entire value of your shipment. It’s often paid out on a per-pound basis, so you may need additional coverage to protect your cargo or freight.

In addition, marine insurance will not cover damage to your cargo due to improper loading by a transit company, or for incidents that occur outside of a marine-based environment.

This is where cargo insurance comes in. Cargo insurance is used to protect your shipment of products throughout the entire journey to a customer. For example, if a crane breaks and drops a shipment of expensive electronics, or the shipment was improperly secured by the company responsible for transporting it, your cargo insurance will cover your loss.

One of the main benefits of purchasing a separate cargo insurance policy is that it does not require proof of fault. That is, you do not need to prove that a transportation carrier or another party was at fault for the damage – only that the damage or loss actually occurred.

Because marine insurance won’t cover the whole cost of your cargo, it’s typically recommended that exporters cover every one of their shipments with cargo insurance. It’s the best way to safeguard against loss and damage of your products – no matter who causes the loss or damage.

Trade Credit Insurance

Trade credit insurance, sometimes also called export credit insurance or export trade insurance, is a very useful type of import-export insurance. It can help protect your short-term cash flow, by ensuring that you are still compensated if one or more of your customers fail to pay their invoices on time.

The way it works is simple. When you purchase a trade credit insurance policy, you can choose to insure certain transactions or customers, or pay a flat, percentage-based rate to insure all of your accounts receivable.

Then, your business continues normally. You sell your products and services, and your customers pay you based on standard trade credit terms, such as Net 30, Net 60, or Net 90 days from delivery.

But, if a customer fails to pay on time and enters protracted default, goes bankrupt, or otherwise does not pay, despite the terms of the contract being honored, your trade credit insurance policy will pay you a percentage of the invoice value as compensation.

This helps you mitigate short-term payment risks, and extend lines of credit to new customers without the fear that they will be unable to pay. Whether you’re exporting to the United States, or a new, developing market, trade credit insurance can protect you from financial losses due to non-payment by your customers and clients, both foreign and domestic.

Political Risk Insurance

Political risk insurance is very useful for any company selling their product or services overseas in emerging markets and developing countries. As the name implies, it protects your company from risk due to political violence, upheaval, the seizure of private property by the state, and due to any number of other events.

Often, political risk insurance is purchased as part of a trade credit insurance policy, particularly if an exporter is working with a new customer in a developing country. Trade credit insurance helps protect you from loss and default if a private company or customer does not pay – while political risk insurance helps protect you from government actions, civil unrest, and other risks that may be present in a still-developing country.

Political risk insurance is a must-have for any exporter or company with significant assets in another country, where political unrest could threaten their continued success, and result in significant financial losses.

Know What Your Options Are As An Exporter – And How To Protect Yourself!

Beyond these four types of policies, there are many other ways you can safeguard yourself and protect your profits – from product liability insurance to letters of credit, bank guarantees and more.

So, how are you supposed to make sense of it all? Contact the experts at Niche Trade Credit. We’d be happy to discuss all of your options for export insurance policies, and which ones may be right for you.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

Our Tips For Filing Political Risk Insurance Claims

Political risk insurance is a tool that’s extremely useful for any company doing business in an emerging market, where there is a risk of political violence, or other types of upheaval that could result in a loss of property, investment, or assets.

Many different financial institutions and insurance companies offer political risk insurance. And, whether you already have a policy or you’re thinking about investing in this product, you may be wondering what it’s like to file a claim. In this quick post, we’ll discuss three of the top tips we have for filling your claim, so you’ll know what to expect.

  1. Know Your Policy (Before You Have To Use It)

The exact coverage that you receive will depend on the policy you have purchased, and the phrasing and language in which it’s written. We highly advise that you have a competent professional look over any policy that you purchase. What coverage will political risk insurance include? Here are a few of the most commonly-covered events:

  • Political violence, such as rioting, insurrection, civil war, terrorism, war, etc.
  • Governmental expropriation and confiscation of private assets
  • Government frustration, rejection, breach, or repudiation of a contract
  • Wrongful calling of letters of credit
  • Business interruption
  • Currency issues, including inconvertibility or inability to repatriate funds to your country

You should have a good understanding of what your policy covers, to ensure you file a claim at the right time.

For example, your policy might cover you if an attack on an oil rig by a militant group results in its loss – but not if political unrest causes a drop in the oil commodity price. It all depends on your policy.

  1. Get In Touch With Your Insurance Company As Soon As You Can

Keep a close eye on the political situations in the countries in which you’re doing business, and contact your insurer as soon as you notice any issues that may result in the need to file a claim. The sooner you file a claim, the sooner you can be compensated.

  1. Be Prepared For A Lengthy Review And Approval Process

Sometimes, your situation will be very clear-cut. If a government seizes your assets and facilities, for example, and this is confirmed, you likely will be compensated quite quickly. But, given the murky nature of political unrest and violence, things are not always so clear. The process of reviewing and approving an insurance claim can take some time. Be patient, work with your insurer, and provide them with everything they need to help speed up the process.

Let Niche Trade Credit Help You Find The Right Policy And Insurer!

As experienced insurance brokers in Sydney, Niche Trade Credit can help Australian businesses get the political risk insurance coverage that they need to protect themselves from political violence, seizure of assets, and other such risks.

If you’re interested and would like to learn more, please contact us right away. We can answer any questions you might have, and help you understand more about this unique type of risk protection insurance.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

How Trade Credit Insurance Works: Breaking Down The Basics

Trade credit insurance is one of the best risk management tools to protect your accounts receivable. When you sell goods or services on credit terms, you always take the risk that your customers may not be able to pay. In these cases, debt collection can be time-consuming or nearly impossible.

So, how can you protect your bottom line when extending trade credit? With trade credit insurance. Learn more below.

What Is Trade Credit Insurance?

Essentially, a trade credit insurance policy allows you to insure a particular invoice (or multiple invoices). Then, if the invoice is not paid in time, due to a covered issue like protracted default, you can get your insurance to cover the cost of your goods and services.

With trade credit insurance, credit risk from customers who do not pay for their goods is reduced dramatically. Customers who fail to pay will not affect your bottom line, nor will unpaid invoices, as long as they’re covered by your policy, within reasonable credit limits.

This protects your cash flow and protects your business, and helps you avoid bad debts. You can trade with confidence, even with new potential customers in areas where political risks or other issues could pose a risk to their creditworthiness.

How Is A Trade Credit Insurance Policy Issued And Redeemed?

Wondering how trade credit insurance fits into your credit management processes? Here is a basic guide to how these policies work.

  • Get a trade credit insurance policy – You can choose to cover a particular invoice or customer, or to get a policy that protects all of your accounts receivable, and pays a certain percentage of each account, should the customer default.
  • You sell goods or services on credit terms – You find a customer, sell your goods, and grow your business, just like you normally would. Your customers and clients pay you, based on the terms you’ve laid out while extending trade lines of credit.
  • Unpaid invoices are covered by your insurance policy – If a customer fails to pay, due to insolvency, political issues, or protracted default, your insurer will pay you the agreed-upon, set percentage of the invoice.
  • You get the working capital you need to continue business – Because you can recoup most of the money lost by your customer defaulting on their order or shipment, you can still keep your company in business, and ensure that you have plenty of working capital to pursue new clients.

The cost of your trade credit insurance varies, based on how many invoices you’re interested in covering, the maximum credit limit for each company, the percentage of the invoice value you’d like to insure, and a number of other coverage factors.

If you’re interested in seeing how much a trade credit insurance policy will cost you, we’d recommend contacting Niche Trade Credit right away. Whether you’re a small importer/exporter, or part of a large multinational company, we can provide you with a policy that’s right for you.

Protect Your Bottom Line With Trade Credit Insurance

Trade credit insurance is an extremely valuable tool for those who work with overseas companies, or any company that may be in a volatile area, who may be unable to pay for your goods and services. By protecting your accounts receivable, you can ensure that a single financial loss will not ruin or damage your company – and you can continue to expand.

Find out more now by visiting Niche Trade Credit, and see how you can protect your business with trade credit insurance services

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

Understanding Political Risk Insurance Coverage Definitions

When it comes to insurance, one of the most important lines an insurer can offer for any company working in a developing country is political risk insurance.

Political risk insurance can be offered by financial institutions, a private insurance company, or a public agency. And while each policy will vary, they are all intended to do the same thing – safeguard companies who are undertaking long term projects and customers in emerging markets.

Unlike in stable, developed markets, there is always a risk of business delays and losses due to political instability and upheaval in emerging markets, and that’s what’s covered by political risk insurance coverage. Learn more about the most common political, economic, and financial issues covered by this type of insurance now.

  1. Contract Breach Or Contract Frustration

If a foreign government breaches its contract for any unfounded reason, a political risk insurance policy will cover the associated costs and losses, making one of these policies very important for risk management.

Contract frustration is also covered by political risk insurance. Frustration occurs when, due to unforeseen circumstances like a political revolution, one party in a contract is unable to uphold its end of the deal.

  1. Political Violence And Upheaval

Every form of political violence is covered by a political risk insurance policy, including civil war and wars abroad, armed rebellion or insurrection, civil disobedience that causes major upheaval, and other government action or action by citizens that could damage your profits and cause your project to fail, resulting in financial loss from forced abandonment.

  1. Expropriation Or Nationalization Of Property Or Assets

This is of particular importance to infrastructure developers. If their property is confiscated or nationalized by a government, they will be compensated for the financial loss of their private property.

An example of this would be when Venezuela, under Hugo Chavez, expropriated and nationalized 11 oil rigs from a US-based drilling company, Helmerich & Payne. Thanks to a political risk insurance company, the owners of these rigs were able to recover $43 million.

  1. Foreign Currency Inconvertibility, Inability To Repatriate Funds

Even if a business transaction in a developing market is successful, there is the risk that the funds may not be able to be converted back into the proper currency, or that the government or a bank may block the repatriation of funds. In this case, political risk insurance coverage will compensate for the loss.

  1. Business Interruption

Business interruption is often covered in tandem with other protected events. For example, a company that has its business interrupted by several weeks of rioting and protests may be covered for business interruption due to political violence.

  1. Government Default On Payments

In the event that a government simply refuses to pay you for the services or goods which you have rendered to them, your political risk coverage will cover this loss.

  1. Import/Export License Suspension Or Revocation

If your license is suspended due to political reasons, or revoked, political risk coverage will typically compensate you for the losses related to this loss. Note that this may not be true if you were conducting illegal activities, or if you were found to violate import/export regulations.

Coverage Varies Based On Your Policy – So Do Your Research!

Depending on the policy you purchase, your coverage may vary quite a bit. Every insurer offers a different type of political risk insurance, and the cost will also vary, based on the assets you need to protect, and a number of other factors.

To make sure that you have the political risk insurance that you need to protect your company, you should get help choosing a policy. At Niche Trade Credit, we have more than a decade of experience working with top insurers as an insurance broker. We can help you pick out the right political risk insurance product, and get a great rate. Contact us now to learn more.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

Categories
What Experts Think

Is Trade Credit Insurance Worth It?

If you work as an importer or exporter, with multiple global businesses, or even with just a handful of local Australian companies, you may be wondering if trade credit insurance is worth it for your company. In this article, we’ll explore this subject in depth, and discuss some of the issues and consequences that may arise if you’re not properly protected with an export credit insurance policy.

Understanding The Basics About Trade Credit Insurance

Essentially, a trade credit insurance policy protects your accounts receivables, in the event that one of your clients or customers has failed to pay. Rather than being forced to use debt collection services to try and recoup your money, you simply file a claim with your insurance company.

Then, they reimburse you if your client fails to pay, similar to how export credits work in OECD countries. You’ll get a certain percentage of the value of your invoice, allowing you to maintain steady cash flow and profitability.

The Consequences Of Not Having Trade Credit Insurance

The cost of trade credit insurance may seem high, particularly if you have not had issues with customers failing to pay in the past. But the credit risk of failing to get a policy is much higher. Here are just a few of the issues you may face if you don’t have trade credit insurance.

  • Loss of profit – You’ll immediately lose a huge portion of your profits, due to the failure of the other party to pay. You may have difficulty pursuing legal action, as well, particularly if you’re exporting to foreign countries.
  • You must pursue bad debt on your own – Hiring international collections agency is expensive, and you’re not guaranteed to be successful, so this can further impact your bottom line, and lead to loss of profitability.
  • Restricted cash flow – Your loss of profit leads to loss of working capital and cash flow, meaning you can’t continue to expand your company at a rapid pace, which means you could miss out on enormous potential profits.
  • Fewer potential customers, particularly in developing nations – Without trade credit insurance, exporting to a new customer is extremely risky. If they don’t pay, you may not have proper recourse to get your money. This means you won’t be able to take the risk and expand, even if there are hundreds of potentially reliable customers in these countries.
  • Potential bankruptcy  – If you can’t weather the loss of a significant profit from a single invoice or multiple invoices failing to be paid on time, your company could go bankrupt. This is more common than you may think.

These are just a few of the potential consequences of failing to insure yourself with a trade credit insurance policy.

Trade Credit Insurance Is The Best Way To Protect Yourself

There’s a reason that almost all major companies use trade credit insurance, and that global trade insurance companies like Euler Hermes continue to grow. For risk management in both foreign and domestic trade, trade credit insurance is absolutely indispensable.

With a trade credit insurance policy, you can protect yourself and your balance sheet form bad debt, become more competitive in the world of global trade, and protect yourself from political risks.

Whether a client has failed to pay due to bankruptcy, political instability, or for any other covered reason, you can turn to your trade credit insurance policy, and recoup most of the money you lost, allowing you to reduce your levels of risk, and maintain your cash flow, even if a catastrophic event occurs.

Compared to the benefits that it offers, trade credit insurance cost is quite reasonable – and because your premiums are calculated as a percentage of your balance sheet, the cost will be lower for small companies, and scale as you continue to increase your profits.

Contact Niche Trade Credit Now To Learn More About Our Policies

At Niche Trade Credit, we specialise in trade credit insurance services and political risk insurance. We can help you protect your company and your profits when working with both international and domestic clients. Contact us today to learn more.

*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.