Business owners who work in the import and export trade, or regularly export shipments to international customers may not be fully covered by their current business insurance, should something go wrong with the shipment, and the sale or export of the goods cannot be completed, or the customer fails to pay.
Will traditional business insurance cover this loss? In most cases, no. While you may be protected from loss or damage of your goods, you’ll need a special type of insurance coverage to protect your accounts receivable from non-payment – export insurance, also often known as trade credit insurance.
Wondering what export insurance covers, and if you need it for your company?
Export Insurance Is Not The Same As Marine Insurance Or Cargo Insurance
If you are running an import and export business, and you have cargo insurance or marine insurance, you may be wondering if you really need trade credit insurance – aren’t you covered for most situations that could happen on the ship that’s carrying your goods?
Yes, marine insurance covers the loss and damage of ships and cargo – and more specifically, cargo insurance provides full coverage for any commodity or damage that occurs the items during shipment.
But protecting your goods while they’re in transit to their destination is only part of the puzzle. What happens if your goods are delivered to the destination safely and you’re notified that they’ve been delivered – and your customer doesn’t pay? 30 days go by. 60. 90. 120 – and no notice of payment.
Then, it turns out that political instability or corporate insolvency has affected your customer’s ability to pay. Essentially, you’ve lost the sale – and if you’re lucky, you might get your shipment back, but this is not guaranteed. What recourse do you have to get paid?
If you don’t have export insurance, you don’t really have any options. You have to take the loss. But if you do have this insurance, you can file a claim – and be compensated for the loss, by your insurance provider.
Export Insurance Protects Your Accounts Receivable From Default
You can think of this insurance as a way to insure you from risk when offering trade credit to your buyers. Trade credit is a great way for businesses to sell their products more flexibly – but when you extend a line of credit to any company, you’re taking a risk, particularly if it’s a large line of credit, a newer company, or even an established company in a politically-unstable region.
If you want to protect your accounts receivable, and make sure that your business is not heavily affected by a particular customer defaulting on their debt, you can carry an export insurance policy. Then, if you cannot get payment from a customer – due to financial insolvency, protracted default, or the bankruptcy of their company – your export insurance will cover your loss.
Political risk insurance is another important part of international trade insurance. Often bundled with the export policy, it protects your company if political turmoil, such as social unrest, currency problems, or expropriation result in the loss of a sale.
How much does export credit insurance cost? Insurance cost depends on a variety of factors. Although you can insure a single transaction, you will typically insure a large portfolio of buyers, and the insurance company will pay a set percentage of any invoice or receivable that is unpaid. Your premium rate will reflect the average credit risk of your buyers – and the amount of coverage you request.
In general, it’s a good idea to have this type of insurance – exporters, in particular, should make sure they’re covered, if they often extend long credit terms to customers, or work with more recently-established companies that could carry the risk of defaulting.
Get Your Policy Today!
At Niche Trade Credit, our company is an ideal choice for export insurance and trade credit insurance. With great service and reliable rates, we’ve helped insure hundreds of Australian companies. If you have more questions or would like to enquire about our rates and services, please feel free to contact us right away.
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