Sometimes when exporters win a business overseas, they do not step back and take the time to look at the whole thing at the bigger picture. Sometimes, they tend to get isolated with what is being presented before their very eyes and they tend to forget about pinpointing possible risks. The good thing is that there are a few well-tested ways that exporters may consider to reduce the risk of not getting paid by their distant clients. And one proven way is to protect their business through export or trade credit insurance.
This type of insurance policy provides protection to businesses that export products to overseas markets from importers who refuse to pay for the shipment they have received. The policy also gives protection against payment default and insolvency of the overseas importer. Exporters, especially those who are new in this industry, need to get a trade insurance policy from a reputable insurance quotes company to protect their business from these perils.
Here are a few things about trade credit insurance that you should know.
Potential Financial Risk Reduction
The main function of a trade credit insurance is to protect businesses by reducing potential financial risk. This risk may be caused by either political sources,like political protests, war, and revocation of the license of the importer, or commercial sources, like default or delay on the payment, bankruptcy, and payment refusal of the importer. Prior to closing the policy deal, the insurer will help you assess and determine these potential losses to make sure they are covered by the insurance.
Access to Overseas Working Capital
Another good thing about this type of Florida commercial insurance policy is that it gives the exporters access to working capital. Exporters can present their trade credit insurance to lenders to show that they are protected against any possible cases of non-payment by a customer and therefore can be considered a better credit risk for the huge amount of capital loan.
Standby Letters of Credit
They can as well get standby letters of credit which can help them in case the importer fails to fulfill the agreed import/export contract. With these standby letters of credit, the bank can guarantee that the exporter can have the payment even with the importer's failure.
Establish Good Commercial Credit History
If trade credit is used properly, it will not only allow exporters to increase their capital but will also help them build and establish a good commercial credit history. Their on-time payments can serve as a good proof of the financial success and stability of the business.
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