Advantages and Disadvantages Of Export Credit Insurance

February 1, 2021

Export credit insurance, often also known as trade credit insurance, is a useful way to insure your accounts receivable. But is it right for you? Many alternatives exist, such as invoice factoring and letters of credit issued by an export/import bank, as well as some other forms of insurance for exporters.

So, in this article, Niche TC takes a look at advantages and disadvanatges of export credit insurance, to help you determine if it’s right for you.

The Advantages Of An Export Credit Insurance Policy

Export credit insurance has benefits not just when working in foreign markets and with a foreign buyer, but even for companies who do most of their business domestically. Here are a few of the advantages of taking out a policy.

  • Peace of mind – You’ll know that, even if you cannot convert on your foreign receivables, you’ll be compensated for the value of these accounts. This minimizes your credit risk, and protects your company.
  • You can expand more quickly – Without an export credit insurance policy, working with foreign or new companies is very risky. But with a policy in place, your risk is minimized, allowing you to gain new customers quickly.
  • Protect your most critical accounts – If your company would be devastated by a single one of your clients going out of business, taking out an export credit insurance policy can help you ensure that your business remains functional and stable.

The Disadvantages Of An Export Credit Insurance Policy

Despite its many benefits, export credit insurance may not be necessary for your company. There are a few drawbacks and disadvantages of taking out a policy for this type of insurance.

  • It’s not available for some high-risk accounts – In most cases, a trade credit insurance policy will not cover accounts that have a very high credit risk. Or, if they do, the fee will be very high. This means you’ll pay much more when working with these companies.
  • Doesn’t cover every non-payment situation – While bankruptcies, defaulting, and things like political unrest or turmoil are usually covered by an export credit insurance policy, things like slow payment or late payment, and customer disputes or claims that products are in poor condition or incorrect are not covered.
  • Exclusions and limitations vary – You’ll want to work with a reputable trade credit company, and make sure you understand all of the limitations and exclusions related to your policy. Understanding this information can be quite difficult, in some cases.

Is Export Credit Insurance Right For You? Find Out With Niche Trade Credit!

There are many factors that affect your need for export credit insurance – including the size of each client you have, the amount of credit you typically extend, the international countries in which you’re expanding, and the relative stability of the industries in which your clients or customers work.

So, how do you know if you need export credit insurance? We recommend contacting Niche Trade Credit now. Our team of experts can help you understand whether you need a policy, and which type of policy is right for your company. 

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