What is Export Insurance, Who Needs it and Why?

July 12, 2022

Export credit insurance is specialised insurance coverage designed to protect a trader’s foreign accounts receivable. As an international trader, dealing with foreign buyers can be challenging. Things can get even more complicated when you advance credit to a trader with a low credit rating. This can pose a danger to the continuity of your business.

Luckily, export credit insurance can help your business hedge risks that may affect the payment of exports. With this type of insurance, you can rest assured that you will receive payment when buyers delay or default payment due to bankruptcy or political risks.

Who Needs Export Credit Insurance (ECI)?

If you supply goods and services to foreign buyers on credit, you need export credit insurance. It doesn’t matter whether you’re new to international trade or have been doing business with foreign buyers for years. Having export credit insurance coverage can help protect your investment.

No matter how long you have worked with a particular buyer, you may not always know what affects them. Unforeseen events can ruin even the most robust international trade relationships. Nothing is as frustrating as losing a customer and failing to get paid. This is why export credit insurance is essential for any trader exporting goods internationally.

Why do Exporters Need Accounts Receivable Insurance?

An export credit insurance is an excellent payment risk management tool used by multinationals and SMEs in international trade. Some of the reasons why you need trade credit insurance include:

  • Reduced Risk of Nonpayment – An export credit insurance means you can receive your payment if the customer fails to pay due to political risks, default, insolvency, or other reasons indicated in the policy. To mitigate export credit risks, you should identify high-risk accounts, create a risk management strategy, and secure your accounts receivables with an insurance broker.
  • Grow Your Business and Explore New Markets – Most businesses use export credit insurance to trade. It can also come in handy when you want to penetrate new markets. Your trade credit insurance company will probably verify the credit worthiness of your new customers. You can use this information to decide whether you can ship goods to a new buyer on credit. Besides, the research can help you understand more about a new market.
  • Easy Access to Funds – Almost all financial institutions funding businesses are risk-averse. They’ll require you to prove that your business’s bottom line is secure. You can negotiate better with prospective financial providers with an export credit insurance policy. This can help you enjoy a higher credit line, lower interest rates, or better still, it can be the difference between the denial and the approval of your loan.
  • Tax Benefits – You should account for a loss reserve whenever you do business. An export credit insurance can help reduce your organisation’s loss reserve by having the assurance that you will receive compensation for nonpayment. This ultimately results in a lower overall tax burden because the export credit insurance premiums are tax-deductible.

How Niche Trade Credit Can Help

At Niche Trade Credit, we offer various export credit insurance products designed to fit businesses in international trade. Therefore, we are eager to help you find the right export credit insurance policy for your business. Call us at (02) 9416 0670 today to learn more about how best we can help protect your business.

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