In older days, when customers defaulted, the customer’s cash flow problem was a tradesman’s problem and they had to manage their business without funds, which resulted in financial crisis and bankruptcy. However, now things have changed, tradesmen when getting into business the first intention is to protect the business from bad debts and any potential threat. Those businesses are more cautious that depend on a small number of customers to generate a specific amount of revenue. However, when the buyer defaults, the source of revenue for the business stops, which impacts its operation.
Credit insurance also known as accounts receivable insurance or trade credit insurance is a product that protects businesses against bad debts. Simply to say, if a business has a customer who defaults at payment and without those funds, the business is unable to operate further, the trade credit insurance policy will eliminate the cash flow introduction. Generally, trade credit insurance agreements are planned out to pay a certain percentage of an outstanding invoice to avoid bankruptcy or insolvency. Similarly, export credit insurance also protects the exporter of a product or service against foreign buyer defaulters.
If you are an Australian exporter who is doing international trade with foreign buyers, you should always consider taking export insurance from Niche Trade Credit. NTC has 30 years of experience in this field which makes it the number one preference for trade credit insurance in Sydney, Australia. If you want to protect your business against bad debts from local or foreign buyers, check with NTC to protect your business through credit insurance.
What is Export Credit Insurance?
Export credit insurance is a protection provided to exporters for the products and services against foreign buyers who default on those payments. When dealing with foreign buyers, exporters have to encounter various risks. This is because different countries have different cultural values, state laws, country laws, etc. Any change in the global economic climate due to actions like war, rights, revolution, terrorism, currency inconvertibility, and changes in import-export regulations can impact exporter’s standard payment.
Benefits of ECI
- With the protection from ECI, a tradesman can confidently expand into a new market. Even if a foreign customer defaults, the business will be compensated up to 95% of the foreign invoice.
- Many exporters have existing customers that buy more from the business with an extension of credit terms. An ECI assurance allows businesses to seize this opportunity and increase sales.
- When banks find that businesses have ECI, they are more willing to lend against foreign accounts receivable because financial institutions know that businesses have a backup.
- While doing business, financial departments require an account for a loss reserve, but purchasing ECI can reduce loss reserves of business because they know they will be compensated for foreign customer defaulters.
The last two years of a pandemic have made us realise that we stay in an extremely uncertain economic era. Many small and large companies have filed for bankruptcy. The increase of unemployment and the troubled market has rapidly changed currency policies and businesses who are serving foreign markets are also finding new potential risks.
In this environment, even the best customers who have outstanding payment records can sometimes struggle in meeting their payment dates. Getting ECI gives assurance during tough phases to work without cash flow interruption.