For the new exporter, trade insurance is an invaluable asset. For those new to this idea, it’s crucial to know what trade insurance can do for your enterprise—as well as the different types available. We’ve created a short primer to get you started so you know what to look for when it comes time to secure trade insurance.
Export Credit Insurance
Whenever you sell and ship goods on the international market, there are a few risks you must always consider that are unavoidable parts of the exporting industry. One of the best ways to mitigate those risks is export credit insurance. Export credit insurance functions as a safeguard against foreign buyer nonpayment. If your buyer is unwilling or unable to pay for a shipment, export credit insurance can provide up to 95% of coverage for your losses.
Export credit insurance functions by providing a cash advance for a sale as soon as it leaves your shores. The buyer remits payment to the lender once the buyer makes good on the invoice. This provides a measure of confidence that is invaluable to the exporting industry. It’s much easier to provide buyers with attractive payment terms and expand your business when you have that added assurance.
Political Risk Insurance
In some cases, a buyer may be perfectly happy with a purchase and totally willing to pay but can’t due to forces beyond their control. Typically, those forces are political influences, such as wars, rebellions, riots, acts of terrorism, currency exchange issues, and appropriated shipments. While export credit insurance makes it easier to open negotiations with more confidence, political risk insurance helps prevent total losses due to unforeseen circumstances that are not the buyer’s fault.
Political risk insurance also helps with contract disputes with any foreign government or government-owned businesses. Your business may rely on foreign licenses, and political risk insurance will protect you in the event that your export licenses are suddenly cancelled.
There is a wealth of opportunity on the global market for U.S. exporters, and it’s important to understand how the different types of trade insurance can be incredible assets. Trade insurance will allow you to attract new buyers and maintain current relationships by enabling you to offer incentivizing payment terms and expand more confidently into new markets. Drake Finance is committed to helping U.S. companies find success in the global marketplace and has a history of successes to show for it. Trust your instincts when the time comes to decide among trade insurance companies.
