Companies in the both the United States and Canada can get trade credit and political risk insurance from the government; Canadian exporters go through Export Development Canada, and U.S. firms can turn to the Export-Import Bank of the United States. Though coverage is generally limited to established exporters, there are ways new or smaller businesses can earn eligibility to qualify for coverage (see sidebar).
FOR EXPORTERS TOO SMALL TO QUALIFY FOR CREDIT INSURANCE
Some export businesses do not qualify for traditional credit insurance, so John Keevan-Lynch, president of Provident Traders, Inc., based in Philo, CA, recommends visiting the Export-Import Bank of the United States website (www.ExIm.gov) to make use of its free credit-decision guidelines. Here’s what to look for:
1) Country Limitation Schedule – lists countries considered safe enough to insure open account credit terms. For example, Ex-Im Bank will insure open account terms to private sector buyers in Mexico, but not in Indonesia, where insurance will typically be limited to bank letters of credit.2) Special Buyer Credit Limit Application – lists Ex-Im Bank’s minimum credit requirements for insuring open account terms; a credit limit of $50,000 requires at least one ‘favorable’ credit agency report or one ‘favorable’ trade reference.
3) Trade Reference Form – includes questions to ask a reference about a buyer’s credit and payment history; the form is set up so you can easily fill in the appropriate information while interviewing a trade reference.
4) Short Term Credit Standards – this manual defines the criteria used to evaluate a buyer’s credit information; for example, page 19 outlines what the Ex-Im Bank considers a ‘favorable’ trade reference.
John Keevan-Lynch is president of Provident Traders, Inc., a Northern California export finance consultancy and licensed credit insurance broker, and has more than 32 years experience with Ex-Im Bank. Further information can be found at www.providenttraders.com.
Lastly, in addition to common ways to mitigate risk, Columbia Marketing International uses insurance in a rather unusual way: “We have [life] insurance policies on some clients,” Buak asserts. The company is the beneficiary and pays the premiums for policies on major individual customers. “If they die, we will get paid.”
Conclusion
Overseas markets are potential profit centers for produce sellers but exporting can be fraught with peril. Using appropriate credit tools to ensure payment can help mitigate risks and prevent a host of problems along the way.
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