Selling internationally offers a lot of opportunities but also poses many challenges for companies. New markets, different economies, different languages, different laws, the list is long. For these reasons, companies often struggle with their ability to manage these risks and continue to grow top-line revenue safely.
Over the past 20+ years, companies have been turning to a little known product called credit insurance, or accounts receivable insurance, to help them manage the risk of customer non-payment. The central underlying use of accounts receivable insurance is to mitigate risk against customer insolvency, default, or bankruptcy. By insuring against the risk of customer non-payment, businesses are in a position to take on more risk; therefore, they can offer more competitive credit terms to win new customers, grow existing contracts, and expand into new markets.
Another common use of accounts receivable insurance is improved financing options. When a company insures their accounts receivable, they are providing an additional source of repayment to lenders, therefore, enticing lenders to offer more favorable borrowing terms - including higher advance rates and improved pricing. This can be significant for the borrower when foreign accounts receivable are included in the borrowing base.
Accounts receivable, both foreign and domestic, are often a company’s largest asset, making it a focus in terms of collateral. While most lenders allow companies to borrow 70-80% against domestic accounts receivable, foreign accounts receivable are often not eligible. This can be a huge disadvantage for companies that rely on international business. Insuring foreign accounts receivables, however, can increase the amount lenders are willing to advance - often up to 90%.
Foreign and domestic accounts receivable insurance offer many of the same benefits, but by insuring foreign accounts receivables, companies can reap additional advantages.
Risk Management | Foreign accounts receivable insurance provides security to reduce the risk involved with exporting.
Increased Sales | Insuring foreign accounts receivable allows companies to expand into riskier markets and offer better financing terms for existing and new customers.
Cash Management | Companies have access to better financing terms with insured foreign accounts receivable which improves cash flow.
Protection Against Political Events | Foreign accounts receivable insurance mitigates the risks of expropriation, currency inconvertibility, political violence, and governmental contract frustration.
To learn more about the benefits of domestic accounts receivable insurance and the expanded benefits of accounts receivable insurance in general, please see our Benefits of Domestic Accounts Receivable blog post.
Are you ready to grow and protect your business? Impello Global is a trade finance advisory boutique and trade credit and political risk insurance brokerage, with offices in Seattle, San Francisco, Boise, and Portland. We specialize in trade credit and political risk insurance and provide advisory services to companies and lenders who are looking to expand their trade finance capabilities.
If you are a company or a lender trying to better understand trade credit insurance or EXIM Bank programs and looking for guidance about how these programs can help improve working capital financing, our team would be delighted to learn more about your business and discuss options available to you. Please visit our website at www.impelloglobal.com or contact us directly at info@impelloglobal.com.
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