Can credit insurance cover foreign accounts or only domestic? I recently wrote about how coverage decisions are made (How Credit Insurance Coverage Decisions Are Made), but what if your customer is outside the US? Can those sales be protected too?
Why insure foreign sales?
There are several ways to be paid when selling internationally (4 Ways To Get Paid When Selling Internationally) and if you’re selling on Open Account terms, there are three reasons why these sales should be insured.
1.Risk: Securing payment when the customer is in another country. Otherwise, how will you collect payment if the customer is in a faraway place? Fly to that country to collect?
2. Financing: Do you need to finance foreign accounts receivable for working capital? If so, banks will make foreign a/r eligible as long as it’s insured. (Increasing Access to Financing With Credit Insurance)
3.Safe sales expansion: Use insurance to credit-check and monitor foreign accounts for sales growth without risk. Selling on open account makes it easier for customers to buy from you when compared with requiring a letter of credit and backing these sales with credit insurance removes risk.
How is insurance on foreign accounts approved
Foreign accounts are approved in the same way as domestic accounts except that country risk taken into account. Country risk is the economic, financial and political climate of the country that the buyer/customer is in.
Language, legal and financial differences are taken into account. You don’t have to figure out things like:
- how to read financial statements that are formatted very differently
- convert currency to know financial strength of the customer
- know the collection, legal or business practices in other countries
What’s different about foreign vs. domestic?
Three things are different when insuring foreign accounts vs. domestic ones.
- Political risk (war, terrorism, revolution, riots) also covered
- Waiting period… there can be different lengths of time before a claim is settled when the buyer/customer is in a foreign country. This is usually a longer period of time than when insuring a customer inside the U.S.
- Both the country and the buyer are underwritten and monitored
Conclusion
Covering foreign accounts is a very good way to do business. It’s easier than the paperwork of a letter of credit, is more sales-friendly and opens up access to more financing.
Do you sell outside the US? To learn how you can be protected from payment and political risk, email me at tate@tateparker.com. Also, ask for a free Coface Global Risk Map. It shows the risk rating of each country around the world and is a good reference tool for exporting companies.
Recent Comments