Export Receivables - key focus of international risk management

Ed Marsh | May 9, 2012

Intricate & expensive risk mitigation

One of the most common concerns of companies considering international business development is the credit risk. Intuitively understanding that it can be difficult, if not impossible, to chase down bad debts overseas they turn to traditional solutions.

And then they discover the business labyrinth that is the L/C (letter of credit) process.  Expensive, intricate and not supported by many small business commercial banks L/Cs put those potential exporters over the edge. 

"Forget about it" they say, and turn their focus again inward to the domestic market and away from the other 93% of the world's consumers.

It's not black magic!

No doubt L/Cs get a bad rap.  Sure they're complex and expensive, but with a top notch trade finance banker supporting your efforts you shouldn't find them overwhelming.  That's one of the common myths of exporting, and perhaps no topic spawns as many myths as international risk management!

But there may be an even easier, less expensive, less stressful way that helps you and makes you a far preferable supplier to potential customers.  Talk about a "win/win"!  And any competitive edge is worth leveraging in today's competitive markets.

Foreign receivables insurance

A September 1997 article (as valid today as it was then!) in CreditToday listed six ways that credit insurance could benefit a business.  These included:

      1. Freedom to grow sales
      2. Protecting cash flow against unexpected A/R loss
      3. Increase borrowing capacity
      4. Replace "bad debt" reserves with tax-deductible premiums
      5. Sell into foreign markets with confidence
      6. Eliminate L/Cs
Of course there are some other considerations including types of customers, type of product, markets you focus on, annual volumes, etc.  This may not be the right solution for everyone.

And there are various vendors from the Ex-Im Bank of the US to various private carriers.  The key is to find a capable and experienced expert in this area to help you find the optimal solution for your business today, AND to strategize about future requirements and development a growth road map.  This kind of decision isn't a make and forget commitment.  You international risk management strategies should actively evolve with you, and not just in a static "annual review" way.

Want to learn about other ways in which Consilium Global Business Advisors can help you lower the hurdles to international business growth through our international risk management and export assistance programs?  Contact us to learn more.

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