The payment terms you set on your export sales can make or break your efforts in the global market-place. That's why U.S. exporters are increasingly foregoing Letters of Credit, or L/Cs, in favor of trade credit insurance, which protects against customer nonpayment and hedges against commercial and political risks beyond their control. Compared to an L/C, trade credit insurance is less expensive and easier to set up. Here are four things trade credit insurance can help you do.
1. Expand sales. If receivables are insured, a company can safely sell more to existing customers or go after new business that was otherwise too risky.
2. Improve finance terms. Banks will often lend more against insured receivables.
3. Reduce bad-debt reserves.
4. Export on open account. Trade credit insurance gives you the competitive advantage to trade on open account terms without the worry.
"Trade credit insurance tends to be more secure, cheaper and less detail-oriented than a Letter of Credit," says Tess Morrison, director of the Illinois National Trade Center at the University of Illinois, Urbana-Campaign.
To find out if trade credit insurance is right for your business, call your banker or contact a city or state partner (www.exim.gov/products/ insurance/index.cfm).