What is export credit insurance?

Many companies will feel confident about their credit department's ability to evaluate larger businesses and governments in foreign markets. However, they'll find that they need a better solution when assessing the creditworthiness of smaller businesses or intermediaries. This is where export credit insurance comes in.

In the case of Allianz Trade, we are a global credit insurance carrier with hundreds of risk experts located directly in markets around the world. These agents gain insights into local businesses, payment practices, and potential geopolitical risks so they can provide a comprehensive profile of international buyers of all sizes.

Genetec, a Montreal-based security platform provider, is a great example of a company that produces the majority of its revenue from international sales and uses credit insurance as a framework for credit decision-making.

"Our internal credit staff uses that [credit insurance] framework to evaluate credit requests in a way that wouldn’t be available to us on our own," said Alain Côté, Genetec's Chief Financial Officer. "We can expand our business to smaller customers and customers in little-known markets and make credit decisions rapidly and confidently.”

Companies want to put their best foot forward when seizing new opportunities in international markets and channels.

Export credit insurance helps businesses offer more flexible credit without taking on overwhelming bad debt risks. The financial intelligence and risk protection provided by a credit insurance policy helps companies achieve greater speed to market and sales growth.

This was the case for Mircom Group of Companies, which manufactures and distributes products and solutions that make buildings smarter, safer, and more livable.

"Where Allianz Trade really shines," Mircom President Mark Falbo said, "is when we go into a new market where there’s an opportunity to supply our products and solutions but we’re not necessarily familiar with the market risks."

"Our current growth in export markets well exceeds normal GDP growth. It exceeds industry growth. So we’re really gaining share and profile in those markets through the partnership with Allianz Trade."

Imagine this scenario: your company has shipped millions of dollars worth of meat to loyal customers in Russia, but the country enacts an embargo against your own and won't allow the shipment to be delivered. You now need to reroute the shipment, and you're facing a market price reduction of 30 percent.

That's exactly what happened to Ronald A. Chisholm Limited. Fortunately, it had the foresight to secure a trade credit insurance policy with political risk coverage.

In this particular case, Chisholm worked to reduce shipping costs from rerouting the meat but had to sell the product for 30% less than expected. It then put in a credit insurance claim with Allianz Trade and recouped an eight-figure sum.

Expanding into new markets often requires businesses to adjust credit risk processes to fit the different needs and expectations of customers abroad. Working with customers on a cumbersome cash-in-advance or letter-of-credit basis can create friction and hamper growth.

Let's look at the example of PolyQuest, North America's largest distributor of PET resin (polyethylene terephthalate), and the leading processor and manufacturer of recycled PET scrap.

While its credit processes were well-suited for North America, when PolyQuest expanded into Europe the different cash conversion cycles necessitated more extended payment terms for customers. PolyQuest used trade credit insurance to protect against the risks of offering these extended terms.

International expansion also often leads businesses to borrow more from banking partners. Many businesses will insure receivables so that banks in the EU and elsewhere are willing to lend against these assets. PolyQuest leverages this trade credit insurance benefit as well.

"Allianz Trade has been extremely important in allowing us to grow via borrowing from the bank in our ABL [asset-based lending] arrangement in Europe," says Mike Moran, Financial Controller and Credit Risk Manager at PolyQuest.