However, Roger Munitich, GM marketing and research and development at Credit Guarantee, says this implies that they will get paid what they are owed and on time.
"Of course, there are also assumptions that the exporter will have fulfilled all conditions of the export contract."
He says in the present environment bad news and economic turbulence are common and crises or the threat of crises appear to be the order of the day.
The 2008 financial sector meltdown has resulted in foreign collecting banks being viewed with justified suspicion by exporters. Given the continuing high risk trade conditions insuring against possible non-payment appears to make sound business sense.
"There are tangible benefits provided to the exporter by covering export trade transactions, determining the importation risk and the repayment risk of both the buyer as well as the country, and insurance relieves the exporter of having to confront those hurdles alone.
"Should the transaction go pear-shaped, being indemnified against loss is the ultimate benefit," says Munitich.
He adds that being in possession of a credit insurance policy and having insured against possible losses emanating from a gamut of risks also puts the exporter in a stronger position to negotiate best possible price and terms.
"It also enhances the exporters' ability to secure trade finance from institutional lenders and, where applicable, is viewed positively by rating agencies as strengthening the balance sheet," he says.
Adam Orlin, CEO of Blue Strata, says export credits not only help companies to lower their costs to their customers but they can also have spin-off benefits in terms of reducing funding costs provided that trade financiers can secure the credit and get permission to process the credit on their client's behalf.
In addition, insurance plays a significant role in providing financiers with more comfort.
"We insist that customers have insurance, such as marine cover, in place and we often put this in place ourselves on the customer's behalf so as to leverage off our economies of scale to reduce the cost of such cover.
"In addition, international credit insurance is essential and helps to reduce the level of risk," says Orlin.
At the same time, he believes that having credit insurance does not influence the initial decision as to whether or not to provide funding.
"We make the decision as to whether to lend the money based on our assessment of the client and the company's individual merits.
"However, the presence of credit insurance does lower the risk and may well affect pricing and this is often included as a part of the trade finance service offering," he says.
We insist that customers have insurance, such as marine cover, in place and we often put this in place ourselves on the customer's behalf.
Source: Business Day
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