International commerce is fraught with many risks. These may be classified as transit risks and credit risk. Transit risk is the risk that your company faces if the goods that you send to your customer does not arrive in time or is lost in transit or arrives in a damaged condition. Credit risk refers to the immediate risk that your company faces if there is a default or non-payment of sales dues by their customers. This article concerns itself with how you can use credit insurance to mitigate the credit risk that your company has to factor in while engaging in normal commercial transactions. Given the nature of such commercial transactions there are some risks that suppliers of goods or services must deal with. Some of the common risks associated with global commerce are the risk of overdue payments, the risk of repeated delays in realizing the payment from some customers and the risk of the customer going back on the commitments made at the time of the sale. You cannot expect to get credit insurance packages for other sales risk like the customer refusing to accept your goods on the grounds that it is defective or for some other valid reason. Credit insurance also does not extend cover to sales transactions that are disputed by either entity in the transaction. Credit Insurance is therefore most effective when you negotiate the details of the applicability of the insurance cover in advance through a Credit Insurance broker and the insurance underwriter. Some underwriters of insurance cover try to introduce restrictive clauses to reduce the effectiveness of export credit insurance packages. This makes it all the more important that you choose a good commercial insurance broker for your company credit risk insurance arrangements. It is also advisable to negotiate a detailed terms of reference as an appendix to every company credit risk insurance cover that you secure. This will help you to get your claims processed more quickly in case you have to go in for activate the insurance cover. Independent Credit Insurance Brokers will deal with all the major underwriters including; Atradius, Euler Hermes, AIG, Coface and Ducroire. These commercial insurance brokers have dedicated insurance advisers who are aware of the international laws governing trade and commerce and a good understanding of the market. They also have a list of firms that are less reliable or competitive. Given that the result of a bad debt loss could be fatal for many smaller businesses, this type of proactive support from a credit insurance broker it is essential in securing export credit insurance cover. Credit insurance brokers often offer a range of company credit risk insurance at competitive rates if you have regular transaction with a customer. The insurance premium that has to be paid is also decreased as these insurance companies build an in-house database of your transactions with the particular client. If your client is a reputed international business enterprise the company credit risk insurance cover will be granted with less restrictive clauses in the insurance agreement.
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International commerce is fraught with many risks. These may be classified as transit risks and credit risk. Transit risk is the risk that your company faces if the goods that you send to your customer does not arrive in time or is lost in transit or arrives in a damaged condition.
Paul is author of this article on Trade Credit Underwriters. Find more information about Underwriters Euler Hermes here.
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