How to Mitigate the Risks of Exporting


Exporting can be a lucrative path for many companies to follow, but it's not without hazards. Trade credit, or FCIA, insurance is one solution.



Exporting can be a lucrative path for many companies. It can potentially expand your customer base, stabilize seasonal or regional sales fluctuations, and ultimately boost profits.

But it’s not without hazards — from a buyer’s business going bankrupt to international conflicts shutting down shipping lanes. Recovering lost payments can be complicated, time-consuming and costly — and the outcome far from certain.

So how can you mitigate the risks and enjoy the rewards? Trade credit, or FCIA, insurance is one solution.

What is FCIA insurance?

In 1961, roughly 50 U.S. insurance companies joined together under the auspices of the Export-Import Bank of the United States to form the Foreign Credit Insurance Association (FCIA). While the group became a public company in 1990, it remains focused on its original mission: providing trade credit insurance to companies that export American goods.

Specifically, FCIA policies insure a company’s receivables in case a foreign customer defaults on payment. Typically, policies protect against nonpayment for both:

  • Commercial reasons, such as the buyer experiencing cash flow challenges, insolvency or other business difficulties
  • Political reasons, when upheaval in the buyer’s country occurs, such as war, nationalization policies or currency inconvertibility

There are a variety of coverage options available, including:

  • Multibuyer policies, for companies seeking coverage for multiple foreign buyers. Typically, this policy is for companies with $10 million or more in insurable domestic sales or $7 million in insurable international sales.
  • Single buyer policies, for companies wanting coverage for one buyer, possibly to offset risk exposure with a particular company or because of larger buyer limit concentrations.
  • Specialty coverage policies, including lease coverage and a variety of contract-based coverage.
  • Political risk policies, written exclusively to cover against specific political risks.

As with most insurance, FCIA premiums vary based on numerous factors, including exporting experience and credit history. Other requirements and stipulations typically exist. For instance, the exporter may be required to stop shipments if a buyer defaults beyond a set timeframe. And the exporter must be able cover risks not covered by the FCIA policy, as well as agree to assist in FCIA recovery actions.

Additional Safeguards

FCIA insurance is just one tool that can give exporting companies peace of mind and financial security. For example, here are some other Export-Import Financing services available:

  • Letters of Credit – Import, export and standby letters of credit can help improve your company’s cash flow. They guarantee that the buyer will pay on time and in the correct amount; the exporter’s bank covers the difference if the buyer is unable to pay in full.
  • Documentary Collection – This makes the exporter’s bank responsible for sending instructions to the importer’s bank regarding required documents and making payments. The exporter’s bank then collects the payment. This can reduce the cost of sales and transfers, and speed up trade processing times.
  • Foreign Exchange Services – This literally involves changing one currency for another and can provide your company with competitive, real-time foreign exchange rates.

These services, along with FCIA insurance, are available through Rabobank’s International Trade Services department. In addition, we offer Rabo TradeLink. This state-of-the-art online product allows our clients to initiate and manage their international trade transactions via a secure, web-based platform. You can generate international sales reports, view imaged trade documents and manage user access levels. Rabo TradeLink will increase speed and efficiency in your company’s import or export business.

To learn more about these and other ways we can help your company take advantage of export opportunities, call (855) ITS-RABO (487-7226).

Sources:

  1. Sources: Export.gov, FCIA.com, Investopedia.com, ReferenceforBusiness.com (http://www.referenceforbusiness.com/encyclopedia/For-Gol/Foreign-Credit-Insurance-Association-FCIA.html, accessed Feb. 13, 2013)
  2. Export.gov, http://export.gov/begin/index.asp; accessed Aug. 17, 2012




The information contained in this article is intended for general educational purposes only and is not to be construed as legal, tax, or financial advice. Please consult with your own legal, tax or financial advisor for guidance with your own particular circumstances.