'Bad credit is the most serious and immediate risk'

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: insurance. These are primarily outside the country, as no insurance firm offers cover against the government of its domicile. Generally, political risks may arise out of the operation of a law or regulation restricting or controlling the transfer of payment from the buyer’s country to India, or war, hostilities, civil war, rebellion, revolution, insurrection or other disturbances in the buyer’s country. They could also emerge from the imposition of any law or regulation that prevents the performance of the contract and finally, a general moratorium on outward remittances decreed by the government of the buyer’s country or by any third country covered under the contract, through which the payment must be made. Like any other insurance cover, credit insurance is not a panacea for all credit-related problems. It also comes with certain exclusions, of which, the most prominent ones are non-payment arising due to genuine trade disputes, sales to a private individual who intends to use the goods or service for non-professional purposes, intra group sales and sales to an associate/subsidiary company, loss due to foreign currency fluctuations and also in case of sales in other countries.

What additional security does credit insurance provide?

First, it protects against the risk of non-payment. To expand, or even to retain the existing business, companies need to buy credit insurance. Exporters can safely offer credit lines and thus enhance sales volumes by building safeguards against the credit risks involved. Most firms lose more money from delayed payments than from bad debts. Credit insurers also offer collection services. The accumulation of claims with an insurer, through the insurer’s global standing and contacts, places it in a commanding position to collect overdue debts, than any individual creditor separately. Credit insurance companies also play an important role in developing the exporter’s buyer portfolio. The creditworthiness of a potential client can at any time, be checked by the credit insurer. Thus, the exporter will be in a position to be more proactive towards new clients. Also, because the credit insurance company constantly monitors the risks in its portfolio, the exporter is likely to get the information immediately if the financial situation of any of his buyers deteriorates.