Consider additional insurance for international accounts receivable
Export credit insurance, also known as business credit insurance,
or accounts receivable insurance, is a specialized form of insurance
that protects your company against bad debt due to insolvency,
and/or protracted default, and/or political risk.
Companies considering purchasing export credit insurance need to consider whether
or not to purchase political risk coverage. Political risk credit insurance
Currency restrictions that may take the form of new more restrictive
foreign exchange regulations.
Expropriation, nationalization, or confiscation of the buyer's
business without compensation by the buyer's government.
Newly imposed import restrictions that cancel valid import
Political risk coverage protects against the buyer's inability
to transfer money out of the buyer's country because of changes
in government regulations
The buyer's default on its obligations under an arbitration
award or court decision made in favor of the exporter.
The enactment of any law, order, embargo, by the buyer's country
that prevents the buyer from fulfilling its obligations under
the contract [sometimes referred to as contract frustration].
Transfer risk, which is the inability of the buyer to transfer
currency out of its country.
War, or damage caused by war or any other disturbance within
the buyer's country.
There are several notes of caution about this type of insurance
Credit professionals must carefully read the policy's terms
and conditions, as well as the exclusions and limitations to
understand the benefits and limitations of the policy under review.
Exclusions typically include losses caused by war, and civil
Not all political risk insurance policies cover all of these
Political risk coverage does not protect the seller against
the devaluation of the buyer's currency.
There may be specific limitations and restrictions when a policy
covers political risk
Creditors should consider purchasing both credit risk and political
risk export insurance coverage when selling to companies in regions
that have a history of political instability, government coups,
radical changes in fiscal and monetary policy, as well as countries
whose currency takes wild swings in the foreign exchange markets,
or countries considered high risk by the international investment