Export with Trade Credit Insurance: A Real-Life Case Study

When we illustrate the benefits of Trade Credit Insurance for  medium to big-sized businesses, we often mention the increase in export sales as one of the main drivers for considering the purchase of a credit insurance policy. Among the various solutions for managing credit risk, credit insurance is the most comprehensive, especially when it comes to developing business in unfamiliar foreign countries.

In short, with a Trade Credit Insurance policy,  every business that do not yet have in-depth knowledge and a network of contacts to develop activities outside national borders can expand their business abroad with total peace of mind. Let's see how.


Starting to sell abroad: an opportunity and a problem for  all companies

When you have a business, exposing your turnover to the risk of non-payment or insolvency by customers is a delicate choice, which is often carefully weighed and balanced. This "conservative" approach can lead to serving only your long-standing customers, who have a history of positive payments consolidated over the years, and to remaining within the confines of your own restricted geographical area.

Additionally, there is a critical factor linked to payment conditions requested by potential new customers. Often, companies require extended payment terms, such as 30-60-90 days. Granting such extensions, especially to unknown partners, is often a risk that  companies  are unwilling to take, fearing that they will not be able to sustain a possible loss with their existing cost structure.

For this reason, the choice is often to require advance payment of invoices as a prerequisite for providing goods or services. This is a less risky but much more limiting choice if we consider that granting payment extensions represents added value in selecting commercial partners, which can facilitate the creation of new business relationships and consolidate existing ones.

These considerations become even more crucial when talking about expanding business beyond national borders. Strict payment terms, limited knowledge of local markets, and fear of incurring significant turnover losses often lead to a decision: not to sell abroad in the first place.


Exporting with Trade Credit Insurance: a concrete example

The company

Let's analyze the case of a company SAR  40 million operating in the field of agrifood. The market in the Saudi Arabia includes a series of well-established and well-known clients.

The problem

Demand for the product is mainly increasing from abroad. In particular, the UAE  market seems to present a good opportunity, with multiple commercial enquiries coming from that specific geographical area.

However, the UAE represents an unfamiliar market for the company, and a past experience has removed any inclination to develop business in that area. The company, in fact, suffered a default from a client located in that region, resulting in a significant loss that was never recovered.

Indeed, the activity of collecting trade receivables is a long and complex process to manage and successfully complete, especially if the support of the law firm takes place within national borders and there is no support network in the country where the debtors reside. In the case of negative outcomes of pre-litigation and legal actions for debt recovery, the company is then faced with a double expense: that of the lost revenue due to the default, and that of the law firm's fees for the recovery attempt.

The solution

Let's move on to the moment when the company makes a decision: to contact an expert and insure short-term trade receivables, the part of turnover developed on credit terms, with payment extensions up to 90 days.

The credit insurance policy indeed provides coverage for the risk of non-payment and insolvency of their debtors, both in Saudi Arabia and abroad. But it doesn't stop there: it all starts with a preliminary analysis of current and potential customers, allowing the Insurer to guide business choices with a focus on preventing non-payments.

The business thus develops in a financially secure way, with the possibility - for customers included in the coverage - to receive an indemnification of up to 90% in case of non-payment of invoices.

In summary, the company can now:

  1. Confidently select customers to sell to in the UAE, submitting each new potential buyer to the evaluation of the credit insurance company, which will determine their "creditworthiness" and consequently the level of coverage granted based on the extensive network of data and information at its disposal.
  2. Finally generate business abroad, quickly recovering losses sustained in previous years due to insolvencies incurred from navigating blindly in an unfamiliar market.
  3. Cases like the one just described very common situations within the KSA entrepreneurial landscape.

Our mission as Allianz Trade in Middle East, leader in credit insurance in the region, is to support companies in navigating global trade.

If your goal is also to guide you towards a future of growth while maintaining stability, discover our solutions.