Today, I would like to talk about how to overcome credit risk in an export business. As we all know, this can be a significant challenge when doing business with overseas buyers. But, fortunately, there are solutions to this problem, and I'm here to share some tips on how to solve credit risk with overseas buyers.
Here are ten bulletins to help you overcome credit risk in your export business:
The best solution to overcome credit risk is to get an insurance coverage from Export Credit Guarantee Corporation (ECGC) against the buyer. ECGC is a central government undertaking body that provides credit guarantee on the default of payments by the buyer.
ECGC works as an insurance firm that guarantees export payment if the buyer defaults in making payment. This is an excellent way to protect your business from credit risk.
Once you finalize an order, the buyer executes a purchase order to the seller with the terms and conditions agreed upon by both parties.
The purchase order should contain full details of the buyer and the buyer's bank account details.
The exporter should approach ECGC to get approval on the buyer with the amount of limit. ECGC collects credit worthiness of the said buyer and determines a figure of creditworthiness and informs the maximum limit of the amount that can be shipped at any point in time.
ECGC collects premium on the amount of approval and issues insurance policy accordingly.
The exporter can apply with ECGC for insurance on shipment wise order as a specific insurance policy, or at lump sum as comprehensive policy.
If an exporter obtains a specific policy, the contract of insurance is only for that particular shipment. You as an exporter have to pay premium only against the said shipment.
If you prefer to obtain a comprehensive policy against any buyer, you get approval from ECGC, the amount of creditworthiness of the said buyer. You can ship the goods up to the amount approved by ECGC.
If any default on payment by the buyer, ECGC reimburses the defaulted payment if the exporter obtained an insurance policy by paying necessary premium. ECGC may blacklist the said buyers with various agencies and associates, including banks, who cannot buy goods from anywhere in the country.
In addition to ECGC, there are also some international agencies working in all countries that provide the credit worthiness of individuals and organizations. You can approach them and collect the data by paying their charges.