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November 1, 2018

Measuring and Taking Financial Risk When Exporting Product

By Matt Bigham

The risks associated with selling and exporting produce continue to change and evolve, making it increasingly important to reevaluate the tools available to your business in order to secure or even increase revenue. One of the most effective ways to do so is to decrease the inherent risk of nonpayment. While the trade environment changes, there are options available to help manage risk, as well as expand into new markets. Trade credit analysis can help you define exactly what your risks are and ultimately help you decide if that risk is worth taking, or if the risk would be better transferred to an insurance company.

Whether the risk relates to increasing business with existing customers, expanding business to new prospects, expanding your business into new geographical areas or remaining competitive in the current political environment, trade credit insurance can be used as a financial tool to help you position your business for growth and leave you less vulnerable to financial risk. You can benefit from trade credit analysis in these four areas:

 

EXISTING CUSTOMERS

You may find yourself in a situation with a customer with whom you have a long-standing relationship, and selling more to that customer could create additional risk for non-payment. In order to offset the additional risk, your business could employ trade credit insurance, transferring that extra risk of non-payment to your insurer.

 

PROSPECTS

When dealing with potential new clients or prospects, a significant concern will be whether that new customer has the appropriate funds to pay for your goods. However, your lack of knowledge of who they are, their reputation, or their fiscal responsibility presents some major risk factors. When covering your new clients with trade credit insurance, the insurer now becomes responsible for performing the proper credit and background checks, and evaluating the potential for risk—which alleviates the risk to you and your business. Practically speaking, when you are dealing with someone new, trade credit insurance helps do the research for you, providing you with protection against non-payment, or providing you with the information necessary to determine whether you are willing to take on the risk yourself.

 

GEOGRAPHIC AREA

If you desire to expand your sales in a geographical area, or you want to penetrate a new area, your business will undoubtedly be open to risk of non-payment. When shipping overseas, your business is open to a longer credit risk, with payment coming months after delivery. The longer that your credit line is open to your customer, the more risk it presents to your business. Fortunately, trade credit insurance helps to cover your finances should the worst happen.

 

POLITICAL ENVIRONMENT

The global political environment is in a state of constant flux. Tariffs on certain crops are making U.S. goods more expensive overseas. If you are dealing with these issues or changes in laws, sanctions, or currency fluctuations, trade credit insurance will help maintain a sustainable risk level by ensuring that your exposure remains low regardless of the ever-changing political environment.

What does this mean for you? First, we are able to provide you with access to specialists who understand credit, political, and security risk unique to agribusiness. We can help you measure your exposure to these risks. Second, as brokers, we are able to provide you with a full menu of trade credit insurance options that are available, including access to all the insurance carriers offering this specialized coverage.

One of the many advantages of Western Growers membership is access to the latest insurance products, independent guidance, and resources to help you manage your business needs in an ever-changing global environment. For a consultation, analysis and pricing for your business, please contact me at [email protected] or (602) 757-7869.