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What is credit insurance and do you really need it?

What is credit insurance and do you really need it? article image

Surprisingly, a large percentage of Australian exporters now trading in overseas markets are not covered by credit insurance.

For many, this is simply because they are unaware of what it is and how it works.

Graham Crozier was appointed Chief Executive of Coface in Australia and New Zealand in February this year. His main role is to oversee the business development and operations of Coface’s trade credit insurance and services activities in Oceania.

In this exclusive interview with Dynamic Export editor Tim Michael, Mr Crozier explains what trade credit insurance is and why Australian exporters should strongly consider it to protect their business when trading overseas.

“Trade credit Insurance protects businesses from bad debts caused by a customer's insolvency or payment default, locally and/or overseas,” Mr Crozier explains.

“Ultimately, it safeguards cash-flow. So should the worst happen and non-payment occurs, Trade Credit Insurance will replace the debt, safeguarding the future of the supplier company in the process.”

So why do Australian exporters need it?

“Australia is a relatively low-risk country,” says Mr Crozier. “Although each industry is different and there are always good payers in high risk industries as well as bad payers in low risk industries.

“When you export, all the normal processes that you take for granted in Australia may change or become challenging.

“First of all, you may not speak the language, legislation and processes will be different and you cannot easily drive to your customer’s door and claim what is yours.

“Exporting without Trade Credit Insurance is like walking on a tight rope without a net.

“You may be very good at it but if a strong wind hits you, you may lose all you have. Trade Credit Insurance is your safety net. Don’t export without it.”

Mr Crozier says many Australian exporters are unaware of the need for credit insurance.

‘A mystery to many exporters’

There is a lot of work to do still in Australia to educate the export community.

“The penetration of Trade Credit Insurance here is quite low – around 10% – compared to some European countries for example where the figure is closer to 40%.

“Trade Credit Insurance still remains a mystery to many exporters or they have the perception it is too expensive or too complicated.

“I always believe that if they can’t afford Trade Credit Insurance they can’t really afford to export.”

Mr Crozier says to some extent credit insurance is also a “cultural issue.”

“Most people will insure their car, their house and their income,” he explains. “However business owners tend to forget that one of their most valuable assets is their trade receivables.

“They don’t realise they can lose their business if one or two of their major customers go bust.”

Coface, a global leader in credit insurance, provides a range of other services including:

  • International Debt Collection (collection services for insured debts to tackle late payment, maximise cash flow and reduce debtor risk)
  • International Business Reports (traditional credit reports from Coface and partners)
  • Credit Opinions (insight into a company's capacity to honour its financial commitments)
  • Policy Master (where you upload a list of invoices from your accounting system and we facilitate your policy administration)
  • TopLiner (top-up Trade Credit Insurance cover)
  • CofaMove (a smartphone app for Coface clients to manage their customers and suppliers portfolio)

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