A medium sized company in the dairy industry wants to explore better growth opportunities overseas. Asia in general and China in specific are of interest, due to the high demand of Australian produce, which is renowned to be clean, healthy and safe (think of the infant milk powder scandal in China). With no knowledge of the specific markets, a difficult market to gain access to current financial information on potential buyers and no capacity to have credit management present in the country, they are hesitant to trade on open terms. This puts them behind their aggressive competitors. In addition, the uncertainty of their rights in an unknown market and what to do in case of a non- payment, slows down their trade flows as they are only accepting advance payments and in some cases, letter of credits ( which require guarantees and are only ‘transaction by transaction’).
Cost control is vital to them as any SME as well as profiling a healthy customer portfolio. To gain a competitive advantage and to enable safe trading they consider outsourcing their risk monitoring and management to external providers.
By taking out trade credit insurance, our dairy exporter is now able to trade on an open account, according to a credit limit underwritten by a credit insurer. Their Chinese buyers can buy up to a certain limit while the transaction is protected by the insurer against non –payment. Our exporter is acting like a bank to those buyers, thus allowing for more and faster trade flows.
By mitigating their commercial risk of non-payment through an insurance solution they are protecting their cash flow and have gained better budget control (the known cost of premium versus the unknown cost of a loss). Their access to real time market insight allows them to offer more competitive terms supporting faster growth with the most valuable clients. In addition they are covered for non-payment due to unforeseen events like natural disaster, shortage of currency or government intervention.
From Expert to Expert: Let’s work together……so you can get on with your business and let us ease you worry about getting paid.
DAS INSURE. – Insurance Solutions for Your Peace of Mind!