Smart exporters protect their receivables – take advantage of these risk mitigation methods
Export trade involves credit risks arising from the buyers themselves as well as from the buyer’s bank and country. The more customised and significant the export trade transaction is, the higher the significance of risk mitigation.
The realisation of credit risk in a failed export trade transaction can be a fatal blow for an SME that is just getting started with exports. When you apply a systematic approach, take the necessary precautions against risks and create a credit policy for your company that defines the risks you are willing to take, you can safely increase your investments in the export trade without losing any sleep.
“There are many ways to mitigate export risks. Advance payments, the choice of payment method, credit insurance and various financing solutions all come together in export trade as a comprehensive approach that exporters should discuss with their bank and Finnvera in a timely manner, even before putting in a bid,” says Minna Lindqvist, Development Manager at Finnvera.
Advance payments reduce the need for other protection measures
The higher the advance payments received from the buyer, the smaller the need for other protection measures. However, reaching an agreement on advance payments is not always successful, and your bid may not be competitive if it calls for advances that are much higher than those sought by your competitors.
The buyer may also require collateral against advance payments, such as a bank guarantee issued on behalf of the exporter. The guarantee ensures that the buyer will receive a refund of the advance payment if the exporter is unable to fulfil its contractual obligations.
In these situations, you can use our export guarantee as a countersecurity for your bank.
Choosing the right payment method
Some of the payment methods used in export trade transactions leave the exporter fully exposed to the buyer’s ability and willingness to pay. Other methods ensure that payment will be received in almost any circumstance.
Further reading: In export trade transactions, choosing a payment method is, first and foremost, a part of risk management
You insure your luggage when you travel, so why would you not insure your export receivables?
Credit insurance is a service that, like other insurance, compensates you for damage when things do not go as planned. In export trade transactions, this means a situation in which the buyer fails to pay the agreed amount for one reason or another. Credit insurance products are offered by commercial credit insurance providers as well as Finnvera.
Using credit insurance is a sensible decision especially when the payment method used in the transaction is not secure and therefore does not ensure that payment will be received.
“Our export receivables guarantee is intended for post-delivery insurance needs involving short payment periods. It is generally used in ongoing trade with the same buyer when the payment period is a few months. Another product granted to exporters is the credit risk guarantee, which can even be used for transactions with longer payment periods and to mitigate the risk related to the cancellation of the transaction prior to delivery when the export product in question is customised to the buyer’s needs.
In addition to these export credit guarantees granted to the exporter, we offer many credit risk protection products aimed at providers of financing.
Further reading: Financing SME export trade transactions (in Finnish)
