We often think of trade credit insurance as a protection on our trade receivables against loss from protracted default, insolvency or bankruptcy. Do you know that trade credit insurance can be employed as a trade financing tool to BOOST YOUR SALES TURNOVER?
Let us show you how from an actual case scenario below:
Our client, a Singapore exporter, sells seafood to an European buyer on Letters of Credit with 90 days term (LCs). The buyer’s bank facility restricts him to opening LCs up to USD100,000 per shipment at a frequency rate of 4 times a year. This works out to an annual aggregate shipment value of USD400,000. That is the limit.
Seafood demand is good and the buyer wants to place more orders. So, he asked our client for an alternative payment arrangement.
Our client consulted us whether we can think of any viable financing solution which he can adopt?
After factoring in his requirements and risk profile, we suggested that he ships the additional orders on Documents Against Acceptance terms (90 days) supported by trade credit insurance to protect against default payment up to a credit limit of USD500,000 per shipment.
Our client accepted our suggestion. Shipments went ahead and we put in place trade credit insurance to cover them. It was no easy task. We had to use our experience and technical knowledge to negotiate with insurers to segregate DA invoices from LC invoices and not commingle them in the event of recoveries under a claim without which losses may not be indemnified.
As a result of our help, our client’s sale grew 500% by an additional USD2,000,000 bringing it to USD2,400,000 per annum when combined with his LC shipments. He exceeded his budget!
Head – Trade Credit, Bond & Political Risks
ACORN INTERNATIONAL NETWORK PTE LTD
DID: +65 6592 8824
Mobile: +65 93861934