Ways to Secure Exporting Company’s Assets in case of Long Delay in Payment, Counteragent’s Bankruptcy and Political Risk Effects

04/ 09/ 2018

A new tool for securing commercial loans is now available for Ukrainian exporters. One of the global leaders in commercial loan insurance – Atradius (The Netherlands) – is ready to secure any company against a long delay in payment, counteragent’s bankruptcy as well as political risk effects in a counteragent’s country. The Group started working in the Ukrainian credit insurance and reinsurance market in cooperation with INGO Ukraine Insurance Company. Unlike similar financial tools offered by banks and factoring companies, commercial loan insurance is notable for its bigger flexibility as well as adaptability of coverage terms to specific business needs. Moreover, experts say that the insurance value is lower than the value of any similar financial tool. This tool enables exporters to pursue a more aggressive sales policy, masterfully crack new markets and significantly increase trade turnover. The global business practices show that commercial loan insurance facilitates continuing business processes and development with minimum risks. The Commercial Loan Insurance Treaty will also serve as one more argument when negotiating with a bank and allow getting loans on more favorable terms. Serhii Kryvosheiev. Head of Corporate Insurance Department, INGO Ukraine Joint Stock Insurance Company. If you market goods or services, then you certainly understand how much business benefits from delays in payment. You also know that a delivery made with payments delayed results in accumulation by an enterprise of short-term accounts receivable. Increase in trade turnover with payments delayed and market development lead to higher risk of counteragents’ failure to pay the cost of delivered goods. Thus, it is the risk that should be taken into account. The accounts receivable of an average enterprise are about 30% of all its assets while its own funds amount to only 20% of liabilities. This means that if a counteragent fails to pay the cost of delivered goods, a provider will be unable to cover the loss out of its pocket. And even a small loss essentially affects the company’s stability and financial performance. “For instance, to cover the loss amounting to EUR5000, a company with average return on sales (4%) will have to increase trade turnover by EUR125,000,” says Serhii Kryvosheiev. “If the loss is EUR100,000, it will be necessary to increase trade turnover by EUR2,500,000.” Exporters’ commercial loans have been insured throughout the world for more than 100 years, but this tool is not common in Ukraine yet despite all its advantages. First of all, the credit limit approved by the insurance company is valid during the whole period of coverage. Insurer’s experts permanently monitor a debtor’s financial condition and political environment in its country to timely respond to alarms. “Actually, commercial loan insurance is not only a guarantee of incurred loss recovery but also a comprehensive credit management program,” – adds Serhii Kryvosheiev. – “We are ready to be involved in client’s profile credit management at each stage of goods delivery with payments by installments.” The insurance company can assist in selection of counteragents, determine whether counteragents’ payments may be delayed or credit limit – set, monitors counteragents’ condition during the whole period of coverage as well as supports a client in collecting accounts receivable.

Unlike similar financial tools offered by banks and factoring companies, commercial loan insurance is notable for its bigger flexibility as well as adaptability of coverage terms to specific business needs. Moreover, experts say that the insurance value is lower than the value of any similar financial tool.

This tool enables exporters to pursue a more aggressive sales policy, masterfully crack new markets and significantly increase trade turnover. The global business practices show that commercial loan insurance facilitates continuing business processes and development with minimum risks. The Commercial Loan Insurance Treaty will also serve as one more argument when negotiating with a bank and allow getting loans on more favorable terms.

Serhii Kryvosheiev Head of Corporate Insurance Department, INGO Ukraine Joint Stock Insurance Company

If you market goods or services, then you certainly understand how much business benefits from delays in payment. You also know that a delivery made with payments delayed results in accumulation by an enterprise of short-term accounts receivable. Increase in trade turnover with payments delayed and market development lead to higher risk of counteragents’ failure to pay the cost of delivered goods. Thus, it is the risk that should be taken into account.

The accounts receivable of an average enterprise are about 30% of all its assets while its own funds amount to only 20% of liabilities. This means that if a counteragent fails to pay the cost of delivered goods, a provider will be unable to cover the loss out of its pocket. And even a small loss essentially affects the company’s stability and financial performance.

“For instance, to cover the loss amounting to EUR5000, a company with average return on sales (4%) will have to increase trade turnover by EUR125,000,” says Serhii Kryvosheiev. “If the loss is EUR100,000, it will be necessary to increase trade turnover by EUR2,500,000.”

Exporters’ commercial loans have been insured throughout the world for more than 100 years, but this tool is not common in Ukraine yet despite all its advantages.

First of all, the credit limit approved by the insurance company is valid during the whole period of coverage. Insurer’s experts permanently monitor a debtor’s financial condition and political environment in its country to timely respond to alarms.

“Actually, commercial loan insurance is not only a guarantee of incurred loss recovery but also a comprehensive credit management program,” – adds Serhii Kryvosheiev. – “We are ready to be involved in client’s profile credit management at each stage of goods delivery with payments by installments.” The insurance company can assist in selection of counteragents, determine whether counteragents’ payments may be delayed or credit limit – set, monitors counteragents’ condition during the whole period of coverage as well as supports a client in collecting accounts receivable.