Part 3 of 3 in a Series

Need to offer flexible payment terms? Credit insurance can help

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This is the final article in our three-part series on how to offer competitive payment terms without taking on risk. Learn how to create your own credit management program step-by-step. Also find out how to balance your risk versus your customer’s risk and look at the strengths and weaknesses of the most commonly used payment options.

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As experienced business people know, simply offering a high-quality product or service doesn’t guarantee a sale. Customers usually look at several factors in the package before making a final purchase decision, including fair price, timely delivery and, increasingly, flexible payment terms.

For the seller, this presents a trade-off. Offering flexible payment terms makes your company’s offer more competitive, helps you to increase sales, and presents a gesture of goodwill, the foundation of building strong relationships.

On the other side of the coin, it’s risky to extend credit to new customers – and this is even more so when your buyer is located in another market, making it harder to pursue and enforce collection if non-payment occurs.

Extending credit also means that you can’t eat your cake and have it, too. Allowing your customer to delay payment means you don’t have that money available to fulfill the order, to conduct research and development, or to find new customers and grow your business in other markets.

Some accept this compromise as simply the cost of doing business. But in fact, as many companies have figured out, having trade credit insurance can give you all the benefits of being able to offer flexible payment terms, as well as ensuring you’ll get paid and can eat your cake as well.


Trade credit insurance does double duty

Trade credit insurance (also known as export credit insurance) is a type of commercial insurance that protects your accounts receivable against losses when a customer doesn’t pay. This means you can offer your overseas customers highly competitive payment terms, such as open account, without risking major financial losses. And including flexible payment within your offer can spell the difference between making an important sale and losing it.

“This kind of insurance helps companies mitigate their risks when they need to provide flexible terms for their international clients,” says Sarah van Wolde, Senior Underwriter at Export Development Canada (EDC). “If the customer doesn’t pay, you’ll still receive most of your funds. As a result, using trade credit insurance can make you more competitive—it means you can offer better terms without increasing your risk to uncomfortable levels.”

“This kind of insurance helps companies mitigate their risks when they need to provide flexible terms for their international clients.”Sarah van Wolde,
Senior Underwriter
Export Development Canada

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the key to offering flexible terms

When deciding on the right payment terms to offer your customer, start with their credit data. This is relatively easy to do in Canadian and U.S. markets. It’s harder to find information such as financial stability, credit standing and payment records of potential customers located overseas – unless you know where to look.

The Canadian Trade Commissioner Service (TCS) is an excellent source of information, since they can give you a good idea of the standard payment terms used by your industry in your target market. The TCS office in your market will also be familiar with local business conditions and may be able to advise you on the reputation of a prospective customer within that market.

Another resource is EDC, which offers a wide range of up-to-date business intelligence. You can access Country Profiles to asses risk in markets around the world, visit our Economic Insights for in-depth economic analysis and reports, or browse the events calendar for upcoming seminars, webinars and trade missions.

Your industry trade association may also have resources and information you can use, and there are numerous international credit agencies that will provide credit reports on a fee-per-company basis.


Be consistent:
create a credit management program

You might know where, when and how you want to extend flexible payment terms, but do your employees know as well? Developing an effective, clearly communicated credit management program that can be applied consistently across your company is crucial to offering flexible terms without exceeding your risk threshold.

“With a good credit management program, you can set credit terms and policies that are shared throughout your company, so that your staff knows how they work and what the repercussions will be if they aren’t honoured,” says van Wolde. “This also allows you to communicate your terms clearly to your customers, so they are aware of what will happen if they don’t meet their payment commitments. Your credit management program also helps you to track how well your customers are doing. This can allow you to spot any changes in payment patterns that might signal a risk to your cash flow.”


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6 steps to create your own credit management program

An effective credit management program is a carefully developed policy, set out in a document, which governs how you offer international credit and handle overseas transactions. While the details of the credit management process vary from company to company, most programs are based on some variation of the following steps:

1Collect basic information about the customer

2Check the customer’s credit history and establish credit limits

3Build customer relationships

4Establish clear credit and payment terms in your sales agreements

5Regularly update your customers’ credit standing

6Use a standard process for handling overdue accounts

The bottom line

Once you’ve created your credit management program, treat it as a living document. Build on it to assign staff responsibilities, fill in procedural details and set up the program’s processes. Review the program on a regular basis as your company grows into new markets and gains new customers.


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Need to offer flexible payment terms? Credit insurance can help was last modified: August 10th, 2018 by Export Development Canada.
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