Trade credit insurance can help companies get paid and improve the look of their balance sheets.By Peter a. Buxbaum, AJOTA weaker dollar has provided for the possibility of growing United States exports. President Obama has called for a doubling of U.S. exports by 2015. But some exporters may be missing out on opportunities by insisting on receiving letters of credit in payment for goods and by failing to offer competitive terms of sale. Both of these factors can be remedied by making good use of trade credit insurance, say industry insiders. European companies are already well acquainted with this insurance instrument which they use to assure timely payment for their exports and to grease the wheels of trade. Their American counterparts are way behind the curve but are catching up. “American exporters are somewhat old fashioned when they look for a letter of credit,” said Mike Ferrante, president of Coface North America. “Letters of credit are not not customer friendly and add costs to the transaction. Demanding a letter of credit tells customers that you don’t trust them.” Trade credit insurance protects the money due for goods and services supplied to a customer. Credit insurance protects accounts receivable against customers who can’t pay due to insolvency, political risk, exchange rate fluctuations and a host of other factors including protracted default. A recent survey of European businesses found that 10 percent of export invoices and eight percent of domestic invoices were written off by sellers. The European market for trade credit insurance is four times that of the U.S. in terms of premiums paid, said Ferrante. Europeans, although now largely united in the European Union, are historically smaller countries with different languages and currencies and have depended on exporting to a greater extent than U.S. businesses. “The export credit insurance market in Europe is quite robust and includes a domestic market that benefits from the same advantages,” said Ferrante. “U.S. business should be exploiting their currency advantage at the present time. With a weaker dollar there is a huge opportunity to expand sales.” Some American companies are catching on, however. “The total credit insurance market has grown by 12 percent to 15 percent per year in recent years and the export component has grown 15 percent to 20 percent per year,” said Ferrante. “But we as a country need more smaller and mid-sized companies to think about exporting and to use the right tools.” How can trade credit insurance help exporters? “It is essential that companies trading internationally understand fully the payment behavior of their potential customers,” said Richard Ariens, president of Atradius. “Strategic decisions made without knowledge of both prevailing payment practice and the trend over time may well result in serious cash flow problems. “No business is immune to the risks of international trade,” he added. “Large well established companies are particularly exposed to poor payment behavior because of the volume of their international transactions, while smaller companies new to exporting often learn the hard way, early in their international endeavors, that they have incorrectly assessed the payment behavior of their international business partners.” Coface issues insurance against a default by a buyer by accessing a database of company credit reports from all over the world. Coface customers are able to go online, specify the buyer and the amount of the invoice a receive a quote for the insurance, in many cases, instantaneously. In some complex cases, the company needs to investigate further before agreeing to cover the risk, a process which could take 24 to 48 hours. “Lots of companies are approved automatically,” said Ferrante. Atradius makes underwriting decisions by accessing a database of information on more than 60 million buyers worldwide, and by relying on a network of underwriters and collectors across the globe who assess buyer default risk