Trade-Credit Insurance

If you export goods to another country, one potential problem with credit is a swift devaluation of that country's currency. For example, in 1994, the Mexican peso fell from 4 pesos per dollar to 7.2 pesos per dollar in one week. The devaluation can make it difficult, if not impossible, for the importing company to pay its bills. To cover the risk there is trade-credit insurance. In fact, the recent decline in the Indian rupee is expected to generate a 10 percent increase in trade-credit insurance for imports to that country. With trade-credit insurance, if an importer has difficulty paying the counterparty, the trade-credit insurer will step in and pay the exporter. At the same time, the trade-credit insurer will make an agreement with the importer to pay the debt in installments, often over a three to five year period.