Exporting with confidence is the promise made to companies by credit insurance. This type of contract offers an essential guarantee to companies, small and large, when they launch an assault on foreign markets: it allows them to develop their exports while limiting financial risk. Companies are thus protected against the risk of non-payment and contract interruptions, and they benefit, upstream, from a country risk analysis to better understand the conditions of trade with such or such client.
Update on French exports
French exports are doing well: + 4.3% in 2015, a clear increase compared to the previous year (to be read in detail in this report). However, these good figures are mainly due to a few large sectors (aeronautics, automotive, cosmetics, food) dominated by groups that have financial backs strong enough not to fear a temporary cold snap caused by a client abroad.
In the eyes of SME bosses, however, economic risks are the main obstacle to a peaceful development of exports. And for good reason: in Europe, a quarter of bankruptcies of small and medium-sized enterprises is due to a cash flow problem due to unpaid bills. This threat traditionally weighs on all companies, including those whose only market is domestic, but it takes even more importance in export since it is necessary to add a whole series of factors which make up the “country risk”, that is to say a set of economic, political, social and environmental criteria which pose a higher or lower risk on trade.
The development of credit insurance
To offset the uncertainty of the export market, insurance companies have developed a lot in recent years of specific products aimed at supporting companies in their exports. Export credit insurance is the answer to the fears of companies that do not have enough leverage to resist a breach of contract or an unpaid amount. Large companies are also affected: if they can cope better thanks to more robust cash, they nevertheless need to know the risks induced by a commercial exchange with such or such prospect.
The credit insurance mechanism is not new. By paying a premium, entrepreneurs in the late 19th century in the United States could already hedge against all or part of a risk of non-payment. Specialized companies were created in Europe in the 1920s, but it was after the Second World War that the development of international trade was accompanied by the development of credit insurance mechanisms reserved for exports. In France, the State took up this question by creating a dedicated agency in 1946, Astro Finance, which has since been privatized.
Export credit insurance: a key to the international market
For an exporting company, whatever its size, taking out a dedicated credit insurance contract is of paramount importance. It is a sesame that opens the doors to the international market while preserving peace of mind. And this, not only because this guarantee covers the risks of non-payment, but because it also offers the company support over the entire period of execution of its contracts with its partners abroad.
Well aware that risks increase depending on the country to which they export, French companies certainly need the financial security promised by credit insurance – the insurer taking charge of the recovery of arrears by relying on its teams in place in the countries in question, and paying compensation to the beneficiary of the contract if recovery fails.
But what they want, they are also sharp analyzes of the risks involved in trading with such and such a client in such or such territory. It is by knowing the environment in which your prospect evolves that you manage to limit the risk of non-payment, for example by applying more drastic payment conditions in the case of financially or politically unstable nations.
In 2012, according to this report, French SMEs contributed only 18% to the total export turnover – while they represent the main part of the French economic fabric. Our companies have the means and the ambition to develop their exports; all they need is security. Credit insurance is the tool they need to take off to the international market with confidence.