FINANCING AND INSURANCE (b)

Insurance

You may wish to seek insurance against a number of risks that could impact on your exporting activities in general and your delivery of the services, or your client’s ability or willingness to pay in particular.

What Risks are Related to Financing?

The risks that can be encountered in providing services internationally run from the absurd to the amusing, from the physically hazardous to the financially disastrous. Fortunately most can be averted with good planning, and the others can generally be handled through a combination of :

• a flexible attitude
• a genuine appreciation of cultural diversity
• an eagerness to learn how to meet the client’s needs and expectations
• an ability to differentiate between the legal contract and the actual task
• a recognition that, once outside the borders, you the service exporters, are the cultural minority and that you need to adapt to them

The only risks that will be examined in this module are those regarding payment. Risks such as loss or damage to essential equipment in transit to or from your client’s site, loss of data from your computer system, health or other risks to personnel, or theft of intellectual property are not part of these discussions. Risks regarding payment may relate to:

• the exporter
• the host country
• the client

Exporter Related Risks, their Avoidance and Management:

a) Market Access

The Risk:
Failure to gain access in order to deliver the service

Avoiding the Risk:
- Fulfill all legal requirements for visa, vaccinations, work permits etc.
- Obtain a letter of invitation from your client and/or the appropriate government department.
- Carry your client’s business and home phone numbers with you when travelling and prearrange that a call will be acceptable if needed.

Managing the Problem:
If stopped at the border without documentation that is legitimately required, go back and prepare properly. If this causes delays in delivery of your service, you are jeopardizing your payment in a manner for which no insurance is available. If stopped for any other reason, call your client. If this causes delays, your payment may depend on you having, in your contract, a clause to cover such situations, and having it reflected in any financial documentation such as letters of credit.




b) Meeting Client Expectations

The Risk:
Failure to meet the client’s expectations

Avoiding the Risk:
When defining the terms of reference, set intermediate delivery requirements and ensure that the contract specifies that each requirement will be deemed to have been fulfilled unless the client notifies you otherwise in writing before the next step is to be undertaken. In the case of Canadian, contracting through the Canadian Commercial Corporation can provide security for you and your client.

Managing the Problem:
If you fail to meet the terms of reference of the contract, your payment will be jeopardized. If you do meet the terms according to the law applicable to the contract, insurance of your receivable may solve the problem.

Risks Related to the Host Country, their Avoidance and Management:

a) Foreign Exchange

The Risk:
Central bank failure to release agreed foreign exchange. Fortunately, this problem is occurring in fewer countries each year. Market risk reports from our Country Profiles, Country Reviews and Market Research, Country Commercial Guides and your commercial bank should enable you to predict the likelihood of encountering this problem.

Avoiding the Risk:
- Ensure that, in your contract, all responsibilities for accessing foreign exchange lie with your client.
- Proper insurance of your payment is advisable in any country with foreign exchange controls. High cost of insurance may cause you to require a mobilization payment, and strict enforcement of payment for each deliverable before continuing to the next step.


Managing the Problem:
If covered in your contract, properly worded insurance of your receivable can cover such situations.




b) Political Instability

The Risk:
Political instability, violence, insurrection and war are sadly, a hazard to exporters working in some areas. For these risks refer also to the Country Profiles, Country Reviews and Market Research and Country Commercial Guides.

Avoiding the Risk:
Avoidance options may include seeking other markets, rescheduling visits, or seeking methods of delivery that avoid physical presence in obvious trouble spots. Proper insurance of your payment is advisable in any country with security problems. High cost of insurance may cause you to require a mobilization payment and additional payments for emergency evacuation costs, medical evacuation costs, protective clothing, security guards etc., and strict enforcement of payment for each deliverable before continuing to the next step.

Managing the Risk
If covered in your contract, properly worded insurance of your receivable can cover such situations.

Risks related to the client, their avoidance and management:

a) Client Bankruptcy

The Risk:
Client bankruptcy.

Avoiding the Risk:
Your client’s financial health should be subject to a thorough credit evaluation. Work with your commercial bank and the Export Development Corporation.

Managing the Risk:
If covered in your contract, properly worded insurance of your receivable can cover such situations.




b) Slow Payment

The Risk:
Client slowness in payment.

Avoiding the Risk:
- Organize progress payment. Contract through, for example, the Canadian Commercial Corporation.
- Obtain insurance for your receivable.

Managing the Problem:
If covered in your contract, properly worded insurance of your receivable can cover such situations.

Sources of Insurance for Receivables

Before finalizing your proposal to your client, talk with your commercial bank and in the case of Canada, with the Export Development Corporation about obtaining insurance for your receivable.