The commonest way of approaching a distant market is to entrust it to a sole distributor: an importer that knows the country, buys firm, resells on its own account, and carries the stock. That structure is commercially excellent and produces a particular insurance exposure few exporters see coming: a country's entire turnover passes through one signature. Country risk and credit risk, which this whole certification has worked to distinguish, then merge into a single debtor, and the limit granted on it is in reality the limit of the whole country.
The first consequence is arithmetic and visible in one line. An exporter selling three million a year in a country through forty customers carries a dispersed risk an average limit suffices to cover. The same exporter selling the same three million through a sole distributor needs a three million limit on one name, and that limit is far harder to obtain: it runs into the distributor's size, often a mid-sized company, and into the insurer's country limit. The structure that simplifies selling complicates covering, and the exporter sometimes discovers it can insure only half of what it ships.
The second consequence is more insidious and follows from the distributor carrying the stock. Its debt to the exporter reflects not its final sales but its purchases, and it can build a large outstanding while its own customers slow down. A distributor that has sold well and one that has sold badly show the same outstanding on the exporter's books, and the difference appears only in stock turnover, information it does not volunteer. Following a sole distributor therefore means looking at something other than its payments: turnover, reorder patterns, its coverage of competing brands.
The third follows from the cause of default becoming particularly hard to establish there, which returns to the heart of this certification. When a country deteriorates, a distributor stops paying for a mixture of reasons: its customers stop paying it, it can no longer transfer, and its own stock stops moving. The body of evidence distinguishing political from commercial risk must then be built on a single company, without the comparison with other buyers in the same country that the exporter does not have. It is a case where information from the country's other suppliers, hard to obtain, is worth more than everything else.
One must then name the risk wrongly believed to be covered: substitution. A distributor that fails is not replaceable in a quarter. It holds the product registrations, the approvals, sometimes locally filed trademarks, the relationships with final customers and the service history. Its disappearance costs not only the unpaid receivable, it costs access to the market, and that second loss is covered by no credit policy. Well-drafted distribution agreements address this, providing that registrations and customer data revert to the exporter, and it is a survival clause rather than a commercial one.
What can be done to reduce that concentration is decided upstream and rarely during. Appointing a second distributor for a region or a product line splits the exposure and improves insurability, at the price of commercial complication. Selling directly to the largest final customers, leaving the small ones to the distributor, restores dispersion where it counts. Shortening payment terms reduces the outstanding to be covered without reducing turnover. And having the distributor's debt guaranteed by its parent, where it belongs to a group, moves the debtor to a more insurable signature, which is often the most effective and least costly measure.
The overall reading is that a sole distributor is not one customer among others but a point of passage. It is therefore assessed as one assesses an infrastructure: what happens if it disappears, how long does replacing it take, and what is lost besides the receivable. Three checks follow. Does the limit obtained cover the real peak outstanding and not the average one. Does the distribution agreement provide for the return of registrations and customer data. And is there, within the distributor's group or among its final customers, a signature toward which part of the exposure can be moved.
A French diagnostics equipment exporter does 4.2 million euros a year in a Southeast Asian country, entirely through a sole distributor buying firm at ninety days. Peak outstanding reaches 1.9 million at quarter end, average outstanding 1.1 million. The insurer has granted a 1.2 million limit on that distributor, an independent family company. Registrations of the devices with the local health authority are in the distributor's name, a condition imposed by regulation. For six months its payments have been punctual but its reorders have fallen by 30 percent. What should be made of this?
Two problems coexist and only one is visible in the accounts. The first is arithmetic: the 1.2 million limit covers the average outstanding and leaves 700,000 euros bare at every quarter-end peak, which never shows while the distributor pays. It is the peak outstanding that must be covered, and the gap is handled by shortening terms, smoothing shipments, or asking the owning family for a guarantee on the uncovered tranche. The second is the signal, and it is the more important: punctual payments with reorders down thirty percent describe a distributor moving its stock badly and paying out of cash rather than out of sales. That is exactly the situation monitoring payments alone does not detect, and it precedes failures by several quarters. There remains the risk insurance will never cover and that is the heaviest here: the health registrations are in the distributor's name, so its disappearance would cost the unpaid receivable AND access to the market, with a re-registration lead time counted in months or years. No credit policy reimburses that. Three steps therefore follow, and two are not insurance steps: ask for stock turnover and final sales figures, negotiate at the next amendment the return of registrations on termination, and bring cover to the level of the peak outstanding rather than the average.
- 01A sole distributor routes a country's whole turnover through one signature: the limit granted on it is the limit of the entire country.
- 02Its outstanding reflects its purchases and not its final sales: stock turnover says what payments do not say yet.
- 03The cause of default is harder to establish there, for want of other buyers in the same country to compare its conduct with.
- 04Substitution risk is covered by no policy: registrations, approvals and customer data are recovered by contract, not by indemnity.
- 05Cover the peak outstanding and not the average, and look within the distributor's group for a signature to move part of the exposure to.