The small exporter, or insuring without a credit department

A thirty-person exporting company has no credit analyst, and will not have one. The decisions large houses spread across a credit department, a controller and a lawyer are taken there by the owner, between two meetings, on the strength of what he knows of his customer. Buying credit insurance is often presented to him as the answer to that absence, and it is one, but not in the sense he imagines. What the policy takes over for him, and what it leaves with him without reminding him, must therefore be stated precisely.

What the insurer actually does for him is considerable and is underestimated. It assesses buyers no company of that size could analyse, in countries where it has no access to information; it monitors those buyers continuously and flags deteriorations; it gives an opinion that is also a decision, since a refused limit is an answer; and it recovers abroad through local correspondents an owner alone would not find. That delegation is the real product, more than the indemnity, and a small structure gains from it a service it could not otherwise buy.

What the insurer does not do, and what remains entirely with the owner, comes to three daily obligations no policy performs in his place. Observe the limits granted, buyer by buyer, at all times. Notify overdues within the contractual period. And stop delivering to an account in undeclared arrears. Those three steps are precisely the ones an organization without a credit department does not do naturally, because they assume continuous tracking of information living in an accounting package, and a discipline that contradicts the commercial reflex of serving a loyal customer.

Exceeding a limit is the characteristic failing at this size, and one must understand why it happens without bad faith. A limit is a ceiling on outstandings, not on annual turnover: it is measured at every moment on the sum of unpaid invoices. An owner selling regularly to a good customer exceeds the ceiling without noticing, because the month's deliveries add to the previous month's invoices before they are paid. The part above the limit is not covered, and it is not covered at the precise moment the customer stops paying, that is, when the outstanding is at its highest.

The answer to these three risks is not an answer of vigilance, and that is this module's most useful point. A company without a credit department will not hold a manual discipline, whatever the owner's goodwill, because nobody has the time. It will, however, hold automatic controls set once in its management software: an order block above the authorized outstanding, an alert at fifteen days of unpaid maturity, and a notification produced automatically when the period is exceeded. Those three settings cost an integrator a few days and remove the three commonest causes of losing cover.

It must be added that these policies exist in versions calibrated for this size, with simplified operation: limits granted automatically below a threshold on the strength of a commercial information file, annual rather than monthly turnover declaration, online management. That simplification has a counterpart worth knowing: automatic limits are more readily revised, and the threshold above which a named request is required is low. An owner who believes his whole book covered because he asked for nothing is wrong the day a large order exceeds that threshold.

The overall reading comes to one sentence and three settings. The policy buys analytical and recovery capacity a small structure cannot otherwise afford, and requires in return three disciplines a small structure cannot hold by hand. The order block above the authorized outstanding, the fifteen-day alert, and automatic notification when the period is exceeded are therefore the condition of the cover rather than a management refinement. An owner who sets them on the day of subscription has bought what he thinks he bought; one who postpones them has paid a premium for a cover his organization contradicts every month.