Ensure you're insured
Regardless of your business activity, exporting brings with it new opportunities, as well as a number of potential risks and challenges. That's why it's a good idea to have insurance for the three major risks associated with exporting:
- Goods that get lost or damaged.
- When a buyer can't, or won't pay.
- When a seller is unable to fulfil the terms of a contract.
- Cargo insurance will cover you if the goods you're exporting are delayed, damaged or lost during their journey to your overseas buyer.
- Marine cargo insurance covers shipments by sea, and international air carriers. They generally offer cover for their consignments.
- It's the buyer's responsibility to take out insurance if the contract between buyer and seller specifies that the contract in question is Free On Board (FOB).
- Under a Cost Insurance and Freight (CIF) contract, the seller organises insurance cover. We strongly advise that you obtain written confirmation that adequate cover has been arranged.
It's common for businesses to request coverage of 110 per cent of the transaction value, including freight costs and insurance. This is to compensate for lost time, profits and any legal or other expenses you might incur from the ordeal.
Export credit insurance
- Export credit insurance is available if there's a risk that your buyer cannot, or will not pay for your goods.
- It protects foreign receivables against customer insolvencies, business closures, ownership changes, cash flow problems, balance sheet issues, currency fluctuations, natural disasters, or general economic conditions in your customer's country.
- It also covers political risks of nonpayment, including currency inconvertibility, transfer risks, war, strikes, riots, civil strife, expropriation, nationalisation, embargoes, trade sanctions, and changes in import or export regulations.
To prepare for the possibility that you're unable to fulfil the terms of a contract, you should obtain a performance bond. This provides the buyer of your product and/or service with assurance that if you don't meet your obligations under a contract, they can call on the bond to reduce their losses.
Advance and warranty bonds
Other types of bonds include advance payment bonds and warranty bonds. Advance payment bonds provide buyers with security for their advance payment under an export contract. Warranty bonds protect your buyer from loss if you don't meet your contractual warranty obligations after the contract is completed.
Visit the Australian Government’s export credit agency, Efic to learn more about export insurance.