Risk Mitigation Tool Helps Companies Ease Market-Entry

By Robyn Finlay

As a business owner what you don’t know can hurt you, and what many Canadian companies may not know is that receivables insurance—also known as trade credit insurance—can go a long way in mitigating the risks associated with exporting to foreign markets, says the Receivables Insurance Association of Canada (RIAC).

David Dienesch, a member of RIAC’s board of directors, says the association aims to inform the large number of Canadian businesses that may be unaware of the existence of receivables insurance.

Whether a company is selling domestically or exporting abroad, receivables—amounts owed to a company for their goods or services—are made more secure through receivables insurance. The insurance offers protection against non-payment as a result of a variety of factors such as political turmoil or buyer insolvency. Business risks are typically higher when companies enter international markets. RIAC is working to raise awareness about receivables insurance with tools and resources to help inform Canadian businesses about how to mitigate risks as they expand into international market.

“Generally (receivables insurance) customers purchase a policy that insures all of its buyers in all of the geographic regions in which it sells,” says Mark Attley, president of RIAC. “Individual limits are established for each buyer that ideally reflects the maximum outstanding receivables balance under normal trading.”

However, Attley, who also co-founded Millennium CreditRisk Management, a credit and political risk insurance brokerage, notes that insurers can tailor policies “to meet specific objectives”. For example, a company may choose to insure sales to buyers in select countries, or perform risk concentration where the company chooses to insure key buyers that make up the majority of the company’s sales. “The (receivables insurance) industry responds to client needs and objectives,” he says.

“Canadian businesses need to be aware that they are not alone. There are insurers who will not only protect them, but help them in understanding the buyers they want to deal with and essentially helping them grow their sales by providing them with information that they may not be able to get,” says Attley.

David Dienesch
David Dienesch, CEO of Euler Hermes Canada

Dienesch, who is also the CEO of Euler Hermes Canada, one of several global receivables insurance companies involved in RIAC, says that although some businesses sell abroad without receivables insurance, this constitutes a higher risk that can “actually deter growth.”

“When a banker’s customers use receivables insurance, the receivables are more secure. More security means that the banker will typically lend more,” he says, “and if they are lending more money—specifically working capital—that helps businesses grow.”

RIAC argues that greater choice and awareness of insurance products is important as more companies choose to take their business to new markets. While historically Canadian receivables insurance usage has been limited, as exports increase globally, receivables insurance helps companies receive the funding necessary for growth, while safeguarding their businesses from risk and complications such as language barriers, says Dienesch.

“We have the knowledge-base of customers who they (companies) can sell to. We can help them gain access to those customers and help them be secure in their trade because of our knowledge-base,” says Dienesch. For example, the implementation of the Canada-European Union Comprehensive Economic Trade Agreement (CETA) will mean new opportunities for growth for Canadian businesses in Europe, Dienesch says.

For companies that have never conducted business outside of Canada or outside of North America, going so far from home can be daunting.

“Canadian businesses want to grow; they need to find out where they can sell their products. There is always a fear of the unknown—that they won’t get paid,” he says. “Receivables insurance removes that fear.”

“There’s a lot of uncertainty in the world today and it makes it difficult for Canadian companies when they start exporting,” Attley says. “I think that’s where receivables insurance provides a huge value. Anything you can do to remove some of those elements of uncertainty makes it much easier for Canadian companies.”

RIAC was formed to support this need, says Attley, adding that the association provides resources for Canadian businesses, bankers and brokers to stay informed on receivables insurance options to help mitigate risk. He says that members of RIAC are the driving force behind the association, hosting seminars and speaking engagements, as well as providing courses, educational videos and information and articles relating to accounts receivables insurance on their website.

The main goal is to keep corporate Canada informed and provide them with accessible resources and tools, he says.

Businesses are often deterred from pursuing international opportunities because of the risks associated with international trade, says Adèle Lamoureux of the Canadian Trade Commissioner Service (TCS).

“There are risks, but the risks can be mitigated,” she says. “Emerging markets typically have the highest rate of economic growth, and represent very good opportunities for Canadian firms—but they also involve some risks.”

Lamoureux says it’s important for companies to be informed about receivables insurance as a risk mitigation tool.  Resources provided by associations such as RIAC can assist with business development and growth, she adds. There are many Canadian entities offering receivables insurance and other services to businesses such as Export Development Canada (EDC) and other RIAC members. Visit the RIAC web site for a complete list of its members.

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