As the volume of international trade is increasing day by day, receivable risks have become an important problem for exporting companies. Especially in international sales contracts, situations such as non-payment or delay in payment by buyers may adversely affect the financial structure of exporting companies. Therefore, receivables insurance is an important financial instrument that protects exporters against such risks.
Scope of Coverage
Trade receivables insurance is a type of insurance that covers the receivables arising from the forward sales of the seller to the buyer in case of non-payment by the buyer. The ultimate purpose of receivables insurance, which compensates for losses that may arise due to non-payment of a commercial receivable, is to protect companies against large-scale losses. In addition to commercial risks, this insurance can also cover various risks such as political risks. Trade receivables insurance, offered by some insurance companies, allows companies to confidently provide payment terms to their customers in Turkey and internationally and provides protection against situations such as late payment of invoices or default.
The Role of Receivables Insurance in International Sales Contracts
International sales contracts are contracts for the sale of goods between two parties resident in different countries. Such contracts regulate commercial transactions that cross national borders and are particularly used in export-import relationships. Such contracts entail various risks such as the parties being subject to different legal systems, political instability, exchange rate fluctuations and differences in payment habits. Especially in forward sales, exporters may face serious financial losses in case of non-payment or delay in payment by the buyer. Receivables insurance helps exporters manage these risks. For example, receivables insurance offered by some insurance companies insures exporters’ receivables arising from foreign sales against commercial and political risks.
Receivables insurance not only covers the risks, but also supports exporters in the collection process. In this way, exporters can secure their receivables without having to deal with legal and bureaucratic procedures.
Advantages of Receivables Insurance
- Receivables insurance aims to minimise the exporter’s losses in the event of non-payment by the buyer.
- Insurance protects the exporter’s cash flow and provides financial assurance and stability.
- Thanks to insurance, exporters can take bolder steps in opening up to new markets.
- It gives exporters a competitive advantage by offering forward sales.
- Since the insurance policy guarantees the receivables of the exporter, it increases their credibility in the eyes of banks and provides easier access to financing opportunities.
Matters to be Considered in Application
When taking out trade receivables insurance, it is necessary to pay attention to issues such as contract terms, policy coverage and buyer analysis. It should be carefully examined which risks the receivables insurance policy covers and which situations it excludes. In addition, the policy must be compatible with the terms of the international sales contract. Since insurance companies analyse the creditworthiness of buyers and set insurance limits based on this assessment, exporters should have accurate and up-to-date information about their buyers.
In conclusion, receivables insurance in international sales contracts is an effective tool to help exporters manage the payment risks they face. A properly structured receivables insurance policy will increase the financial security of exporters and enable them to take more solid steps in international trade.
Executive Associate Yiğit OKULDAŞ
