Author Christian Dallaire

Seller Beware: Fend Off U.S. Default Risk

One of the worst outcomes for a small business is that your customer goes bankrupt and you don’t get paid.

Running a business, you will no doubt run into Murphy’s Law – if something can go wrong, it will. And one of the worst outcomes for a small business is that your customer goes bankrupt and you don’t get paid.

Recent numbers show that U.S. bankruptcies present a distinct hazard for Canadian exporters. In 2012 alone, there were more than 57,000 commercial bankruptcy filings in the United States. The forecast for 2013 is not expected to be much different.

Here at EDC, we have direct experience with U.S. commercial bankruptcies. Two years ago, for instance, we paid out some $23 million in insurance claims to our Canadian customers, against payment defaults by insolvent U.S. companies. Most were in the resources, infrastructure, environment, light manufacturing and ICT sectors.

While reports suggest that U.S. bankruptcies are returning to pre-recession levels, it’s still unrealistic to ignore the risk of non-payment.

Since the U.S. business environment is extremely familiar to Canadian exporters, this can lull a company into accepting credit risks that would raise a red flag in any other foreign market.

Much of this risk is inherent in the way Canadian exporters routinely extend open account terms of 30 to 60 days to their U.S. customers. This would be deemed too hazardous in most global markets, which use letters of credit to secure delivery and payment.

Although open account is preferred by most customers, it’s the most risky kind of transaction for you, since you’re extending credit with no security whatsoever.

Or think of it this way: you don’t hesitate to insure corporate assets such as property, inventory and people. So why would you treat your receivables, which are the cash lifeblood of your company, any differently? Protecting them against loss just makes good business sense.

Learn about EDC’s accounts receivable insurance, which covers up to 90 per cent of losses resulting from a customer’s failure to pay.

Visit www.edc.ca for more small business solutions.

EDC is Canada’s export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC’s knowledge and partnerships are used by more than 7,400 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining and a recognized leader in financial reporting and economic analysis.

Categories Industry Insights, Small Business Insights, U.S.

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