The global economy’s evolution toward harmonious multilateral trade agreements has hit a speed-bump. A growing number of nations are imposing unilateral tariffs on imports of each other’s products. At the center of the disruption is the USA: escalating toward trade war with China and Europe, renegotiating NAFTA with Canada and Mexico, etc.
Regardless of who started it—over trade deficits, market access, IP infringements, geopolitical competition, national security, or for other reasons—the economy of the USA and pretty much every other country is beginning to suffer the consequences.
Yet international trade carries on—trillions of dollars’ worth—and the challenge for many businesses is how to stay in the game until these skirmishes blow over.
Uncertainty in global markets limits access to capital, so your customers in other countries—unable to borrow locally—are looking to your company more than ever to shore up their cash flow with longer payment terms. The demand for credit is even more pronounced in countries facing high interest rates, rising inflation, and currency exchange controls.
At the same time, you want to continue developing your strategic international relationships, keep your competitors from capitalizing on any slowdown in your supply chain, and export more of your products before import tariffs stiffen in your overseas markets or your own raw materials costs increase on higher import tariffs here.
Extending credit abroad has always carried risks—including customer insolvencies, cash flow issues, and other hazards that could result in your invoices not getting paid—but these dangers are compounded by today’s intensifying trade tensions.
The situation is no less unprecedented for companies that do business—and offer payment terms—only domestically in the USA. Can you identify which of your customers may be less able to pay you if they get hit by import tariffs? Which customers’ export sales might be impacted by sanctions in other countries? What will happen if you try to pass the cost of tariffs in your own supply chain on to your customers?
Even in these times—especially in these times—trade credit insurance remains the most effective way to protect your company’s receivables against not getting paid.
A credit insurance policy can cover your invoices against virtually all payment defaults, whether they’re caused by commercial or political risks . . . including the imposition of tariffs.
What you need to keep in mind is that insurance companies are watching the trade conflicts escalate the same as you are. By the time an industry or a country is in the news, the credit insurance market will have begun to harden and coverage may be becoming less available. So the time to obtain a policy is now.
Similarly, companies that had already obtained a credit insurance policy (at least one with limits that are non-cancelable by the insurer) before the tariffs began stacking up have been able to keep doing business with confidence . . . even in markets where new coverage might not get underwritten today.
Especially striking to us has been the number of companies applying recently for political risk insurance only for protection against tariffs. While this kind of coverage was more widely available prior to the start of the present trade conflicts—or at least the saber-rattling that led up to them—fewer insurers will issue a tariff-specific policy at this point. As above, companies that had already purchased coverage are in good shape now.
In any case, trying to cherry-pick your risks is fruitless. You don’t know which customer isn’t going to pay you or why. Instead of focusing only on tariffs, look at all of your risks of not getting paid as the challenge—and at credit insurance as the solution.
Notwithstanding the trials confronting global free trade, the credit insurance market still has plenty of capacity and appetite for covering debtors in many industries and countries. And competition among a growing number of carriers has kept premiums relatively low . . . at least up to now.
Meridian Finance Group has specialized in brokering trade credit insurance and political risk insurance for over 25 years. We work with every insurer in the market that underwrites these kinds of coverage. Beyond our ability to access every possible option for our clients, after the sale we provide 24/7 comprehensive support on every policy we broker.
To learn more about credit insurance and how your company can obtain a policy, contact us by phone at 310.260.2130 or send us an email at insurance@meridianfinance.com.