The benefit of credit insurance is often questioned.

Is it cost effective to subscribe to an insurance policy for the export business? With recent economic developments world wide, it seems more appropriate now to buy credit insurance than it has ever been. There are three main reasons for the uncertainty that will inevitably lead to greater insolvencies.

The Millennium timebomb, which will increase by 15 to 40 percent the insolvencies world-wide and the introduction of the Euro, will bring more competition.

The Far East economic situation will lead to a rise in insolvencies. More and more companies in the Far Fast are actually selling to America and Europe and the repercussion will be a rise in insolvencies. The insurance business is basically divided into two sections which are short term and medium to long term (three to five years) The medium to long term cover is more on a project-financing basis resulting from the programme of privatisation from overseas government. Short-term covers all other everyday exports.

Insurance is still perceived as expensive, and half of Britain's exporters prefer accepting the risk of the occasional bad debt. The cost of insurance - typically between 0.25 percent and 0.5 percent - is too high in cost conscious times. It could be perceived quite rightly as expensive if a company is dealing with long-standing customers with no payment problems. However, as soon as you enter a new deal, a company can put its whole business at risk if the buyer fails to pay.

Covering your export with insurance also gives your company a chance to assess the risk before you fulfil the order. The insurance company can check out buyers, and establish their credit worthiness.

Credit insurance gives the security of recovering debts, so firms which chose in the past not to export, can feel more confident. The insurance policies have been simplified and the administration costs have been reduced.

Credit insurance should be considered both for export and UK trade. With the opening up of Europe and the introduction of the euro, the UK will be facing more and more competition.

Francoise Joyce is an export adviser with Business Link Bradford & District.

Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.