Trade Credit Insurance vs. a Letter of Credit: Which Is Right for You?

Two Common Tools for Managing Payment Risk

When selling on open account — whether domestically or internationally — businesses face the risk that a customer will not pay. Two common tools for managing that risk are trade credit insurance (TCI) and letters of credit (LCs). Both can provide protection against non-payment, but they work very differently and are suited to different situations.

What Is a Letter of Credit?

A letter of credit is a financial instrument issued by a bank on behalf of a buyer, guaranteeing payment to the seller provided the seller meets specified documentary requirements. The bank's obligation to pay is independent of the underlying commercial transaction — if the documents are in order, the bank pays, regardless of whether the buyer has received or accepted the goods. LCs are widely used in international trade, particularly for large transactions or when the seller has limited knowledge of the buyer.

What Is Trade Credit Insurance?

Trade credit insurance is a policy that protects a seller's accounts receivable against the risk of non-payment due to a buyer's insolvency or protracted default. Unlike an LC, TCI does not require the buyer to arrange financing or involve a bank in each transaction. The seller applies for coverage, the insurer evaluates and approves credit limits for individual buyers, and the seller can then sell on open-account terms with the knowledge that covered losses will be reimbursed, subject to the policy's terms and conditions.

Key Differences

Letters of credit require the buyer to arrange bank financing for each transaction, which can be costly and administratively burdensome. They also require strict documentary compliance — a discrepancy in the documents can delay or prevent payment. Trade credit insurance, by contrast, allows the seller to offer open-account terms, which buyers generally prefer. TCI can cover an entire portfolio of buyers under a single policy, rather than requiring a separate instrument for each transaction. However, TCI does not guarantee payment in the way an LC does — it reimburses covered losses after a waiting period, subject to the policy's terms, conditions, and exclusions.

When a Letter of Credit May Be Appropriate

LCs may be appropriate for large, one-time transactions with unfamiliar buyers; for sales to buyers in high-risk countries where TCI coverage may be limited or unavailable; or when the buyer's bank is willing to issue an LC at a reasonable cost. LCs can also be useful when the seller needs immediate payment certainty rather than the reimbursement structure of an insurance policy.

When Trade Credit Insurance May Be Appropriate

TCI may be more appropriate when the seller has an ongoing relationship with multiple buyers and wants to protect a portfolio of receivables; when the seller wants to offer competitive open-account terms without requiring buyers to arrange bank financing; or when the seller wants to use insured receivables to support a larger borrowing base with its lender. TCI can also be more cost-effective than LCs for high-volume, repeat transactions.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, and availability vary by insurer and policy. Consult with a qualified insurance professional regarding your specific situation.

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How Can I Get My Bank to Lend Against Foreign Accounts Receivable?

Your company may have profitable sales to established foreign customers and still find that your bank gives those receivables little or no value in the borrowing base. The result can be frustrating: sales are growing, but the working capital available under your line of credit does not grow with them.

The problem is usually not that foreign accounts receivable have no value. Rather, the lender may be concerned about collecting a debt in another country, obtaining reliable credit information, political or currency-transfer risks, or enforcing its rights if the buyer does not pay. Trade credit insurance can sometimes change that discussion. By protecting eligible foreign receivables against covered buyer nonpayment, the insurance may reduce an important part of the lender's risk and make the receivables more acceptable as collateral. The lender, however, always determines borrowing-base eligibility, advance rates and collateral requirements.

Why Banks May Exclude Foreign Receivables

A borrowing-base lender typically advances only against receivables that meet its eligibility requirements. Foreign receivables may be excluded or discounted because of concerns such as:

The creditworthiness of the foreign buyer and the availability of reliable financial information.
The difficulty and cost of collecting or enforcing payment outside the United States.
Political risks, including government actions, war or currency-transfer restrictions.
Longer payment terms, documentation issues or country-specific risks.
The lender's own credit policy, collateral standards or concentration limits.

This can create a mismatch between a company's sales growth and its borrowing capacity. The company records the sale and waits for payment, but the receivable may contribute little to the borrowing base.

How Trade Credit Insurance Can Help

Trade credit insurance can protect eligible foreign receivables against covered buyer nonpayment. When a lender sees that a receivable is insured by a recognized insurer, it may be more willing to include that receivable in the borrowing base — or to advance against it at a higher rate. The insurance does not guarantee that the lender will change its eligibility criteria, but it can address some of the lender's key concerns about foreign receivables.

What the Lender Decides

The lender always determines what receivables are eligible for the borrowing base, what advance rates apply, and what collateral requirements must be met. Trade credit insurance is one factor the lender may consider, but it does not obligate the lender to change its policies or advance rates. The conversation about borrowing-base eligibility should involve both the lender and the insurance broker.

Working With JMR

JMR works with businesses and their lenders to evaluate whether trade credit insurance can support a larger or more effective borrowing base. We can help identify the right insurance structure, work with the insurer to obtain appropriate coverage, and facilitate the conversation between the business and its lender about how insured receivables may be treated.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, and availability vary by insurer and policy. The lender always determines borrowing-base eligibility, advance rates, and collateral requirements. Consult with a qualified professional regarding your specific situation.

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Customer Concentration Risk: A Hidden Threat to Liquidity

What Is Customer Concentration?

Customer concentration occurs when a significant portion of a company's revenue or accounts receivable is tied to a small number of buyers. There is no universal threshold, but lenders and credit analysts often flag concentration when a single customer represents 20 percent or more of total receivables, or when the top three to five customers together represent a large majority of the portfolio.

Why CFOs Should Pay Attention

Concentration risk is not just a credit concern — it is a liquidity concern. If a concentrated customer fails to pay, the financial impact can be immediate and severe. Beyond the direct loss, the company may face:

A sudden reduction in available working capital.
Difficulty meeting payroll, supplier payments, or debt service obligations.
A reduction in borrowing-base availability if the lender excludes or discounts the affected receivables.
Pressure on earnings and cash flow that may take months to recover.

These risks can be compounded when the concentrated customer is also a key strategic relationship, making it difficult to reduce exposure without affecting the broader business.

Concentration Can Affect the Borrowing Base

Many asset-based lenders and revolving credit facilities include concentration limits in their borrowing-base formulas. A common structure might allow a single customer to represent no more than 20 to 25 percent of eligible receivables. When a customer exceeds that limit, the excess is typically excluded from the borrowing base — reducing the amount the company can borrow even if the receivables are otherwise current and collectible.

This means that a company with strong sales to a large customer may find that its borrowing capacity does not grow proportionally with its receivables. The lender is managing its own concentration risk, but the effect falls on the borrower's liquidity.

Illustrative Example

Consider a company with $10 million in total accounts receivable. One customer — a large regional distributor — represents $3 million, or 30 percent of the total. The company's lender applies an 85 percent advance rate against eligible receivables, with a 20 percent concentration limit.

Without the concentration limit, eligible receivables would be $10 million, and the borrowing base would be $8.5 million.
With the concentration limit, $1 million of the large customer's receivables is excluded (the amount above 20 percent of $10 million). Eligible receivables drop to $9 million, and the borrowing base falls to $7.65 million.
The company is borrowing $850,000 less than it otherwise could — not because the receivables are bad, but because of how the lender treats concentration.

If that customer were to become insolvent, the company would face both the direct loss of $3 million in receivables and a further reduction in borrowing-base availability.

How Trade Credit Insurance May Help

Trade credit insurance can address concentration risk in two ways. First, it can protect the company against the direct financial loss if a concentrated customer fails to pay due to insolvency or protracted default. Second, some lenders will adjust their concentration limits or advance rates when insured receivables are assigned to them as collateral, potentially increasing borrowing-base availability.

The extent to which a lender will modify its borrowing-base treatment for insured receivables depends on the lender's own policies, the terms of the insurance policy, and the assignment and loss-payee arrangements. Not all lenders treat insured receivables the same way, and the insurance does not eliminate the lender's concentration concerns in every case.

Questions for Management and the Lender

CFOs managing concentration risk should consider asking:

Which customers represent the largest share of our receivables, and how has that changed over time?
Does our credit facility include concentration limits, and are any customers currently near or above those limits?
What would happen to our borrowing base if our largest customer became insolvent or stopped paying?
Have we discussed our concentration exposure with our lender, and does the lender have any flexibility in how it treats insured receivables?
Would trade credit insurance on our concentrated customers reduce our exposure to a level that is manageable without insurance proceeds?

The Bottom Line

Customer concentration is a risk that can be easy to overlook when business is going well. A large, reliable customer can feel like an asset — and in many ways it is. But the same customer can become a significant liability if payment stops. CFOs who understand their concentration exposure, discuss it with their lenders, and consider tools such as trade credit insurance are better positioned to protect liquidity when it matters most.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, lender requirements, and availability vary by insurer, lender, and transaction. Consult with a qualified insurance and financial professional regarding your specific situation.

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How Foreign Buyer Financing Can Help You Close the Sale

The Challenge of Selling to Foreign Buyers

U.S. exporters often face a competitive disadvantage when foreign buyers need extended payment terms. A buyer who cannot pay cash upfront may turn to a competitor who offers financing — or the sale may simply not happen. Providing financing options to foreign buyers can be a powerful way to close sales that might otherwise be lost.

Short-Term Financing: Open-Account Terms With Credit Insurance

For short-term transactions — typically goods with payment terms of up to 180 days — the most common financing solution is trade credit insurance. By insuring the receivable, the exporter can offer open-account terms with confidence that a covered loss will be reimbursed. EXIM Bank's short-term export credit insurance programs can also support open-account sales to foreign buyers, with coverage for both commercial and political risks.

Medium-Term Financing: Helping the Buyer Obtain a Loan

For larger transactions — particularly capital goods and equipment — the foreign buyer may need medium-term financing of two to seven years. Under EXIM Bank's medium-term programs, a lender provides a loan to the foreign buyer, and EXIM Bank guarantees repayment to the lender. The U.S. exporter receives payment at or near shipment, and the foreign buyer repays the lender over the agreed term. Private-market credit insurance can also support medium-term transactions in some cases.

Why Financing Can Be a Competitive Advantage

Offering financing options to foreign buyers can differentiate a U.S. exporter from competitors who require cash payment. It can also open markets that would otherwise be inaccessible — buyers in countries with limited access to local financing may be able to purchase U.S. goods if financing is available. For capital goods exporters in particular, the ability to offer medium-term financing can be the difference between winning and losing a sale.

What JMR Can Help With

JMR works with U.S. exporters to evaluate financing options for foreign buyers, identify appropriate EXIM Bank or private-market programs, and coordinate with lenders and insurers to structure transactions. We are not a lender, but we can help exporters and their customers navigate the financing process and identify structures that work for both parties.

Important Considerations

Not all transactions or buyers will qualify for EXIM Bank or private-market financing programs. Eligibility requirements, program terms, and availability vary. The lender always determines its own credit and underwriting requirements. JMR can help evaluate whether a transaction may qualify and identify the most appropriate path forward.

JMR's Role

J. Maxime Roy, Inc. is not the lender. JMR helps the exporter and foreign buyer evaluate potential financing and credit-insurance structures, identify appropriate lenders and insurers, coordinate the information required for underwriting, and help the parties move the transaction from initial evaluation through approval and closing. For exporters, the objective is straightforward: do not let the customer's need for financing automatically become a lost sale. Determine whether an appropriate financing structure can allow the buyer time to pay while allowing the exporter to receive payment on acceptable terms. If you have a foreign customer that wants to purchase U.S. equipment or products but needs financing, JMR can help you evaluate the available options.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Program terms, eligibility requirements, and availability are subject to change. Consult with a qualified professional regarding your specific situation.

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EXIM Bank Export Credit Insurance: An Overview

What Is EXIM Export Credit Insurance?

EXIM Bank export credit insurance protects U.S. exporters against the risk of non-payment by foreign buyers due to commercial or political causes. Coverage is available for short-term and medium-term export transactions, and policies can cover a single buyer or a portfolio of buyers. EXIM insurance can also support receivables financing by making insured foreign receivables more acceptable to lenders.

Who May Qualify?

EXIM export credit insurance is available to U.S. exporters of goods and services with sufficient U.S. content. Eligibility requirements apply to both the exporter and the exported goods or services. EXIM policies are not available for all buyers, countries, or transactions — certain exclusions and restrictions apply.

How JMR Can Help

As a three-time EXIM Broker of the Year, JMR has extensive experience helping U.S. exporters evaluate and obtain EXIM export credit insurance. We can help determine whether a transaction or export program may qualify, identify the appropriate policy type, and work with EXIM and the exporter to structure and place coverage.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. EXIM Bank program terms, eligibility requirements, and availability are subject to change. Consult with a qualified professional regarding your specific situation.

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How a Foreign Customer Can Finance U.S. Equipment

The Challenge of Selling Capital Goods Internationally

U.S. exporters of capital goods — machinery, equipment, and other higher-value items — often face the challenge that foreign buyers cannot or will not pay cash upfront. Buyers may need extended payment terms of two, three, or five years or more to make a purchase feasible. Without a financing solution, the sale may not happen.

Medium-Term Financing Options

EXIM Bank's medium-term programs can support financing for foreign purchases of U.S. capital goods and services. Under these programs, a lender provides financing to the foreign buyer, and EXIM Bank guarantees repayment to the lender. The U.S. exporter receives payment at or near shipment, and the foreign buyer repays the lender over the agreed term.

Working With JMR

JMR works with U.S. exporters and their foreign customers to evaluate medium-term financing options and identify structures that work for both parties. We can help assess whether a transaction may qualify for EXIM Bank support and work with lenders and other parties to structure the financing.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Program terms, eligibility requirements, and availability are subject to change. Consult with a qualified professional regarding your specific situation.

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Bill-and-Hold Arrangements: Insurance Considerations

What Is a Bill-and-Hold Arrangement?

A bill-and-hold arrangement is one in which a seller invoices a buyer for goods that have not yet been physically delivered — the goods are held by the seller (or a third party) at the buyer's request, pending delivery at a later date. These arrangements can arise in a variety of industries and for a variety of reasons, including storage constraints, production scheduling, or buyer-requested delivery timing.

Why Bill-and-Hold Arrangements Raise Insurance Questions

Trade credit insurance policies typically cover receivables arising from the sale of goods or services. Bill-and-hold arrangements can raise questions about when a sale has occurred, whether the receivable is covered, and what documentation the insurer will require in the event of a claim. Policies vary in how they address these arrangements, and it is important to understand the policy's terms before relying on coverage for bill-and-hold receivables.

Working With JMR

JMR works with businesses to evaluate whether their trade credit insurance provides appropriate coverage for bill-and-hold and similar arrangements. We can help review policy terms, identify potential coverage gaps, and work with insurers to address specific situations.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, and availability vary by insurer and policy. Consult with a qualified insurance professional regarding your specific situation.

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The Corporate Family Tree and Credit Risk

Why Corporate Structure Matters

When extending credit to a business customer, it is important to understand who you are actually selling to. A buyer may be a subsidiary, affiliate, or division of a larger corporate group — and the creditworthiness of the entity you are invoicing may be very different from the creditworthiness of its parent or affiliates. Understanding the corporate family tree can be critical to assessing credit risk and structuring appropriate coverage.

How Corporate Structure Affects Trade Credit Insurance

Trade credit insurance policies typically cover specific named buyers or buyer entities. If the entity you are invoicing is different from the entity you believe you are selling to — for example, a subsidiary rather than the parent — coverage may apply differently than expected. It is important to ensure that the correct legal entity is named in the policy and that credit limits are approved for the entity that is actually obligated to pay.

Working With JMR

JMR works with businesses to evaluate their buyer relationships and ensure that trade credit insurance coverage is structured appropriately for the entities involved. We can help identify the correct legal entities, review policy terms, and work with insurers to address specific situations.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, and availability vary by insurer and policy. Consult with a qualified insurance professional regarding your specific situation.

Have questions about your situation?

JMR is ready to help you evaluate your options.

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Cargo Insurance: Protecting Your Goods in Transit

Why Cargo Insurance Matters

Goods in transit face a range of risks — physical damage, theft, weather events, and handling accidents among them. Cargo insurance is designed to protect against financial loss from covered physical loss or damage to goods while they are being transported. For importers and exporters, cargo insurance is an important part of managing the risks associated with domestic and international shipments.

Without cargo insurance, a loss in transit can mean absorbing the full cost of the goods, the cost of replacement, and the disruption to your customer relationship — all at once.

What Can Be Covered

Cargo insurance policies can cover a wide range of goods and transportation modes, including ocean, air, truck, and rail. Coverage can be structured to address many of the common causes of loss in transit, such as:

Physical damage from handling, loading, or unloading.
Weather-related damage, including water intrusion and temperature extremes.
Theft, pilferage, or non-delivery.
General average contributions — the shared losses that arise when a vessel or cargo is sacrificed to save the voyage.
Damage during storage at intermediate points in the shipment.

The specific causes of loss that are covered depend on the policy form and the coverage terms negotiated. Not all policies cover all risks, and certain commodities, routes, or modes of transport may be subject to exclusions or sublimits.

Warehouse-to-Warehouse Protection

A well-structured cargo policy can provide coverage from the point of origin — including while goods are in a warehouse awaiting shipment — through the entire transit, and until the goods are delivered to the final destination. This warehouse-to-warehouse coverage can be important for businesses that store goods before or after shipment, or that use multiple carriers and logistics providers in a single shipment.

Coverage during storage at intermediate points is not automatic in all policies. It is worth confirming with your broker whether your policy covers goods while they are in a warehouse, a freight station, or a consolidation facility during the course of the shipment.

Terms of Sale Matter

The Incoterms rules define when risk of loss transfers from seller to buyer in an international sale. Depending on the terms used, the seller, the buyer, or both may have an insurable interest in the goods at various points in the shipment. For example:

Under EXW (Ex Works), risk transfers to the buyer at the seller's facility. The buyer is responsible for arranging insurance for the entire transit.
Under CIF (Cost, Insurance and Freight), the seller is required to arrange and pay for cargo insurance to the port of destination.
Under FOB (Free on Board), risk transfers to the buyer when the goods are loaded on the vessel. The buyer is responsible for insurance from that point forward.

Understanding which party bears the risk of loss at each stage of the shipment is important for determining who should obtain cargo insurance and for what portion of the journey. Sellers who assume they are covered — or that the buyer has arranged coverage — without confirming the details may find themselves uninsured at the time of a loss.

Your Own Cargo Policy or Shipment-by-Shipment Coverage

Businesses that ship regularly typically have two broad options for obtaining cargo insurance: maintaining their own open cargo policy, or arranging coverage on a shipment-by-shipment basis through a freight forwarder or other logistics provider.

An open cargo policy provides automatic coverage for all qualifying shipments within the policy's terms. The insured reports shipments periodically and pays premium based on the volume and value of goods shipped. This approach provides consistent coverage and allows the business to negotiate terms, limits, and deductibles directly with the insurer.
Shipment-by-shipment coverage, often arranged through a freight forwarder, can be convenient for occasional shippers or for businesses that do not ship frequently enough to justify their own policy. However, the coverage terms, insurer, valuation basis, and claims process may differ from what the business would obtain under its own policy.

For businesses with regular shipping activity, an open cargo policy often provides more consistent protection and greater control over coverage terms.

Questions to Consider

When evaluating cargo insurance, it is worth asking:

What modes of transportation do we use, and are all of them covered under our current policy or arrangement?
Are our goods covered while in storage at intermediate points, or only while actively in transit?
Do our terms of sale create any gaps in coverage between when we ship and when the buyer takes responsibility?
Are there any commodities, routes, or destinations that are excluded or subject to special conditions?
If we use a freight forwarder to arrange insurance, do we understand the coverage terms and how claims are handled?

The Bottom Line

Cargo insurance is a practical tool for managing the physical risks of moving goods. Whether you are an exporter, an importer, or a manufacturer shipping domestically, understanding what is covered — and what is not — can help you avoid unpleasant surprises when a loss occurs. Working with a broker who understands your shipping profile and can help you structure appropriate coverage is an important part of that process.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, and availability vary by insurer and policy. Consult with a qualified insurance professional regarding your specific situation.

Have questions about your situation?

JMR is ready to help you evaluate your options.

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Working with Freight Forwarders and Logistics Providers

What a Freight Forwarder Does

Freight forwarders and logistics providers play an important role in international and domestic trade. They arrange transportation, prepare export documentation, coordinate customs clearance, consolidate shipments, and manage the logistics of moving goods from origin to destination. For many businesses, a freight forwarder is the primary point of contact for managing the practical details of a shipment.

Many freight forwarders also offer cargo insurance as part of their service package. This can be convenient, particularly for businesses that ship infrequently or that prefer to consolidate logistics and insurance through a single provider.

Carrier and Forwarder Liability Is Not the Same as Cargo Insurance

It is important to understand the difference between a carrier's or forwarder's legal liability and cargo insurance. Carriers — ocean lines, airlines, truckers, and rail operators — are liable for loss or damage to cargo under applicable law and their contracts of carriage, but their liability is typically limited. Common limitations include:

Ocean carriers: liability is often limited to $500 per package under the Carriage of Goods by Sea Act (COGSA), regardless of the actual value of the goods.
Air carriers: liability is limited under the Montreal Convention, typically based on the weight of the shipment.
Truckers and rail carriers: liability is governed by applicable tariffs and regulations, and may be limited or subject to exceptions.

A freight forwarder acting as an intermediary — rather than as the actual carrier — may have even more limited liability. If a loss occurs and the carrier's or forwarder's liability does not cover the full value of the goods, the shipper bears the difference. Cargo insurance is designed to fill that gap.

When Shipment-by-Shipment Insurance May Make Sense

For businesses that ship infrequently, or for occasional large shipments outside the normal course of business, arranging cargo insurance through a freight forwarder on a shipment-by-shipment basis can be a practical option. It avoids the need to maintain an ongoing policy and can be arranged quickly as part of the freight forwarder's service.

However, businesses that use this approach should ask the freight forwarder for the specific coverage terms — including the insurer, the policy form, the valuation basis, the deductible, and the claims process — before assuming that the coverage is adequate for their needs.

When Your Own Cargo Policy May Be Better

For businesses that ship regularly, maintaining their own open cargo policy can offer several advantages over relying on coverage arranged through a freight forwarder:

Consistent coverage across all shipments, regardless of which freight forwarder or carrier is used.
The ability to negotiate coverage terms, limits, deductibles, and valuation directly with the insurer.
A direct relationship with the insurer for claims, rather than routing claims through a third party.
Coverage that can be tailored to the specific commodities, routes, and modes of transport the business uses.
Potentially more competitive pricing for businesses with significant shipping volume.

An open cargo policy can also provide coverage during storage at intermediate points in the shipment — a gap that may exist in coverage arranged through a freight forwarder.

Coordinate the Policy With Your Shipping Arrangements

Whether you maintain your own cargo policy or rely on coverage arranged through a freight forwarder, it is important to make sure that the insurance aligns with your actual shipping arrangements. Key questions include:

Does the coverage apply to all modes of transport you use — ocean, air, truck, and rail?
Are goods covered while in storage at intermediate points, or only while actively in transit?
Does the coverage apply to all origins and destinations, or are certain routes excluded?
Is the valuation basis appropriate — does it cover the full invoice value plus freight and insurance costs?
Who handles claims, and what documentation is required?

The Bottom Line

Freight forwarders provide valuable services, and the cargo insurance they offer can be a convenient option for some shippers. But convenience is not the same as adequate coverage. Businesses that ship regularly, that have high-value goods, or that want consistent control over their coverage terms are often better served by maintaining their own cargo insurance policy. Working with an independent broker who understands your shipping profile can help you evaluate the options and structure coverage that fits your needs.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, and availability vary by insurer and policy. Consult with a qualified insurance professional regarding your specific situation.

Have questions about your situation?

JMR is ready to help you evaluate your options.

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Political Risk Insurance: What It Covers

Commercial Risk and Political Risk Are Different

When businesses extend credit to foreign buyers or invest in overseas operations, they face two broad categories of risk. Commercial risk is the risk that a buyer will not pay because of financial difficulty — insolvency, cash flow problems, or a decision to default. Political risk is different: it is the risk that a loss will occur because of actions by a government or because of political events outside the buyer's or investor's control.

Standard trade credit insurance policies typically cover commercial risk and may include some political risk coverage. Political risk insurance, as a standalone product, focuses specifically on losses caused by political events and government actions.

Common Political Risks

Political risk insurance can cover a range of events, depending on the policy and the insurer. Common covered risks include:

Confiscation, expropriation, nationalization, or deprivation (CEND): a government seizes, nationalizes, or effectively takes control of a business's assets or investment.
Political violence: losses caused by war, civil war, revolution, insurrection, or politically motivated violence.
Currency inconvertibility and transfer restrictions: a government restricts the conversion of local currency into hard currency, or blocks the transfer of funds out of the country.
Contract frustration: a government buyer or government-owned entity fails to honor a contract or repudiates its obligations.
License cancellation: a government revokes an import or export license, preventing completion of a transaction.

Not every policy covers every risk. Coverage is negotiated based on the specific transaction, the country, the counterparty, and the insurer's appetite.

Where Political Risk Insurance Can Be Useful

Political risk insurance is most commonly used in transactions involving countries where political or economic instability creates meaningful risk of government interference or disruption. This can include:

Exporting goods or services to buyers in emerging markets or countries with a history of political instability.
Making direct investments in foreign operations, joint ventures, or infrastructure projects.
Providing financing to foreign buyers or counterparties where government actions could prevent repayment.
Entering into contracts with government-owned entities or state-sponsored buyers.

Political risk insurance is not limited to high-risk countries. Even in relatively stable markets, specific events — a change in government, a new regulatory regime, or a currency crisis — can create covered losses.

Public and Private Markets

Political risk insurance is available from both public and private sources. In the United States, the primary public provider is the U.S. International Development Finance Corporation (DFC), which offers political risk insurance to support U.S. investment in developing countries. The Export-Import Bank of the United States (EXIM) also provides political risk coverage as part of its export credit insurance programs.

Private insurers — including Lloyd's of London syndicates and major commercial insurers — also offer political risk insurance. Private market coverage can often be structured more flexibly than public programs and may be available for transactions or countries that public programs do not cover. In some cases, public and private coverage can be combined to address a transaction's full risk profile.

Questions to Ask Before Seeking Coverage

Before approaching the market for political risk insurance, it is helpful to have a clear picture of the transaction and the risks involved:

What is the nature of the transaction — a trade sale, a direct investment, a loan, or a contract with a government entity?
What country or countries are involved, and what are the specific political risks of concern?
Who is the counterparty — a private company, a government-owned entity, or a government agency?
What is the duration of the exposure — a short-term trade transaction or a multi-year investment?
Are there existing contractual protections — arbitration clauses, stabilization agreements, or bilateral investment treaties — that may affect the risk profile?

The answers to these questions will help determine which insurers and programs are most likely to be able to provide coverage, and on what terms.

The Bottom Line

Political risk insurance is a specialized tool for businesses that operate in or trade with markets where government actions or political events could disrupt a transaction or investment. It is not a substitute for careful counterparty due diligence or sound commercial judgment, but it can provide meaningful protection against risks that are difficult to manage through other means. Working with a broker who understands both the public and private markets for political risk insurance can help you identify the coverage options that are most appropriate for your situation.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, and availability vary by insurer, program, and transaction. Consult with a qualified insurance professional regarding your specific situation.

Have questions about your situation?

JMR is ready to help you evaluate your options.

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Understanding Your Customer Risk

Start With the Legal Buyer

One of the most basic — and most frequently overlooked — steps in credit risk management is confirming the identity of the legal entity you are selling to. A customer may operate under a trade name, a division name, or a brand that is different from the legal entity that will actually owe you money. Before extending credit, it is worth confirming:

The full legal name of the entity that will be the buyer of record on the invoice.
The jurisdiction in which the entity is incorporated or organized.
Whether the entity is a subsidiary, affiliate, or division of a larger corporate group — and whether the parent has any obligation to guarantee the subsidiary's debts.
Whether the entity has any prior history of insolvency, restructuring, or name changes.

This matters because a judgment or insurance claim will be against the legal entity, not the trade name. Selling to the wrong entity — or failing to confirm the entity's legal status — can complicate collection and claims.

Look Beyond a Credit Score

Credit scores and credit reports are useful starting points, but they are not a complete picture of a customer's financial health. A business can have a satisfactory credit score and still be experiencing financial stress that is not yet reflected in public data. Additional sources of information to consider include:

Financial statements, if available — particularly for larger customers or larger credit lines.
Payment history with your company and, if available, with other suppliers.
Industry and market conditions that may be affecting the customer's business.
News and public information about the customer, its industry, or its key customers.
The customer's own customer concentration — if your customer is heavily dependent on one or two buyers, their financial health is tied to those buyers' health as well.

Trade credit insurers conduct their own credit analysis when evaluating coverage requests. Their decisions — including the credit limits they approve and the buyers they decline to cover — can be a useful signal about a buyer's financial condition.

Ask What Happens If the Customer Does Not Pay

Before extending a significant credit line, it is worth thinking through the consequences of non-payment. Key questions include:

What is the maximum exposure we are willing to accept with this customer at any one time?
If this customer stopped paying today, what would the impact be on our cash flow and working capital?
Do we have the resources to pursue collection — including legal action in another state or country, if necessary?
Would a loss of this size affect our ability to meet our own obligations to suppliers, employees, or lenders?

These questions help translate credit risk into business risk — and can inform decisions about credit limits, payment terms, and whether additional protection is warranted.

Monitor Risk After the Sale

Credit risk does not end when the sale is made. A customer's financial condition can change — sometimes quickly — between the time credit is approved and the time payment is due. Ongoing monitoring practices that can help include:

Reviewing payment patterns regularly — a customer who begins paying more slowly may be experiencing financial stress.
Monitoring news and public information about the customer and its industry.
Reviewing credit reports periodically, particularly for larger customers.
Paying attention to changes in the customer's ordering patterns — a sudden increase in orders can sometimes signal a customer who is stocking up before a financial crisis.

Trade credit insurers typically monitor the buyers they cover on an ongoing basis and may reduce or cancel credit limits if they identify deteriorating financial conditions. This can serve as an early warning signal for sellers.

Where Trade Credit Insurance Fits

Trade credit insurance does not replace sound credit management — it complements it. A well-managed credit program that identifies risks early, sets appropriate limits, and monitors customers on an ongoing basis will generally result in fewer claims and better outcomes than a program that relies on insurance to cover for inadequate credit analysis.

That said, trade credit insurance can provide meaningful protection against losses that even a well-managed credit program cannot prevent. Customers can fail unexpectedly, and the financial impact of a large non-payment can be severe. Insurance can help a business absorb that impact without a crisis.

The Bottom Line

Understanding your customer risk starts with knowing who you are selling to, evaluating their financial condition with the best information available, thinking through the consequences of non-payment, and monitoring risk on an ongoing basis. These practices do not guarantee that losses will not occur, but they can help a business make better credit decisions and be better prepared when a customer does not pay.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, and availability vary by insurer and policy. Consult with a qualified insurance professional regarding your specific situation.

Have questions about your situation?

JMR is ready to help you evaluate your options.

Discuss Your Situation

Can Trade Credit Insurance Help You Borrow More?

Why Receivables Matter to Lenders

For many businesses, accounts receivable are the largest asset on the balance sheet and the primary collateral for a revolving line of credit or asset-based loan. Lenders advance against eligible receivables at a specified advance rate — typically 75 to 85 percent of eligible receivables — and the borrowing base fluctuates as receivables are created and collected.

The lender's advance rate and eligibility criteria reflect its assessment of the risk that the receivables will not be collected. Receivables that the lender views as higher risk — because of the buyer's creditworthiness, the buyer's location, or concentration concerns — may be excluded from the borrowing base or advanced at a lower rate.

Potential Financing Benefits

Trade credit insurance can sometimes affect a lender's treatment of receivables in ways that increase borrowing-base availability. The potential benefits depend on the lender's policies and the specific terms of the insurance, but may include:

Higher advance rates on insured receivables, reflecting the reduced risk of non-collection.
Inclusion of receivables that would otherwise be excluded — such as foreign receivables or receivables from buyers the lender views as higher risk.
Relief from concentration limits for insured buyers, allowing a larger share of a concentrated customer's receivables to be included in the borrowing base.
Access to a larger overall borrowing base, supporting greater working capital availability.

These benefits are not automatic. The lender must agree to modify its borrowing-base treatment, and the insurance policy must be structured in a way that the lender finds acceptable — typically including an assignment of the policy to the lender and a loss-payee endorsement in the lender's favor.

Example 1: Higher Advance Rate

A company has $8 million in domestic accounts receivable. Its lender currently advances at 80 percent against eligible receivables, giving a borrowing base of $6.4 million. The company obtains trade credit insurance covering its receivables portfolio and assigns the policy to the lender.

The lender, satisfied that the insurance reduces its collection risk, agrees to advance at 85 percent against insured receivables. The borrowing base increases to $6.8 million — an additional $400,000 in available working capital — without any change in the underlying receivables. The actual advance rate and any change in borrowing-base treatment are determined solely by the lender.

Example 2: Customer Concentration

A company has $10 million in total receivables. One customer represents $3 million — 30 percent of the total. The lender applies a 20 percent concentration limit, excluding $1 million of that customer's receivables from the borrowing base. The effective borrowing base is $7.65 million (85 percent of $9 million eligible).

The company obtains trade credit insurance specifically covering the concentrated customer and assigns the policy to the lender. The lender agrees to waive the concentration limit for that customer, making all $10 million eligible. The borrowing base increases to $8.5 million — an additional $850,000 in available working capital. Again, the lender's decision to waive the concentration limit is entirely within the lender's discretion.

Foreign Receivables Can Create Another Opportunity

Many lenders exclude foreign accounts receivable from the borrowing base entirely, or advance against them at a significantly lower rate, because of concerns about collection risk, political risk, and the difficulty of enforcing rights in foreign jurisdictions. Trade credit insurance — particularly policies that cover both commercial and political risk — can sometimes address those concerns.

When a lender is willing to include insured foreign receivables in the borrowing base, the effect can be significant for companies with substantial international sales. A company that previously received no borrowing-base credit for its foreign receivables may find that insured foreign receivables are treated similarly to domestic receivables — subject to the lender's own policies and the terms of the insurance.

What Should a CFO Ask?

CFOs considering trade credit insurance as a financing tool should ask:

Is our lender familiar with trade credit insurance, and has it worked with insured borrowers before?
What would the lender require in terms of policy terms, assignment, and loss-payee arrangements to modify its borrowing-base treatment?
Are there specific receivables — foreign, concentrated, or otherwise excluded — that the lender might include if they were insured?
What is the cost of the insurance relative to the additional working capital that might be available?
Are there any covenants or conditions in our credit agreement that would affect how the insurance is structured?

Important Considerations

Trade credit insurance is not a guaranteed path to a larger borrowing base. Several important caveats apply:

The lender always determines borrowing-base eligibility, advance rates, and collateral requirements. The insurance does not obligate the lender to change its treatment of receivables.
Not all lenders are familiar with trade credit insurance or willing to modify their borrowing-base formulas for insured receivables.
The insurance policy must be structured in a way that the lender finds acceptable, including appropriate assignment and loss-payee provisions.
The cost of the insurance must be weighed against the benefit of any additional borrowing capacity.
Coverage, underwriting, and policy terms vary by insurer and transaction.

The Bottom Line

For companies with significant receivables portfolios — particularly those with foreign receivables, concentrated customers, or lenders who currently exclude certain receivables from the borrowing base — trade credit insurance may be worth exploring as a financing tool. The key is to have an early conversation with both the lender and a knowledgeable insurance broker to understand what is possible and whether the economics make sense for your situation.

This article is for general informational purposes only and does not constitute insurance, legal, financial, or tax advice. Coverage terms, conditions, exclusions, lender requirements, and availability vary by insurer, lender, and transaction. Consult with a qualified insurance and financial professional regarding your specific situation.

Have questions about your situation?

JMR is ready to help you evaluate your options.

Discuss Your Situation

What Happens If Your Largest Customer Doesn't Pay?

Imagine that one of your largest customers accounts for 20% of your annual sales. The relationship has been profitable for years, and the customer has always paid on time. Then the customer encounters financial difficulty and stops paying its invoices.

The immediate concern is the unpaid balance. But the consequences can reach much further: cash flow tightens, working capital is consumed, and the business may have less borrowing availability just when it needs liquidity most.

A profitable sale can still produce a significant loss

Suppose your company has $10 million in annual sales and earns a 10% net profit margin. A large customer fails to pay $500,000 of outstanding invoices. That loss could consume the equivalent of the net profit from $5 million in additional sales. The company may still owe its suppliers, employees and lenders even though it never collected from the customer.

This is an illustrative example. Actual financial consequences depend on the cost structure, recoveries, taxes and circumstances of the loss.

Concentration risk affects financing, too

Lenders commonly limit the amount of receivables from a single customer that can count toward a borrowing base. For example, a lender might treat balances above a customer concentration threshold as ineligible collateral. Even before a customer defaults, that restriction can reduce the credit available to your business.

If the customer then stops paying, the bank may exclude overdue invoices from the borrowing base, potentially reducing liquidity at the same time the business is absorbing a credit loss.

How trade credit insurance can help

Trade credit insurance can protect against eligible losses arising from a covered customer's insolvency, bankruptcy or protracted default. The insurer evaluates the customer and, when approved, establishes an insured credit limit. If a covered loss occurs and the policy conditions are satisfied, the insurer pays the insured percentage of the eligible loss.

Insurance does not eliminate the need to assess customers, monitor payment behavior or manage concentrations. However, it can reduce the financial impact of a covered default and provide an additional source of credit information and monitoring.

There may also be a financing benefit. Some lenders will consider insured receivables more favorably, potentially allowing a higher advance rate or more flexible concentration treatment. That outcome is not automatic: the bank must accept the insurer, policy terms, credit limits and any required assignment or loss-payee arrangement.

Five questions for your credit review

1. What percentage of total receivables is owed by your largest customer?
2. How much profit would additional sales need to generate to replace a major unpaid balance?
3. What happens to your borrowing base if that customer's invoices become overdue or ineligible?
4. Are customer credit limits reviewed as exposures grow?
5. Would credit insurance improve your risk protection or borrowing flexibility?

The bottom line

A large customer can be an important source of growth, but it can also represent a material concentration of credit risk. Understanding that exposure before a problem develops gives management more options to protect liquidity, maintain lending capacity and continue growing.

J. Maxime Roy, Inc. works with businesses and their lenders to evaluate trade credit insurance and receivables-financing opportunities. Contact us to discuss your situation.

Educational information only. Coverage and financing outcomes depend on insurer underwriting, policy terms and lender approval.

Have questions about your situation?

JMR is ready to help you evaluate your options.

Discuss Your Situation

Trade Credit Insurance vs. a Letter of Credit: Which Is Right for You?

Two Common Tools for Managing Payment Risk

What Is a Letter of Credit?

What Is Trade Credit Insurance?

Key Differences

When a Letter of Credit May Be Appropriate

When Trade Credit Insurance May Be Appropriate

How Can I Get My Bank to Lend Against Foreign Accounts Receivable?

Why Banks May Exclude Foreign Receivables

How Trade Credit Insurance Can Help

What the Lender Decides

Working With JMR

Customer Concentration Risk: A Hidden Threat to Liquidity

What Is Customer Concentration?

Why CFOs Should Pay Attention

Concentration Can Affect the Borrowing Base

Illustrative Example

How Trade Credit Insurance May Help

Questions for Management and the Lender

The Bottom Line

How Foreign Buyer Financing Can Help You Close the Sale

The Challenge of Selling to Foreign Buyers

Short-Term Financing: Open-Account Terms With Credit Insurance

Medium-Term Financing: Helping the Buyer Obtain a Loan

Why Financing Can Be a Competitive Advantage

What JMR Can Help With

Important Considerations

JMR's Role

Country Risk: What to Consider Before You Export

What Is Country Risk?

Types of Country Risk

How Insurance Can Help

Working With JMR

EXIM Bank Export Credit Insurance: An Overview

What Is EXIM Export Credit Insurance?

Who May Qualify?

How JMR Can Help

How a Foreign Customer Can Finance U.S. Equipment

The Challenge of Selling Capital Goods Internationally

Medium-Term Financing Options

Working With JMR

Bill-and-Hold Arrangements: Insurance Considerations

What Is a Bill-and-Hold Arrangement?

Why Bill-and-Hold Arrangements Raise Insurance Questions

Working With JMR

The Corporate Family Tree and Credit Risk

Why Corporate Structure Matters

How Corporate Structure Affects Trade Credit Insurance

Working With JMR

Cargo Insurance: Protecting Your Goods in Transit

Why Cargo Insurance Matters

What Can Be Covered

Warehouse-to-Warehouse Protection

Terms of Sale Matter

Your Own Cargo Policy or Shipment-by-Shipment Coverage

Questions to Consider

The Bottom Line

Working with Freight Forwarders and Logistics Providers

What a Freight Forwarder Does

Carrier and Forwarder Liability Is Not the Same as Cargo Insurance

When Shipment-by-Shipment Insurance May Make Sense

When Your Own Cargo Policy May Be Better

Coordinate the Policy With Your Shipping Arrangements

The Bottom Line

Political Risk Insurance: What It Covers

Commercial Risk and Political Risk Are Different

Common Political Risks

Where Political Risk Insurance Can Be Useful

Public and Private Markets

Questions to Ask Before Seeking Coverage

The Bottom Line

Understanding Your Customer Risk

Start With the Legal Buyer

Look Beyond a Credit Score

Ask What Happens If the Customer Does Not Pay

Monitor Risk After the Sale

Where Trade Credit Insurance Fits

The Bottom Line

Can Trade Credit Insurance Help You Borrow More?

Why Receivables Matter to Lenders