Free Online Course in International BusinessCosts of InsuranceInsurance costs depend on many factors: policy structure, creditworthiness of the risks involved, and the amount of retention of risk assumed by the insured. Typically a policy of domestic credit insurance would range between 1/10% of sales to 4/10% of sales. Additional considerations include the degree of risk (or quality of the customers and countries); historical loss experience in the organization; current credit extension and collection operating procedures; level of experience or expertise (as evaluated by the insurer); and the concentration or distribution of risk throughout the customer base. However, as with any insurance product, the quality of what is being insured will have a bearing on the cost of the insurance. Thus the insurance supplier should be viewed as a partner in the credit management objective. Consequently, the better job the company is doing, the more economical the insurance is in protecting the company against a catastrophic loss.Export Credit InsuranceExport credit insurance is a specialized line of insurance. These policies cover sales from the United States to countries world wide. Like domestic policies, they cover against the financial inability to repay for goods sold or services rendered. Premiums for export coverage generally run higher and could range from 2.5/10% to 1% of covered sales. Many companies are finding that requiring letters of credit and other cash documents places an artificial obstacle between a buyer and seller, restricting growth. These companies often use credit insurance to offer open terms and be more competitive in the global market place.Legal FeesLegal fees are usually established on an hourly basis with an attorney or as a percentage of the transaction. Attorneys may charge $200 to $800 per hour or more, depending on the circumstances of the transaction, the county laws involved, and the complexity of the case.Areas where a risk manager might need support of either in house or specialized legal advice include the following: • preparation of documents • collection of bad debts • mergers and due diligence • bankruptcy/litigation • contract preparation • loan analysis • negotiating and preparing of promissory notes that replace late accounts receivable SummaryAn international manager needs to know all costs of the operation including the legal and banking charges. As a manager, it is essential to understand that dealing with risk assessment involves the costs of banking and legal charges, which can significantly impact the profitability of an operation.ResourcesFCIB on line course, International Credit and Risk Management, FIB/NACM Corp, Columbia, MD.FCIB Online Resource Library www.fcibglobal.com Credit Encyclopedia website www.encyclopediaofcredit.com The Global Entrepreneur, James Foley, 2nd Edition, Jamric Press, 2004. Exporting from Start to Finance, Third Edition, L. Wells and K. Dulat.
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