Think exporting and chances are good that you will think of a big company. Yet according to the small business financing profiles report prepared by the federal government small- and medium-sized enterprises (SMEs) make up 97 per cent of export firms.

Shipping goods to a foreign country can be risky, particularly for smaller companies with limited access to capital. For these companies, Export Development Canada's insurance programs are some of the most powerful government programs available. Financially, they could make the difference between success and failure in business.

"It can in many cases save a business, because doing business in the US is as dangerous as doing business anywhere else in the world," said Bob Glandfield, director of the Synergy Centre in Markham, Ontario. "So it is very important for a company to insure those receivables. Unless you are dealing with a company that you have done business with for years and always pay the bills, I strongly recommend that companies look at using EDC for financing."

In this article we take a closer look at EDC's insurance programs and how they can help your export business.

Two insurance programs protect Canadian exporters

In 2005 EDC insured just over $50 billion dollars in exports. Ninety one per cent of their customers and $15.5 billion of the investments they facilitated were SMEs with sales up to $25 million. The purchase of short term insurance accounted for 85 per cent of those transactions.

EDC offers two credit insurance programs for export transactions: Accounts Receivable Insurance (ARI) and Export Protect.

"The ARI program is … it's an insurance policy that covers ongoing shipments, whereas Export Protect just covers single transactions," said Catherine Hess, director of the credit insurance centre of expertise at EDC.

These insurance programs, which will cover the export of both goods and services, have two main advantages.

The first is the due diligence that comes with the application process. When a company applies for export insurance EDC will do a credit check on the buyer, which helps the exporter find out if a potential customer is a serious credit risk before goods are shipped.

"The important thing they do is they will do a credit check," said Glandfield. " So they may tell you, we can’t insure that because that is not a viable company, or vice versa, if the company does not pay you, you can’t collect."

The second benefit is cashflow protection. By insuring their exports the seller's accounts receivables will be guaranteed by up to 90 per cent of their credit limit. In turn the exporter should then be able to use these guarantees to increase the credit line with their bank.

"The exporter can submit a claim if the buyer has not paid them for no known reason within 4 months of the due date," explained Hess. "If it's a insolvency then a claim is eligible immediately. If the buyer is not bankrupt or insolvent then they wait 4 months to file a claim. If the buyer still hasn't paid at four months they file what is called a default claim."

Program criteria and rates

To qualify for EDC's insurance program the seller must be a Canadian company, registered in Canada, that is exporting.

The buyer must be credit worthy.

"EDC will assess the buyer's credit worthiness by reviewing credit information," said Hess, who explained that they will access credit agency reports and / or financial statements on the buyer.

Premium rates, which are set as a percentage of the gross invoice value, can vary quite a bit according to the risk. Contract terms, destination country and the exporter's track record are all evaluated.

"… the exporter may be paying a premium rate on the gross invoice value of the shipment that is quite a bit lower in the USA versus Venezuela for instance," said Hess. "So it varies according to the country risk. According to the payment terms the premium rate is lower if it's net 30 days terms than it is if it is net 180 day terms."

An exporter with a poor loss record will face higher premiums.

"We look at the exporter's track record," said Hess. "When they apply for coverage one of the pieces of information they submit is their loss record. So we take a look at their loss experience, their bad debt experience and factor that in the premium rate as well."

Hess explained that premium rates can be as low as 5 cents per $100 up to a couple of dollars in high risk situations. She ballparks the average premium rate on the total amount EDC insures each year around 20 cents per $100.

A program worth investigating

There are not a lot of government support programs available for business. If you export to foreign markets, investigating the programs offered by EDC makes good business sense.

Should you decide to apply, applications can be submitted through EDC's website, by meeting with a sales representative at one of EDC's regional offices across Canada, or by calling the head office.