Credit Insurance Can Promote Exports
International sales of Caffe D’Amore Inc.’s gourmet coffee and chocolate mixes have percolated in the last few years -- and it isn’t just fine beans, new recipes or added flavors that explain its success.
The Monrovia company attributes that growth in large part to export credit insurance, a little-known financing tool that could help other small businesses.
Caffe D’Amore has posted annual growth in export sales of 18% to 25% in recent years. Exports made up 38% of the company’s 2005 revenue of about $22 million.
“Our export business has grown tremendously and is now a major part of our business,” said Tak Lam, executive vice president and chief financial officer at the privately held company.
Export credit insurance is sold to companies that want to extend credit to a foreign buyer but don’t want to be left holding the bag if the buyer fails to pay. The insurance covers commercial and political risk.
“Otherwise, some CFO or credit officer is lying awake all night thinking, ‘I can’t believe I gave that much credit to that company in Mexico,’ ” said Gary Mendell, president of Meridian Finance Group, a Santa Monica-based broker for credit insurance and other export financing.
Export credit insurance, although still relatively unknown, has grown in popularity as more international buyers balk at paying cash in advance or supplying a traditional letter of credit. A letter of credit, which is issued by the foreign customer’s bank, can take weeks to receive, may tie up the buyer’s credit line and may be difficult, expensive or impossible to obtain in some countries, experts said.
Export credit insurance also can increase a growing company’s ability to raise cash. For example, before Caffe D’Amore started using export credit insurance, its banker, like most lenders, did not count the company’s foreign accounts receivable as assets when deciding whether to lend money to the vendor.
“It really put the squeeze on us in terms of being able to help us grow,” said Lam, who heads the international trade division at the 130-employee company.
Once it obtained export credit insurance, at the recommendation of its banker, Caffe D’Amore was able to borrow against its foreign receivables. It used the additional cash to pay for the raw materials it needed to fill export sales orders.
Many companies find that their international customers place bigger orders when they are buying on credit, Mendell said.
Lam points to the company’s experience with one of its first foreign buyers, a distributor in Hong Kong, as an example.
“The first order was for less than a pallet,” he said. “Today, we ship to them in 40-foot containers.”
Export credit insurance is available from private insurance companies and from the federal government through the U.S. Export-Import Bank (www.exim.gov). Meridian Finance is a broker for private insurance as well as for the Export-Import Bank.
Although only 5% to 10% of U.S. exporters use this kind of insurance, compared with about 40% in Europe, Mendell said, the number is growing.
At the Export-Import Bank, the number of small-business deals insured has grown 23% in the last four years to 2,107 for the 12 months ended Sept. 30. The insured value of those deals hit $1.7 billion.
Yet the agency says many of the estimated 215,000 small-business exporters nationwide are unaware of its offerings.
“Way too many of them have no idea that their federal government has programs like this,” said John Emmons, senior vice president of small business at the Washington-based agency.
Unlike private insurance companies, the Export-Import Bank has no minimum premiums and allows exporters to pay as they go. (Premiums are due only when a shipment is made.)
On the other hand, its rates are often higher than those for private insurance.
The cost of export credit insurance is based on the risk of the foreign buyer. The Export-Import Bank, for example, might charge 50 cents per $100 to insure short-term credit for as long as 60 days for sales to a group of buyers in Mexico, Emmons said.
If an exporter is selling to buyers in a market with lower risk, such as Taiwan, the price might be in the low-30-cents neighborhood, he said. The agency charges a $500 setup fee and offers policies with and without deductibles.
The bank offers online calculators to help exporters determine how much insurance might cost, based on where a buyer is located. Bank policies cover 95% of the value of a shipment.
Exporters with good track records and bigger deals might find lower prices from private insurance firms, Mendell said.
Small businesses that are interested in exporting but do not have foreign buyers lined up can get started with help from the Commerce Department and other federal agencies. Information is at www.export.gov.
Exporting can benefit the bottom line in unexpected ways.
A customer in Mexico helped to spur Caffe D’Amore’s development of a line of powdered drinks, Frappes for Kids, which come in flavors such as bubble gum and chocolate marshmallow.
“It was an instant success in Mexico,” Lam said. That led the company to launch the line recently in Southern California.
Armed with export credit insurance, Lam is exploring markets in Vietnam, Cambodia and Laos. His research-and-development department is standing by.
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Cyndia Zwahlen can be reached at cyndia.zwahlen@latimes.com.
