Interviewer - Stu Schechter is a seasoned insurance broker with over 30 years in the business and founder of The Credit Insurance Source in Matawan, New Jersey. He graciously took time from his busy schedule to reflect upon small businesses, exporting and how an export credit insurance broker helps companies grow. Hint: It’s all about the relationship.
The insurance industry is viewed as being pretty stable. What’s new and what changes have you seen?
For much of my career, the insurance industry was routine. The vast majority of my clients were selling their products domestically and the few who were exporting were primarily in retailing or wholesaling — usually jewelry, furs and the like. Then, in the mid-1990’s, the world went global, and the business environment changed dramatically. Now there are more companies exporting than ever before. Before the mid 90’s, almost 100 percent of my business was domestic. Now a much larger percentage of my clients are exporting than five years ago and many times larger than ten years ago.
Why are companies embracing exporting?
Some of the companies that are exporting are newer companies, but many are established companies that sold domestically in the past, and now see exporting as a growth engine for their company. Many markets in the U.S. are mature markets where there’s more competition and margins are being squeezed. U.S. goods are perceived as being very high quality and there is strong demand for them abroad. For a U.S. company, exporting means an expanded sales base and opportunities for the company to grow.
What are the biggest challenges your small business clients face with exporting?
There are three areas that are challenging, particularly for new exporters. The first is dealing with all of the administrative aspects of exporting. Understanding different countries’ rules and regulations, setting up a foreign distribution network, shipping, freight handling—all of the logistics around getting their products sold in a foreign market. All of these are surmountable; it just takes time and effort.
Once the supply chain is in place, there’s a second critical challenge. Will I get paid? Most international customers are not content to pay upfront for products often due to the adverse effect it has on their company's cash flow. Many expect open credit terms and exporters who will not offer credit terms will be less competitive and lose business. But for the exporter, "open account" credit terms represent risk—the risk of non-payment and almost impossible collections. Export credit insurance alleviates this challenge by letting the exporting company safely transfer the credit risk on their foreign receivables while at the same time letting them offer credit terms upfront. Plus, the policy itself is very attractive—95 percent coverage, no upfront premium and pay only for the products you ship that month. It’s really advantageous for the exporter.
Finally, there’s often a need for working capital to build products for export. Companies that use EXIM Bank’s export credit insurance are able to borrow additional money from their bank. Without export credit insurance, most lenders will not include the foreign receivables in the eligible borrowing base and therefore the exporter cannot use the export receivables as collateral for their borrowing. With an EXIM Bank policy in place, the export receivables can be added as collateral and the exporter can now borrow more money to finance their export sales.
What is the role of the broker and how do you help your clients?
Credit insurance in general lacks name recognition, so the first part is making people aware that export credit insurance exists and educating them about the benefit of export credit insurance and the benefits of the EXIM Bank products.
Once the client decides to move forward, a good broker is very involved in the process. The first step is helping the client with the application, ensuring it is complete and accurate, and that is has a good chance of being approved. When the policy is in place, I work closely with the company laying the groundwork to ensure they can properly manage the policy and I stay with them for the life of the policy monitoring monthly reports, answering questions, helping them if they have a claim.
Each industry and each exporter deals with different problems. The people in the companies are experts at building and selling their products; they’re not experts in export credit insurance. That’s my value add. The nice thing is that EXIM Bank’s on-line tools make it easy to manage the policy. It only takes the exporter a few minutes each month to report sales and if they don’t ship overseas that month, then there is nothing to report.
What do you like best about your job?
That’s easy. It’s all about the relationship with my clients and seeing how their companies evolve—taking a client from non-awareness to understanding and watching their business improve. They increase their market share, become more profitable and add U.S. jobs. And in a high percentage of cases, they experience tremendous growth. It’s a beautiful thing and I am gratified to have played some part in their success.