Role of Sri Lanka Export Credit Insurance Corporation (SLECIC)
In this modern era of economic uncertainty and turbulence, SLECIC‘s policies enable exporters to penetrate and develop new export markets in hitherto unchartered territories with confidence and assurance. Many exporters hesitate to do business with previously unknown customers on credit terms due to uncertainty and insecurity. However, with SLECIC’s insurance policies exporters can grant credit to foreign buyers to attract new businesses without having any fear about the payments. Natural calamities and unexpected economic recessions can affect payments even from well known, long standing customers. The solution for such events is to have an insurance from SLECIC. Our insurance policies enable the exporters to borrow at attractive terms from banks.
With equity base of Rs. 1.4 billion and aided by a government guarantee worth Rs. 1 billion, the SLECIC is financially well equipped to weather any storms and protect exporters from unforeseen crises. SLECIC is a member of the prestigious Berne Union, a worldwide alliance of credit and investment insurers, established in 1934, which has a membership of 79 companies from around the world with headquarters in London, United Kingdom.
Credit has been described as "the lifeblood of business"
A large proportion of a company’s assets are often tied up in credit. Indeed it is estimated that, on average, around 40% of a company’s assets are owed by debtors. The granting of credit to customers is a vital tool for trading companies when competing with others in the market. Competition takes places as much on the basis of credit as it does on price. This is because for most companies, cash flow is crucial. Money goes out of a company when a purchase is made and money does not come back into the company until a sale is made or a service rendered. As a result a company will always look for a period of credit from its suppliers to assist to improve their cash flow. However this will affect the cash flow of the supplier. Credit is therefore simply a necessary evil-a business. However the problem is when the payment does not come by the due date. If payments are late or never made, the company will suffer and also could go out of business. Late payment is a growing business risk. Not only does it affect the company’s finances and balance sheet, it also eats in to the time and resources of the company which could have otherwise been allocated for meaningful activities. Insolvency of a buyer is even more devastating for companies. In such an event it may be impossible to recover any of the debt or a substantial part of it and the debt will have to be written off.
The effect of a bad debt can be devastating when it involves a major supplier
The effect of a bad debt can also grow out of all proportion to its size. The problem can become worse when a company has only a small number of buyers.
It is not easy for companies to learn everything about a potential buyer.
A Company that appears to be financially healthy according to its accounts and appears to have good management team can nevertheless become insolvent. Companies today are much more adept at hiding problems from suppliers. Many companies believe that they will not be affected by insolvencies due to mismanagement as all their trading partners are situated in developed Countries and regions, such as USA and EU. It is a myth that only those who trade with developing nations face payment defaults.
