Reprinted with permission from Export Today Magazine – October 1997
By Erika Morphy
Most analysts agreed at the beginning of the year that Brazil’s trade imbalance was worrisome. But when the country in May effectively banned imports from selling on open account with terms of less than a year in order to reduce capital flight, many U.S. exporters became truly alarmed.
As is true in most Latin American countries, few Brazilian buyers could afford to pay cash for their imports.
For one of Victor Sandy’s clients, this was really a problem. “He shipped almost exclusively to Brazil”, says Sandy, Vice President of Global Commercial Credit, a broker of export credit insurance in Bingham Farms, Mich. “What we did was structure a credit insurance policy that allowed him to offer terms of more than one year. Not that this was particularly easy, as most carriers are not flocking to the market to offer 365 – day term credit to Brazil. But they will if the overall transaction appeals to them.”
In the end Brazil’s finance restrictions actually proved to be profitable for Sandy’s client.
“What we did was structure a $60,000 policy that enabled him to generate about $6 million in annual sales.” The client was able to earn back more than the cost of the policy because of the 16% to 18% interest rate he charged his client for the credit. “It was virtually a risk-free profit.” Says Sandy.
Review a Related Case Scenario: Catastrophic Loss
