International Trade Risk

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What this is

Do your homework

The evaluation of risks in the international trade arena plays a major role in determining the method of payment to be used for settlement between buyer and seller.

It is critical for both buyer and seller to check the creditworthiness and reputability of any new counterparty by obtaining bank reports and requesting trade references.

Types of risk

Country risk

This can be defined by all risks in the buyer's country, or caused by the buyer's country, which may affect payment by the buyer to the seller.

Country risk comprises political, social and economic components, including:

Exchange control regulations
Changes in government policies
Trade embargoes
Lack of foreign currency

Commercial risk

This is the exposure to a loss caused by:

A buyer's inability to pay due to financial constraints
A seller's inability to supply the correct quality and quantity of goods
A bank's inability to honour its undertakings

What to consider

Aspects to consider by the importer (buyer)

Aspects to consider by the exporter (seller)

Aspects to consider by the importer (buyer)

Can the seller be trusted to supply the correct quantity and quality of goods?
Will the goods be delivered at the destination agreed
uWpilol nth?e goods be delivered in time?
Will your cash flow permit you to pay the seller immediately or is the seller prepared to offer credit terms?
Should you deal directly with the seller or make use of an intermediary bank or agent?
How easy/difficult will it be to resolve potential disputes/ problems?

Aspects to consider by the exporter (seller)

Can the buyer be trusted to pay at the agreed time?
Is your cash flow sufficient to provide credit terms to the buyer?
What are the chances of the buyer being prevented, through circumstances beyond his/her control, to pay you? You must be aware of the political and economic circumstances in the buyer's country.
Can the quantity and quality of goods requested be delivered?
Can you deliver the goods to the destination specified by the buyer?
Do you require finance in order to produce the goods?
Should you deal directly with the buyer or make use of an intermediary bank or agent?
How easy/difficult will it be to resolve potential disputes/ problems?

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