International trade risk

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International trade risk

Risk determines the method of payment

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. Risk in international trade can be classified under the headings of country and commercial risk.

Country risk
Commercial risk
Importer considerations
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Country risk

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Country risk

All risks in or caused by the buyer's country

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

Causes of exposure to loss

Financial constraints

A buyer's inability to pay due to financial constraints

Incorrect quality / quantity of goods

A seller's inability to supply the correct quality and quantity of goods

Inability to honour

A bank's inability to honour its undertakings

Importer considerations

Aspects to consider by the buyer

Can the seller be trusted to supply the correct quantity and quality of goods?
Will the goods be delivered at the destination agreed upon?
Will the 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?

Please note

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.

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