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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.
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
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
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.