International Trade Risks for Exporter
... However, like games, any transactions imply risks, and many factors make exporting riskier than domestic sales. ... But those risks can be reduced or eliminated by using certain methods, such as Methods of Payment, Insurance, Obtaining Information of Buyers, Methods of Protection Against Exchange Risks and Incoterms. ... For reducing credit risks, several methods can be used by exporters. ... Solution: Payment in Advance Payment in advance is the most secure option for an exporter, since it eliminates the risk of non-payment. ... The exporter will not ship the goods until the buyer has remitted payment to the exporter. ... Letter of Credit (L/C) However, payment in advance poses risks for the buyer. ... For this reason, a letter of credit (L/C) can be another option for an exporter to reduce the risk of credit. ... For this reason, irrevocable L/Cs provide more protection for the exporter. Credit Insurance Insurance is also necessary for international trade. ... For reducing and eliminating the credit risk, the common one used to protect against credit risks is Credit Insurance which covers losses due to non-payment or frustration of contract, potentially arising from a variety of political and commercial causes. ... Obtaining Information of buyers The third method of reducing and eliminating credit risks is obtaining as much credit information as possible about buyers, from government agencies, private agencies or banks. Such as the Export Guarantee office, Trade New Zealand, the Ministry of Foreign Affairs and Trade, New Zealand based trading banks, Exporter organizations and so on. ... Solutions Cash in Advance One of the simplest ways for an exporter to avoid this type of risk is using cash in advance. ... Transfer Risk When a contract of sale specifies payment is to be made in a particular currency, a transfer risk can exist when exchange or trade controls are introduced in the country of the importer.