Chapter 8 (Export risk)

Risks involved in international transactions

  • Delays in payment or non-payment
  • Loss or damage in transit
  • Loss due to exchange rate variations
  • Increased transportation costs

The best way to reduce financial risk when exporting is to arrange prepayment of invoices. A customer signs a sales contract and makes payment upfront. The Australian business receives the money so there is no risk of non-payment later on. The exporter could require customers to pay the full price or a large deposit. Australian banks offer international money transfers. Electronic payments are sent from a branch via Internet banking from Australia to banks in other countries.

Non-payment of monies

A financial risk is not receiving payment from the customer after incurring costs and possibly providing the goods or service. Unlike a domestic transaction, it may be very difficult to track down a customer that hasn’t paid in another country and difficult to find legal recourse to recover the debt.

Documentations:

  • Documentation to manage risk
    • Documentary letter of credit
    • Documents against payment

Insurance:

  • Export Credit Insurance
  • Political Risks Insurance
  • Transit or Shipping Insurance

Hedging:

  • Forward
  • Backward
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