Risks

Risks

<strong>Financial Risk</strong>

When you have established whether your product will sell overseas and have identified the most effective route to potential customers, it is worth spending some time examining the financial risk in your chosen market. While it is probably obvious to undertake a credit check on your customers, it is easy to overlook other factors that could have an important bearing on first winning the business and then getting paid.

<strong>Foreign Exchange Risk</strong>

When dealing in your customer's currency it is possible for the exchange rate to move between the quotation date and the date of settlement. In a seller's market, you may eliminate Foreign Exchange Risk by quoting in sterling. In a buyer's market, however, your competitors may be prepared to invoice in the customer's currency as an inducement to buy and you may be forced to follow suit.

If you are dealing in convertible currencies you can enter into forward exchange contracts with your banks to fix the amount of sterling you will receive when payment is made in foreign currency.

There are risks associated with both the country to which you are exporting and your customers within that country. These can be summarised as:

<strong>Customer Risks</strong>

* The identity of your customer - is he solvent, does he have a trading history, does he own the premises from which he is trading?
* The Credit Rating of your customer - even in a low-risk country, customers may be a high risk to you. It is worth doing extra checks for peace of mind.
* Non-payment - make sure you take out Export Credit Insurance for added protection, even in low-risk countries.

<strong>Target Country Risks</strong>

* Foreign Exchange controls which prevent the release and transfer of funds.
* Import restrictions imposed after the contract has been signed which prevent the execution of the contract.
* Political events or economic measures that prevent or delay the transfer of payment.
* Instability of the banking system - collapses of banking systems in third world countries are not uncommon.
* War or civil unrest.
* Natural disasters.

Tags
export credit insurance  foreign exchange controls  target country  convertible currencies  exchange contracts  economic measures  financial risk  forward exchange  foreign currency  s market  import restrictions  banking systems  peace of mind  inducement  banking system  high risk  credit check  credit rating  quotation  exchange rate

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