Risks

1
Risks
2

-
Methods of Payment Risk Assessment
Positive
Negative

• Cash in Advance

Letters of Credit

• Standby
• Commercial (Acceptances)
• Confirmed
• Transferable
• Back-to-Back
• Assignment of Proceeds

• Insurance
• Ex-Im Bank
• CEFO

Vendor Financing
Foreign Receivables
Foreign Exchange
Neutral Zone
Importer (Buyer) (Applicant)
Exporter (Seller) (Beneficiary)
Documentary Collection
Open Account
Shipment
-

Negative
Positive
3
Activity

• Importers
• You are a new company (in business 2 years) and
  you are interested in placing a fairly large
  order with your foreign supplier.
• Your goal is to purchase the products and resell
  them to your customers.
• You need the product to be shipped within 2 weeks
  and it will take 6 weeks for you to receive the
  product once it ships.
• Once you receive the product, you will repack it
  and ship it to your customer within 1 week. You
  have agreed to receive payment from your customer
  60 days after you ship.
• In order to fund this scenario you have requested
  Open Account payment terms from your vendor at
  Net 120 Days on Invoice and will pay in their
  currency.

• Exporters
• You are a well established company and have been
  selling your products overseas for 15 years,
  although you have never sold to a customer in
  this new market.
• You currently hold inventory of the product this
  customer wants to purchase so you do not need to
  manufacture additional products.
• You never extend open payment terms to new
  customers however this customer is also talking
  to your biggest competitor and may place the
  order with them if you do not comply.

4
Activity Alternatives

• The currency in the importers country has
  devalued by 25.
• There are grumblings of a dock strike in the
  importers country.
• The exporter wants to conduct a credit check in
  order to extend payment terms. The importer has
  agreed to supply the necessary information and
  will wait 4 weeks for the shipment to depart.
• The exporter has to manufacture the necessary
  products and will require funds to purchase raw
  materials.
• The exporter has never sold products overseas.