Beginner's Guide to Exporting. 4th Edition.

3 2 Beginner’s Guide To Exporting 6.5 EXPORT RISKS AND INSURANCE 6.5.1 Concept of Risk Management Growing your international client base is an exciting and potentially lucrative opportunity, but with increased growth comes increased risk 6.5.1.1 Type of Risks: Type Identifying Risks Risk Mitigation Buyer Credit Risk • When buyer will not or cannot pay for the goods once they have been shipped • Request for Letter of Credit • Request for Advance Payment Bank Risk • When buyer’s bank is unable to pay the amount guaranteed • Request for LC confirmation from premier international bank or reputable domestic bank Country Risk • Factors in buyer’s country that may make it impossible for either the buyer or the bank to pay due to trade embargo, war or political turmoil • Request for export credit insurance • LC to be issued by another bank from a third country (apart from importer’s country) Supplier Risk • Inability of supplier to fulfill its supply obligations • To check on track record of the supplier through various sources • Alternative sources of supply are recommended Foreign Exchange Risk • Loss due to exchange rate fluctuations • Currency hedging • Import raw materials and sell finished products in the same currency 6.5.2 Export Credit Risk Insurance • Exporters can insure their risk against non payment of their export proceeds through EXIM Bank OTHER USEFUL CONSIDERATIONS CHAPTER 6