Managing exporting risk

Dealing with buyers in other countries adds a layer of complexity to trading. It’s wise to be aware of potential risks and fraud, and to understand strategies that can help you protect your business.

Currency risk

What is the risk?
The local currency amount receivable on settlement may be lower than the amount calculated when entering the contract, due to an adverse movement in the market price of the currency.

How does it arise?
Exchange rates between most currencies fluctuate regularly, and there is a time lag between entering into a contract and receiving the payment.

How can it be mitigated?
Exporters can identify and manage this risk with a range of currency risk management solutions.

Risk of non-performance

What is the risk?
The buyer will repudiate the contract and refuse to pay. Any efforts you make to enforce the contract will add costs that detract from your expected profit.

How does it arise?
The buyer may refuse to acknowledge their obligation to pay.

How can it be mitigated?
Consider using documentary collection, documentary credit  or without recourse export financing. These products provide various degrees of protection that are independent of the buyer.

Credit risk

What is the risk?
The buyer is not credit worthy, that is, willing and able to pay.

How does it arise?
The buyer, or other parties in the payment chain, may become insolvent.

How can it be mitigated?
Consider using documentary credit or without recourse export financing to reduce the risk or transfer the risk to a more acceptable party.

Transfer risk

What is the risk?
A change in government regulations prevents or restricts your ability to receive payments or exchange foreign currency.

How does it arise?
Many countries regulate the transfer of money and conversion of foreign currency receipts. Unexpected regulatory changes may occur between entering and settling a contract.

How can it be mitigated?
Consult the Australian Trade Commission – Austrade – for specialist knowledge of the markets with which you trade. Consider insuring against transfer risk by consulting export credit insurance agencies.

Country risk

What is the risk?
A change in government regulations prevents or restricts your ability to ship goods.

How does it arise?
Many countries regulate the import and export of goods. Unexpected regulatory changes, such as the cancellation of permits or licences, may occur between entering and settling a contract.

How can it be mitigated?
Consult the Australian Trade Commission – Austrade – for specialist knowledge of the markets with which you trade. Consider insuring against country risk by consulting export credit insurance agencies.

Transport risk

What is the risk?
Goods are stolen, lost or damaged in transit.

How does it arise?
Goods may be subject to these risks when travelling between you and the buyer.

How can it be mitigated?
Consult commercial marine insurance agencies if you wish to insure against transport risk.

Risk of fraud

What is the risk?
Your trade partner is not bona fide.

How does it arise?
There is always the possibility that an unscrupulous person will seek to take advantage of you, and the complexity of international trade can make it difficult to detect fraud before it occurs.

How can it be mitigated?
Do business with reputable parties that have a proven record with the goods in question, including third parties.

 

• Important information
  As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. View our Financial Services Guide (PDF 56kb)