Managing importing risk

Dealing with suppliers 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 protect your importing business.
 

Currency risk

What is the risk?
The local currency amount payable on settlement may be higher 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 making the payment.

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

Non-delivery or non-performance

What is the risk?
Your supplier will not perform according to the sales contract, either by delivering the wrong or inferior goods or not delivering on time.

How does it arise?
Your supplier may not be willing or able to perform as contracted.

How can it be mitigated?
You might request that the goods be inspected prior to shipment by an independent inspection agency.

Credit risk

What is the risk?
Your supplier lacks the financial means to ship your goods after you have made payment.

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

How can it be mitigated?
Consider using conditional methods of payment such as documentary credit or documentary collection.

Transfer risk

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

Country risk

What is the risk?
A change in government regulations prevents or restricts your ability to receive 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. You may also want to consult the Australian Customs Service.

Transport risk

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

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

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 trading 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).