Free Online Course in International BusinessKnowledge StatementKnowledge of Mitigating Techniques: Credit Risk InsuranceGoalThe goal of this material is to introduce you to mitigating techniques for commercial risk associated with international transactions.Learning ObjectivesYou will be able to• identify techniques for mitigating commercial risk. • identify when to use each technique. IntroductionThis lesson discusses what an international credit manager might do to mitigate the risk of nonpayment and when to do it. An international credit manager, to be successful in global business, needs to be able to identify and describe techniques for managing nonpayment risk.There are four types of reactions to risk situations that a seller or exporter can take regarding nonpayment by the buyer: • Avoidance: Don’t sell on credit. • Transference: Ask a third party to assume the risk, such as a buyer’s bank. • Mitigation: Take precautions that reduce the probability that nonpayment will occur, such as performing a complete credit check. • Acceptance: Establish a contingency allowance for nonpayment accounts. Sellers will use all of the above depending on the buyer and the specific circumstances associated with the sale. This section provides a brief summary of the following techniques used for responding to and managing the risk of nonpayment. 
Commercial banks, the largest financial sector in most countries,
are usually short term lenders. The principal international trade
products that they offer are loans, letters of credit and
documentary draft collections. If a seller wants a third party to
assume the risk of nonpayment on behalf of a buyer, it is important
that this seller have a positive relationship with financial
institutions. Understanding the way banks operate in terms of making
funds available to buyers can provide an international credit
manager with a more complete understanding of the risk associated
with extending credit to a buyer. International credit managers may
work with a buyer in helping to find working capital financing, if
the buyer does not already have a banking relationship. Of course,
the credit worthiness of the buyer is critical to obtaining either
short term or long term financing. When an international credit
manager encounters a situation where shipments need to be made and
there is little justification for open credit, a letter of credit
can also be used as a bank financing opportunity for the
international transactions.
|
 |
 |
About Us | Terms of Use | Contact Us | Partner with Us | Press Release | Sitemap | Disclaimer | Privacy Policy
©1999-2011 OpenLearningWorld . com - All Rights Reserved