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The biggest risks when trading overseas – and how to avoid them

The biggest risks when trading overseas – and how to avoid them article image

Australian businesses looking to expand overseas will discover a world of opportunities, however there are also many risks involved.

Failure to address these risks can mean the difference between success or failure for an export business.

Graham Crozier, the Chief Executive of Coface in Australia and New Zealand, identifies the main risks facing exporters and explains the steps you can take to avoid them…

Identity Risk

Knowing who you are dealing with, especially if you are exporting to countries with a different language. A company may look legitimate from a search of their website or social media presence, but remember it is easy to ‘buy’ visibility in order to defraud potential suppliers. It’s always advisable to obtain a full registered name, business address and legal identifier to be able to check that the company actually exists.

Financial Risk

Don't be satisfied with trade references alone as a company is unlikely to point a supplier towards someone who will give them a bad review! Buy a financial report from an International Business Information Provider to check the company’s financial position and credentials. The cost of a report will be significantly lower compared to the money you may potentially lose if you make the wrong credit decision in the first place.

Trade Risk

Remember the old adage that ‘A sale is not a sale until payment is made’. You must look to protect your most valuable asset, your trade receivables. Just think how much you would have to sell to recover from a bad debt. For example: if your profit margin is 10% and your client does not pay an invoice for $100,000 you will need to generate additional sales of $1m just to stand still. The reality is that you never actually recover. Perhaps even more important than if you are trading locally, where debts are arguably easier to collect, giving thought to Trade Credit Insurance is a must when you begin exporting.

Buyer Risk

When following up your unpaid invoices chances are the longer you wait to chase your slow payers the higher the chances they will default. Again, if you use the services of a global Trade Credit Insurer, export debt collection is normally included as part of the policy, so you don’t need to understand the foreign country legislation or language to collect if things go really wrong with your customer as your insurer will do this for you.

Country Risk

Exporting is a long-term process and so the first thing you need to do is conduct appropriate due diligence on the country itself to make sure it is genuinely a good fit for your business. You can access free information from reputable sources such Coface country reports under the “Economic Studies” section of our website.

Political Risk

Always keep in mind that it makes a significant difference whether you export into developed or emerging markets. Emerging markets can be unpredictable; your customer may be willing to pay but there is not much you can do if the government of the country seizes the assets of businesses owned by foreign companies or if they set restrictions on the conversion and transfer of local earnings. Again, most Trade Credit Insurance products will cover this type of risk under their policy.

Coface has been a world leader in credit insurance since 1946. Coface Australia Branch has been advising and supporting companies in Australia through the process of providing security and management of their domestic and export trade receivables since 2000. 

For more information visit: www.coface.com.au

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