Trade Finance/Commerical Risk

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Trade Finance

Introduction | M.1 Political and Economic Risk | M.2 Risk Mitigation Techniques | M.3 Commerical Risk | M.4 Payment Methods | M.5 Selecting Payment Methods | M.6 Financial Plan | M.7 Short-term Financing | M.8 Medium- and Long-term Financing

[edit] Module 3: Commercial Risk

===Module \a business might need to process as well as the process for managing credit decisions. These processes should be documented because extending business-to-business credit (selling on open account) can be quite complex, depending on the amount of credit, how long the buyer wants the credit for, whether a buyer and a seller are located in the same country, and what information is available.

Some may argue that the topic of credit reports alone can be a small course in itself. In this module, the focus is on the following topics:

• the purpose of the credit report and what the data means to both a seller and a buyer.
• the sources of credit reports. When it comes to commercial credit reports, it isn’t quite as simple as logging onto yourcreditreport.com. This module reviews several sources of credit that a seller or lender might use to research a credit history.
• credit information and risk assessment. Once you locate a credit report for a buyer, you need to interpret the information in context with the potential risk of a buyer faulting or not repaying.
• risks associated with methods of payment. A buyer wishing credit may have a great track record when it comes to short-term credit lines but not when it comes to long-term repayment. If a buyer needs long-term credit, the possibility of nonpayment increases since over longer periods of time the uncertainty regarding a buyer’s ongoing creditworthiness is greater. There are options for a seller and a buyer. Modules 7 and 8 provide more details on short, medium and long-term financing whereas this module will just provide an introduction to some types of payment and not necessarily terms.
• risk mitigation techniques. The methods of payment are actually one way to mitigate the risk that a seller may not be repaid by a buyer. However, there are some more commonly used techniques that will be introduced here.

[edit] Module Sections

• Unit 3.1: Sources of Credit Reports
• Unit 3.2: Costs and Value of Credit
• Unit 3.3: Effects of Late or Non-payments
• Unit 3.4: Payment Methods for International Transactions
• Unit 3.5: Mitigating Techniques for Commercial Risk

[edit] About this Resource

These resources were developed by MSU Global with funding provided by a U.S. Department of Education, Business in International Education Title VIB grant.