The information provided here is part of Online export import training guide
How to overcome credit risk in an export business? How to solve credit risk with overseas buyer?
What is the solution, if overseas buyer not paid? Can an exporter provide credit to a foreign buyer? What to do if buyer not paid amount? Please provide tips to get unpaid money of foreign buyer etc.
The best solution is to get an insurance coverage from Export Credit Guarantee Corporation (ECGC) against the buyer. Export Credit Guarantee Corporation is a central government undertaking body to provide credit guarantee on the default of payments by the buyer. It works as an insurance firm who guarantees export payment, if the buyer defaults in making payment.
Once after finalizing the order, the buyer executes a purchase order to the seller with the terms and conditions as agreed by both. The purchase order should contain full details of buyer and buyer’s bank account details. The exporter approaches Export Guarantee Corporation to get approval on the buyer with amount of limit. Here, the ECGC with their available contact with overseas network collects credit worthiness of the said buyer and determines a figure of creditworthiness and inform the maximum limit of amount can be shipped at any point of time. Export Credit Guarantee Corporation collects premium on the amount of approval and issue insurance policy accordingly.
The exporter can apply with ECGC for insurance on shipment wise order as specific insurance policy, or at lump sum as comprehensive policy. If an exporter obtains a specific policy, the contract of insurance is only for that particular shipment. You as an exporter has to pay premium only against the said shipment. If you prefer to obtain a comprehensive policy against any buyer, you get approval from ECGC, the amount of credit worthiness of the said buyer. You can ship the goods up to the amount approved by ECGC. For example, if you have obtained approval for 10 billion dollars means, total outstanding liability of that particular existing buyer should not exceed more than 10 billion dollars at any point of time. It is as simple as revolving policy. If any default on payment by the buyer, ECGC reimburse the defaulted payment, if exporter obtained an insurance policy by paying necessary premium. ECGC may black list the said buyers with the various agencies and associates including banks, who can not buy goods from any where in the country.
There are also some international agencies working in all countries to provide the credit worthiness of individuals and organizations. These organizations provide you confidential data of credit worthiness. You can approach them and collect the data by paying their charges.
Also Read: Commercial risks and solutions under Export Business Political risks in International Trade Risks arising out of foreign laws in Import Export Business Cargo risks under Imports and Exports Types of Policies to cover credit risks in Import Export Trade Causes influencing price of export goods in Export Trade Credit risks and solutions under International Business Foreign exchange fluctuations risks and solutions in import export Business Does exchange rate of currency effect export business? Marine Insurance policies Risks and solutions in Export Business
I hope, I could clarify about the solution on credit risk in export and import business.
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The above information is a part of Import Export course online
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