Monday, November 17, 2008

Risk Management and Merchandise Export Finance

Market liberalization has brought profound changes in the way price risks are allocated and managed in merchandise export sectors. Price risks increasingly are allocated to third party organization like factoring companies rather than absorbed by the merchant. The success of market reforms crucially depends on the ability of the emerging small and medium size export sector to make full use of the range of modern marketing, financing, and price risk management instruments.

The merchandising export sector have two process to address while risk management in export .

A) Avoiding Risk by making proper Buyer assessment
B) Recovering money through recovery agency.

On this avoiding risk is a more cheaper solution as presently the recovery agents all over the world is charging 25% of the money looking at the griming market situation .

Obviously there are political and war risk and at the same time there is risk of the buyers bank becoming insolvent . At certain cases however it is seen that there is a deliberate attempt of the buyer not to pay looking at the tough market condition now.

Still small exporter could implement better risk management practices to solve this problem. They can start with correspondence and then put up the case with the relevant authorities and after that they could even file a legal suit under Export Insurance cover and at the end hire a debt collection agency.

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