This should include conducting basic credit checks on your customers and identifying any potential issues that may stop you gaining business or being paid. Risks may include:
If you are dealing in a foreign currency when agreeing a price for your goods, it’s possible that the exchange rates may change in the interim between the quotation date and the date of settlement. This can, of course, work to your advantage, but it is a gamble and you could just as easily suffer a financial loss.
You can eliminate foreign exchange risk by quoting in Euro. However, if your competitors are prepared to invoice in the local currency you may have to do the same.
To minimise the risk of working with local currencies you can enter into a forward exchange contract with your bank. This is a formal agreement to fix the amount of Euro you will receive when payment is made in the foreign currency.
Always make thorough checks of your customers to establish that they are solvent. Other questions to be asked are: do they have a trading history and do they own/rent the premises from which they are trading?
Even in countries deemed low risk, it is still quite possible that you will meet customers who are high risk, so it’s worth doing extra credit checks to give you absolute peace of mind.
To avoid non-payment, it is advisable to take out Export Credit Insurance in both high and low-risk countries.
Depending on where your market is, you should be aware of local factors that could affect your trade:
