Mitigating Techniques for Commercial Risk

Unit 3.5- Mitigating Techniques for Commercial Risk
This lesson discusses what an international credit manager might do to mitigate the risk of nonpayment and when to do it. An international credit manager, to be successful in global business, needs to be able to identify and describe techniques for managing nonpayment risk.

There are four types of reactions to risk situations that a seller or exporter can take regarding nonpayment by the buyer:
 * Avoidance: Don’t sell on credit.


 * Transference: Ask a third party to assume the risk, such as a buyer’s bank.


 * Mitigation: Take precautions that reduce the probability that nonpayment will occur, such as performing a complete credit check.


 * Acceptance: Establish a contingency allowance for nonpayment accounts.

Sellers will use all of the above depending on the buyer and the specific circumstances associated with the sale. This section provides a brief summary of the following techniques used for responding to and managing the risk of nonpayment.

Unit Objective
The goal of this material is to introduce you to mitigating techniques for commercial risk associated with international transactions. By the end of this unit you will be able to
 * identify techniques for mitigating commercial risk.
 * identify when to use each technique.

Unit Outline

 * Introduction
 * Commercial Banks-Mitigation
 * Loans
 * Letter of Credit
 * Documentary Draft Collection
 * Accounts Receivable Financing-Transference or Mitigation
 * Governments-Transference
 * Factoring-Transference
 * Forfaiting-Transference
 * Banker's Acceptances-Transference
 * Credit Insurance-Mitigation
 * Summary
 * Resources
 * Activities
 * Assessment

Correlation: Materials from this unit correlate with NASBITE CGCP's Knowledge Statement 04/03/05: Knowldege of mitigating techniques (e.g., credit risk insurance from Overseas Private Investment Corporation (OPIC) and U.S. Export-Import (Ex-Im) Bank)

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