How to Mitigate Risks in International Trade

For the Buyer

• Deal with seller with sound reputation or established track record.
• Request for performance guarantee to avoid non-performance risk.
• Agree on more secure methods of payment such as documentary credit or open account.
• Acknowledge and respect cultural differences with the seller.
• Buy and sell in same currency to minimise foreign exchange risk. Alternatively, the buyer can hedge against foreign exchange risk by entering a forward or option foreign exchange contract with a bank.
• If financing is needed, enter into a fixed interest rate loan or interest rate swap agreement to mitigate against interest rate risk.
• Ensure sufficient insurance coverage against transit risk.
• Always have a contingency plan against unfavourable events.

For the Seller

• Deal with buyer with sound reputation or established track records.
• Engage a reputable credit agency or credit insurer to minimise buyer‘s insolvency or credit risk.
• Engage on more secured methods of payment such as documentary credit or advance payment.
• Avoid granting excessive credit period or limit to the buyer.
• Ensure that the sales contract or documentary credit does not contain ambiguous or erroneous terms and conditions that are subject to future disputes.
• Acquire sufficient knowledge in document preparation to mitigate against documentation risk.
• Acknowledge and respect cultural differences with the buyer.
• Buy and sell in same currency to minimise foreign exchange risk. Alternatively, the buyer can hedge against foreign exchange risk by entering a forward or option foreign exchange contract with a bank.
• If financing is needed, enter into a fixed interest rate loan or interest rate swap agreement to mitigate against interest rate risk.
• Ensure sufficient insurance coverage against transit risk.
• Engage a representative in the buyer‘s country to deal with the goods or relevant parties in case of non-payment or non-acceptance by the buyer.
• Always have a contingency plan against unfavourable event.