Yes, but on some conditions. The best security of the interests done with partners from the countries, in which there is a military conflict – Ukraine, Russia or Israel – will be resignation from granting of the trade credit and sale solely after a prepayment is made by the customer.
This solution is simple, cheap and does not require knowledge on complicated tools securing trade transactions. Nevertheless, business has its rules and a difficult political situation is an economic chance. On the occasion of armed conflicts, the prices and the margin as well as the demand for the majority of goods and services go up. It makes companies nevertheless decide to cooperate with entities registered on the increased risk markets.
The entrepreneurs base the decision on maintenance of the cooperation on long-term and positive history of cooperation and on the financial results of the customer. Unfortunately, this is one of most often made mistakes.
When in the background there are acts of war or a political conflict, the financial results and even perfect history of cooperation do not matter. Lack of payment may occur at literally any moment and for reasons beyond control of our foreign business partner. So if we decide to continue the cooperation and to grant the trade credit to our partner, we should also decide to incur the costs connected with insurance of such transaction.
A policy insuring trade transactions may be a solution. However, it is worth analysing in detail all terms & conditions recorded therein, since the majority of policies have exclusions of insurance coverage for customers with registered office on the areas, on which acts of war take place. Specialised brokerage companies will help to audit the concluded insurance agreement and will show what the real scope of the insurance coverage is.
It is advisable for the entrepreneurs conducting a significant part of transactions on increased risk markets to diversify the portfolio of the customers. The deferred decisions on expansion to other foreign markets with a safe climate should be made right now.
Export factoring will be helpful. On one hand, it will help to finance the development of the sale and on the other hand, to verify the financial condition of the new customer and to avoid the risk resulting from cooperation with a foreign business partner. We have already been writing on it in the text: How to push the boat out not to sink. Export: How to push the boat out not to sink?
Published on: 20 August 2014