Methods of payment and exporter's risk exposure: A view to exporter's payment risks and their management by different methods of payment during contracting for an international sale of goods

Master Thesis


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Crucially important to a seller of any merchandise is to know, whether or not he will in fact be paid for the goods he ships to his buyer. The question becomes even more important when a foreign element is added to the transaction in the form of a buyer located in a far-away country about which no one knows too much. The exporter faces a risk of not being able to obtain the money due to him even if he himself has fulfilled his part of the bargain. Facing that problem he may end up using all sorts of methods and mechanisms to lower his risk exposure to an acceptable level, still realising, that the possibility of something going wrong cannot be eliminated completely. Some of the methods of payment risk management, which the exporter can employ, fall outside the realms of that agreement of sale which he has with the buyer and some, on the other hand, he must include into the contract itself Different methods of effecting payment clearly belong to the latter group due to the fact that the parties always have to agree on some method of effecting payment, using which the buyer fulfils his part of the agreement. It is submitted that it would be impossible to discuss a broad topic such as this without leaving something important outside the scope of the paper. That has been done in the context of this paper by leaving out all procedural aspects that do not have an effect on the exporters security of payment. Especially in the section that discusses documentary credits, the workings of the credit and banking procedures have been cut to minimum in order to include aspects that in my mind were important. It follows that this paper is in, principle about the possibilities that an exporter has, to use methods of payment beneficially and economically during the period of drafting the contract of sale. Furthermore, it must be mentioned that by assuming that the exporter is a bona fide merchant I've decided to leave out the vast material and case law relating to the fraud exception in the context of documentary credits.