What are the Risks?
The many requirements that must be satisfied in foreign trade mean that there is more risk of potential problems and financial loss than when selling domestically. Exporting involves many obligations not common to domestic business, such as complying with U.S. and foreign government regulations, special documentation, product certifications and complex multi-modal transportation arrangements.
Individual customer conditions must also be satisfied as they relate to price quote form and payment terms- all made even more challenging when multiple languages and currencies are involved. Expenses arising from incomplete documentation, missing certifications or failure to comply with regulations and terms can become costly problems, quickly exceeding the profit margin.
Considerations Affecting Risk in Exporting
- Government regulatory compliance (certifications, labeling, etc)
- Export documentation and customs requirements
- Price quote form (providing quotes according to customer requests; CFR, CIF, DDU, etc.)
- Foreign currencies and exchange rate fluctuations
- Terms of sale (Open Account, Letter of Credit, etc.)
- Foreign tariffs, duties, taxes, etc.
- Shipping rates and cargo insurance coverage
- Foreign receivables collections
Payment collection can be challenging when dealing with a foreign customer. For example, the safest terms of sale are pre-payment or Letter of Credit. The challenge is that these are the least appealing for the buyer. Reluctance to pay in advance is understandable, especially when there may be a 30-day transit time from factory to customer. Letters of Credit balance the risk between buyer and seller, but they involve expensive bank fees, require strict compliance with all terms and conditions and can be complicated to negotiate without errors for the inexperienced. Furthermore, requiring these terms can limit the market for a company’s products because larger companies with established credit will demand open account terms, just as in the domestic market.
Minimizing Risk and Avoiding Risk
The key to minimizing the chances for financial loss in these complicated transactions is to manage risk by anticipating potential problems before they become expensive mistakes. The Johnson Group has many years of experience trading internationally and we specialize in managing the details to reduce and eliminate risk for our partner companies. This ability, in addition to our integrated marketing, sales and support program, represents the value we add to the transactions we generate.
Advantages of Using the Johnson Group to Reduce Risk
- We are experienced in anticipating problems, satisfying requirements and minimizing risk
- We often purchase goods as a domestic customer and assume the foreign credit risk
- We can eliminate all export transaction related risks for our partners
The most cost-effective strategy for a company considering selling internationally is to avoid these risks altogether by working with a partner such as the Johnson Group. We can eliminate these risks for our partner companies when we purchase products as a domestic customer and assume all of the responsibility involved in reselling them overseas. This allows our partner to focus on their strengths while still capitalizing on opportunities to expand sales internationally.
