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Mitigating Techniques for Commercial Risk/Commercial Banks-Mitigation

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Unit 3.5-Mitigating Techniques for Commercial Risk 

Introduction | Commercial Banks | Loans | Letter of Credit | Draft Collection | Accounts Receivable | Governments | Factoring | Forfaiting | Banker's Acceptances | Credit Insurance | Summary | Resources | Activities | Assessment

Commercial Banks - Mitigation

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Commercial banks, the largest financial sector in most countries, are usually short-term lenders. The principal international trade products that they offer are loans, letters of credit and documentary draft collections.

If a seller wants a third party to assume the risk of nonpayment on behalf of a buyer, it is important that this seller have a positive relationship with financial institutions. Understanding the way banks operate in terms of making funds available to buyers can provide an international credit manager with a more complete understanding of the risk associated with extending credit to a buyer.

International credit managers may work with a buyer in helping to find working capital financing, if the buyer does not already have a banking relationship. Of course, the credit worthiness of the buyer is critical to obtaining either short-term or long-term financing. When an international credit manager encounters a situation where shipments need to be made and there is little justification for open credit, a letter of credit can also be used as a bank financing opportunity for the international transactions.

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