We have regularly warned about the risks associated with
exporting. These risks come in various forms. They include country risk, financial risk, payment risk, poor quality risk, legal risks, political risks, cultural and language risks, and transportation risk.
Country risk can be defined as all the risks associated with cross-border transactions, including but not limited to risks linked to economic, political, legal, cultural, geographic, ethical, and business conditions prevalent in a particular country. Country risk is more of a macro view of a country’s ability or willingness to pay for goods bought from abroad. A country with a low risk rating is a reliable and trustworthy payer – you can be assured that there are no country/macro-related impediments to your customer paying you. A country with a high risk rating, however, has impediments in place (whether deliberate or not) that are likely to obstruct or delay your customer paying you, whether they want to or not.
Country risk versus payment or credit risk
Please bear in mind that even if a country has a low-risk profile, that is, it is a ‘safe’, reliable country, this does not mean that you are guaranteed payment. Your customer may fail to pay you for various reasons – they dispute aspects of the shipment, they have gone bust or simply do not have enough money to pay you, or they deliberately stall with the payment to try and pressure you for a lower price or better terms (i.e. they are unethical or down-right crooks). Payment risk is more commonly referred to as credit risk (because you are in effect giving the customer time to pay, i.e. credit). Country risk does not directly impact upon or negate credit risk, although it may be argued that – generally – low-risk countries have a far greater proportion of firms that are reliable payers, whereas high-risk countries will have a higher proportion of firms that are suspect credit risks.