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SearchThe risk of non-payment depends both on the buyer’s creditworthiness and on the country’s conditions. Assessing each transaction individually helps compare payment terms, payment methods, cover and foreign-exchange exposure without assuming that one solution works for every market.
Selling to a customer in Africa or the Middle East does not in itself entail a higher risk of non-payment. Exposure depends on the country, the buyer, the payment term and the specific conditions of the transaction. For a Spanish exporting SME, the analysis should separate two questions: will the customer be able and willing to pay, and will they be able to transfer the money even if they have the funds?
Commercial risk refers to the customer’s ability and willingness to pay. Before granting credit, it is advisable to verify the customer’s identity and business activity, review available financial information and commercial history, and assess the amount and payment term requested. A solvent company can reduce the risk of default, but it does not eliminate obstacles beyond its control.
Country risk includes economic, political and institutional factors that may affect payment or the transfer of funds. These include foreign-currency shortages, restrictions on transfers, political instability or significant changes in business conditions. Credendo, for example, assesses political and commercial risks by country and type of transaction; its classifications and limits may be revised and do not replace an assessment of the buyer or the specific terms of an insurance policy.
For this reason, it is unwise to treat Africa or the Middle East as a single market. The assessment should relate to the destination country and the specific transaction, including its amount, currency, payment term and method of payment. The time horizon also matters: the risk profile of a short-term transaction may differ from that of a contract with a lengthy execution period.
Payment terms distribute risk between buyer and seller, but they also entail costs and requirements. An advance payment reduces the amount outstanding, although whether it is accepted will depend on the negotiations. Deferred payment may facilitate the sale, but leaves the exporter exposed during the agreed term.
A documentary credit may make payment conditional on the presentation of documents that comply with its terms. In itself, it is not an absolute guarantee: the documentary requirements, the issuing bank and, if involved, the confirming bank must be carefully reviewed. CESCE lists cover for financial institutions in connection with risks inherent in documentary credits, but availability and scope depend on the product and the transaction; it should not be assumed that every documentary credit is covered.
When choosing between alternatives, consider security, costs, time frames and the customer’s ability to meet the requirements. Before shipping the goods or starting the service, the exporter, bank and buyer should be clear about the required documents, due dates and the conditions that trigger payment.
Credit insurance or a guarantee can help limit certain risks, but it does not necessarily cover every cause of non-payment. Check who is insured, which risks are included, the limits approved for the buyer or country, exclusions, notification deadlines and documentary obligations. It is also advisable to check whether the protection covers the exporter or the financial institution: some CESCE products described for international transactions are specifically aimed at banks.
Credendo states that country risk analysis may affect prices, limits and special acceptance conditions. This illustrates why a general assessment of a market is not enough to consider a specific sale covered. Effective cover depends on the transaction’s formal acceptance and on the terms agreed in the policy or guarantee.
If the transaction requires financing, distinguish between protection against non-payment and financing for working capital or the contract. CESCE describes, among other options, cover for certain bank financing linked to exports. Eligibility and scope should be confirmed with the relevant institution; mention of a product does not mean it is available for every country or project.
The contract should specify the currency in which the price and payment are set. If the company’s income and costs are denominated in different currencies, an exchange-rate fluctuation may alter the transaction’s economic result, even if the customer pays. Clearly agreeing on the currency and payment dates helps identify this exposure; any instrument used to manage it should be reviewed with the financial institution, taking account of its terms and costs.
In this context, the CARI should not be confused with general foreign-exchange cover. According to the Ministry of Economy, Trade and Enterprise, the Reciprocal Interest Adjustment Agreement is a support scheme for certain Spanish medium- and long-term export credits—two or more years—at fixed rates. The adjustment compares financial returns in the currency of the credit. Its purpose and scope are not equivalent to insuring the value of one currency against another for any international sale.
This framework helps organise the questions to ask; it does not determine in advance whether a customer or country is safe. The decision depends on specific information and on the contractual, financial and insurance terms applicable to each export from Spain.
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