Title: Australian manufacturing exports to ASEAN: linking country, customer and enterprise risk in method of payment choice

Authors: Roberto Bergami

Addresses: School of International Business, Faculty of Business and Law, Victoria University, P.O. Box 14428 Melbourne, Victoria 8001, Australia; Department of Trade and Tourism, Faculty of Economics, University of South Bohemia, Studentská 13, 370 05 České Budějovice, Czech Republic

Abstract: In international trade transactions one of the primary concerns of exporters is payment for goods sold to foreign buyers. Country risk and customer risk are two components of the exporter's overall credit risk. One effective means of reducing these risks is through the choice of an appropriate method of payment. There are four traditional methods of payment: prepayment; letter of credit (L/C); bill of exchange; and open account. It is commonly accepted that L/C provide the most secure method of payment, where the buyer's credit risk is substituted with that of their bank. The L/C issuing bank provides a conditional guarantee of payment that relies on the presentation of specified data contents on identified documents, to trigger payment. Focusing on firms' internal processes and based on data gathered from voluntary survey and semi-structured interviews, this paper discusses how Australian manufacturers exporting to ASEAN determine the method of payment of choice, and to what degree L/C are used, in the context of country risk and customer risk assessment. The paper concludes that most firms have a potentially higher risk exposure as, in the majority of cases, enterprise risk management principles are not adopted in the choice of a method of payment.

Keywords: export payment risks; credit risk; country risk; customer risk; enterprise risk management; letters of credit; prepayment; bills of exchange; open accounts; manufacturing exports; international methods of payment; ASEAN payment risks; Australia; payment choice; international trade transactions; payment security.

DOI: 10.1504/GBER.2014.058077

Global Business and Economics Review, 2014 Vol.16 No.1, pp.60 - 74

Published online: 16 Jun 2014 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article