Depending on the financial models of the firm, the payment terms vary from company to company. However, the payment term is all about the transfer of risk and the cost of money. Incoterms are about the transfer of risk and ownership and it leads to when the payment should be made. Meanwhile, the credit term would be considered as a support to the buyers’ cash flow and hoping the buyer to increase the size of the order. Suppliers should always carefully evaluate the credit rating of the buyer before making an approval on the credit term.
To hedge this risk, the suppliers could arrange export insurance. Governments from different countries have its own agencies in protecting their local SMEs from possible export-related bad debt. In Hong Kong, the SMEs could arrange the export insurance from Export Credit Insurance Corporation (ECIC).
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