International payments: a guide to mastering risks

With 758 billion euros in exports in 2021, France ranks 6th worldwide among exporters of goods and services. Behind this performance lies a reality well known to business leaders: every euro earned internationally comes with risks that do not exist in the domestic market.

Where a local payment involves two parties and one set of regulations, international payments involve several intermediaries, currencies, jurisdictions, and regulatory systems. This complexity mechanically multiplies the potential points of failure and conditions the risks of international payment.

Identify and understand the different types of international payment risks

when currencies turn profits into losses

Exchange rate risk clearly illustrates the volatility of international trade. A company can negotiate a profitable contract in January and discover in March that currency fluctuations have erased its margins. This reality particularly affects SMEs that do not always have the resources to hedge effectively.

Protection strategies vary depending on the size and means of the company. Imposing a single currency requires commercial leverage that not all companies possess. Forward exchange contracts offer functional protection but require precise anticipation of cash flow needs. Exchange rate insurance allows this risk to be transferred for a fee, a solution adapted to companies with significant export volumes.

Payment default: a risk amplified by distance

The risks associated with international payments take on a particular dimension with geographical distance. Recovering an unpaid debt in France already takes time and resources. Imagine the complexity when your debtor is thousands of kilometers away, in a different legal system.

This amplification of counterparty risk also stems from information asymmetry: truly knowing the financial soundness of a foreign partner requires efforts and costs that not all companies can bear. Defaults can also result from external factors: a government that blocks currency transfers, a local economic crisis, international sanctions.

Faced with these uncertainties, prior assessment becomes crucial. Analyzing the financial health of the partner, understanding the economic and political environment of their country, verifying their commercial reputation: all are essential steps before granting payment terms.

Geopolitical instability and operational risks

Country risk goes beyond simple economic analysis to encompass the entire political and social environment. A change of government can alter the rules of the commercial game. A diplomatic crisis can lead to sanctions that abruptly block trade.

The challenges of international payments extend to logistical aspects. A lost container can compromise cash flow for months, directly influencing the ability to be paid within the agreed deadlines.

Building a suitable security system

Knowing your partners: the art of due diligence

Securing international payments begins long before the signing of the first contract. It begins with a thorough understanding of your business partners that is not limited to financial aspects: it encompasses their regulatory environment, their commercial practices, their network of business relationships.

The due diligence process structures this knowledge-gathering approach. It begins with the collection of basic information: legal status, income statements, bank references, shareholding. This data feeds a risk analysis that takes into account the sector of activity, the country of establishment, and the type of transaction envisaged.

The evaluation continues throughout the business relationship with continuous monitoring. Mature companies put in place alert systems that warn them of any significant change in the situation of their partners.

KYC and KYB compliance: going beyond regulatory obligation

Know Your Customer (KYC) and Know Your Business (KYB) procedures primarily meet regulatory obligations to combat money laundering. But their value goes far beyond simple compliance with the law: they constitute a security filter that eliminates the riskiest partners.

These checks are based on specialized databases that list sanctioned individuals and entities, politically exposed persons, and companies with problematic backgrounds.

Choosing the right payment instruments

Adapting the tool to the level of risk

The choice of payment instruments reflects the risk assessment carried out upstream. This decision must take into account the specificity of each transaction and each partner.

SEPA transfers offer simplicity and low cost for European transactions in euros but assume established trust with the partner. Outside the SEPA zone, SWIFT transfers benefit from recognized international standards but involve higher costs and longer delays.

Letters of credit radically transform the risk equation by involving the buyer's bank as a guarantor of payment. This security comes at a price: high bank costs, documentary complexity, extended delays. Their use is justified for major transactions with little-known partners or in unstable countries.

Documentary collections offer a compromise between security and cost. The seller retains control of the goods until payment, a formula particularly suited to established commercial relationships where residual risk remains.

Modern solutions: payment guarantees and segregated accounts

Financial innovation offers new approaches to minimize international payment risks. Payment guarantee solutions use guarantee accounts where funds remain blocked until verification of compliance with contractual conditions. This method combines the security of letters of credit with the simplicity of transfers.

The use of multi-currency accounts complements this approach by allowing a reduction in exposure to exchange rate risk. Holding funds in the currencies of target markets avoids systematic conversions and offers better visibility on the actual costs of transactions.

Developing a sustainable prevention strategy

Managing the risks associated with international payments requires an organization that combines continuous partner monitoring, geopolitical monitoring, and process adaptation.

Not all companies are destined to become experts in international payment risk management. The solution often involves intelligent transfer to specialists. Credit insurance protects against payment defaults while providing expertise in risk assessment. International factoring allows the management of receivables to be transferred to a specialist.

Geographical diversification remains one of the best protections against country risks. Distributing sales across multiple geographical areas limits the impact of a local crisis on the entire business.

Towards an integrated approach to security

Mastering the risks associated with international payments requires going beyond the segmented approach to adopt a global vision. Each risk interacts with the others: a political crisis can trigger a currency devaluation that aggravates the payment difficulties of local partners.

This integrated approach combines rigorous partner evaluation, the choice of suitable instruments, continuous monitoring, and the selective transfer of international payment risks. The objective is not to eliminate all risks (an impossible and economically counterproductive mission) but to identify them, measure them, and manage them in a way that preserves the profitability and growth of the company. This balanced approach distinguishes organizations that succeed sustainably internationally from those that suffer the vagaries of world trade.

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