# Effects of Late or Non-payments

| Unit 3.3-Effects of Late or Non-payments | Introduction | Tenets of Risk Assessment | Risk and Reward | "Eight C's" | 5 "C's" | 3 "C's" | Applying the "C's" | Impact of Nonpayment | Identifying Costs | Bad Debt Value | Interest | Cost and Capital | Administrative | Summary | Resources | Activities | Assessment Go to Unit 3.1 | Unit 3.2 | Unit 3.3 | Unit 3.4 | Unit 3.5 Return to Trade Finance Module 3: Commercial Risk |

## Unit 3.3- Effects of Late or Non-payments

Now that you know what a credit report is and what kind of information might be included in a credit report, the next step is to perform a credit risk assessment.
The principles of risk assessment are particularly critical for several reasons; but, most importantly, any extension of credit requires an analysis of a buyer requesting credit and a determination as to the level of risk associated with a buyer’s financial ability to pay a seller according to terms.
The risk, specifically commercial risk, associated with an international market is very important. In dealing with global or international markets, the assessment of a buyer takes on another dimension, the dimension of being international, namely, the risk of selling and getting paid in a timely manner when a buyer is in a country different from a seller.
Commercial risk in international markets refers to the same situation encountered in the domestic market, which is the risk of late/non-payment by a (foreign) buyer or intermediary for goods shipped/services completed, resulting from
* insolvency or bankruptcy of a buyer
* a buyer’s failure to pay for goods/services per the due date of the agreed upon payment terms
* a buyer’s failure or refusal to accept the goods that were shipped or the services provided as agreed in the contract.
When performing a risk assessment, sellers must consider the implication of selling into the international market. A seller must take into account factors that exist in global transactions, but not in domestic sales. Such factors include changes in country governments, currency values, economic and cultural issues. Assessing political and economic risks and cultural issues of other countries is discussed in detail in Module 1, so here you will find highlighted only a few points in context with granting credit.
The bottom line point is that risk assessment is important because the impact of non-payment to a seller may result in cost of money and bad debt events.

### Unit Objective

The goal of this material is to describe for you the commercial risks and the effect of late and/or nonpayment from overseas buyers. By the end of this unit you will be able to
* identify commercial risk.
* identify the tenets of risk assessment.
* identify the “Eight C's" of credit risk assessment for the global seller.
* identify the impact of nonpayment.

### Unit Outline

* Introduction
* Tenets of Risk Assessment
* Risk and Reward
* "Eight C's" of Credit Risk Assessment for A Global Seller
* The 5 "C's" (Domestic and International)
* The 3 "C's" (International)
* Applying the "C's"
* Impact of Nonpayment
* Identifying Costs
* Bad Debt Value
* Interest
* Opportunity Cost and Alternate Use of Capital
* Administrative
* Summary
* Resources
* Activities
* Assessment
Correlation: Materials from this unit correlate with NASBITE CGCP's Knowledge Statement 04/03/03: Knowldege of commercial risks of late and/or non-payment from overseas buyer)