Commercial risk refers to the possibility of loss in international trade due to issues with the counterparty's creditworthiness, financial status, or ability to perform, mainly including buyer's payment default, refusal to accept goods, bankruptcy, and inability to repay debts. It is distinct from political risk (e.g., war, foreign exchange controls) and transportation risk (e.g., loss of goods), and is typically covered by export credit insurance. Usage scenario: Exporters need to focus on assessing commercial risk when using non-letter of credit settlement methods such as open account (O/A) and documentary collections (D/P, D/A). Precautions: Investigate the buyer's creditworthiness in advance, choose a reasonable settlement method, purchase export credit insurance, and specify default clauses in the contract. Compared with 'credit risk,' commercial risk has a broader scope, covering defaults caused by the buyer's poor management, market changes, etc.; while credit risk specifically refers to the possibility that the counterparty fails to fulfill its payment obligation.
📝 Examples
1. Due to the recession in the buyer's country, the importer went bankrupt, resulting in our inability to recover USD 1.2 million in payment for goods; this is a typical commercial risk. (Note: Buyer's bankruptcy leads to loss of payment for goods)
2. Before adopting the D/A 60-day settlement method, we purchased export credit insurance to mitigate the commercial risk of the buyer refusing goods or defaulting on payment. (Note: Transferring commercial risk through insurance)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
Trade practices may vary slightly by country; pay attention when using them
When using terms in contracts, specify the applicable version (e.g., Incoterms 2020)
For unfamiliar terms, use GlobalSync's multilingual email helper to confirm with your partner