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What is credit, export credit and export credit risk?

The word ‘credit’ has various meanings and is used in various contexts. When used in international trade, the word ‘credit’ refers to an agreement made between two parties by which some value is given by one party to another in exchange for a promise given by the other party to pay at a later date. Depending on the value given to the other party, credits may take two forms: the deferred payment of purchase price or the loan of money.

When a commercial contract for purchasing goods or services stipulates that the contractual price will be paid at a later date, it is usually said that such a contract is entered on credit terms. The credit term constitutes a part of a commercial contract that normally contains several other terms. In loan contracts, in which a lender lends money to a borrower in exchange for the borrower’s promise to repay the loan at a later date, the credit is a basic contractual term.

When a buyer of goods or services purchased on credit terms is from a country different from the seller’s country, such a credit is called the export credit. The export credit is sometimes called the supplier credit.

The export credit risk is the risk that a credit will not be paid by a foreign buyer when due. The credit risk exists even in domestic credit transactions, but export credit risks are usually more complex due to geographical distance between the seller and the foreign buyer, legislative, cultural and other differences.


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