Question

What are the different types of commercial risks and how can managers plan for them to ensure minimal impact to the company?

Answer 1

Commercial Risk is the failure of key suppliers or customers to deliver raw material/ finished inventory or materials not getting delivered or rejected by customers due to many reasons.

Types:

• Country Risk:

Political unrest, labour strikes, trade wars, due to high tariffs on imports, country-specific administrative procedures, bureaucratic procedures, regulations etc. hurt the cross country trade

-Currency Risk:

Variations in the foreign exchange rate of currencies can sometimes badly affect the payments that trading partners owe each other

-Cross-Cultural Risk:

Cultural misunderstandings or language barriers many times have known to be chaotic

Commercial Risks can affect in following areas to a company:

• Strategic- a competitor coming on to the market
• Compliance- not following/ responding to any commercial/ trade/ tax laws
• Financial- customer debt or increased interest charges on a business loan
• Operational- the breakdown/ stoppage of production/ logistics operation or theft of key equipment

Commercial Risks can be prevented:

• If a customer unable to pay for the products/ services delivered according to the terms of agreement, make sure to check the reason and take appropriate actions without hurting relationship
• If a customer is not interested to pay or hold to T&C of agreement, you can take legal actions
• If trading partner doesn't live up to their obligations within the agreement (credit period/ delivery terms/ date/ conditions etc.), such disputes can be resolved mutual or legally
• Any other misunderstandings related to agreement between supplier, manufacturer, distributor, customers. For such cases, it is always better to jointly come on each others’ beneficial decisions