1.  Islamic University of Science & Technology Jammu & Kashmir, India; atharwani28@gmail.com
2. University of Sussex Business School, United Kingdom; Ingo2971@gmail.com

*             Correspondence: Ingo2971@gmail.com

Keywords: international trade; settlement risk; preventive measures

1. INTRODUCTION

Economic globalization has promoted and accelerated the development of international trade. Because of the rapid development of international trade has accelerated the pace of mutual promotion and development of economies around the world [1]. Trade settlement is a link that cannot be ignored in the entire trade activity, and the development of settlement has driven the development of trade activities. Different countries have great differences in the selection of settlement methods. In addition, international trade settlement involves many countries, and the currency exchange rates between countries are different, so there are risks in the settlement [2]. In the process of conducting transactions, international trading companies need to avoid transaction risks from various aspects and continuously strengthen the construction of the company’s internal control system [3] and learn more from local international trading companies that have been operating for many years. Benefits and risks coexist, so no business or transaction is completely risk-free. In order to develop more businesses, you must understand the reason for taking more risks, and often high risks [4].

2- STATUS QUO OF INTERNATIONAL TRADE SETTLEMENT METHODS

With the development of society and economy and the frequent economic and trade exchanges between countries, the development level of international trade has been continuously improved. Trade settlement is an important link to promote the sustainable development of international trade [5]. Trade entities must realize the importance of trade settlement and build a sound trade settlement system to better guide trade settlement. Different trade settlement methods have different advantages and disadvantages [6]. In order to ensure the level of settlement, it is necessary to analyze the advantages and disadvantages of trade settlement methods, choose the settlement method according to your situation, and master the settlement processing methods to facilitate subsequent settlement [7]. Work. Developed and developing countries are active players in international trade and play an active role in promoting the development of international trade [8].

3- RISK TYPES OF INTERNATIONAL TRADE SETTLEMENT

3.1 Shipping Risk

Most international trade companies use water transport to transport goods, especially bulk products. Due to the low price of water transport, water transport is very popular with both parties in international trade [9]. However, due to the longtime of water transportation, it takes a week from the northern part of China to the port of Australia and at least a month or a few months from the northern port of China to Africa. Therefore, in the process of transporting goods, ships are likely to encounter unstable conditions such as rough operations, pirates robbing, bad weather, etc., resulting in certain losses of goods during transportation [10].

3.2 Financial Risk

The letter of credit settlement method uses the bank as a trade intermediary. The bank guarantees the importer to pay the exporter the payment for the goods within a certain period in accordance with the importer’s requirements and under certain bank terms [11]. Simply put, it is an agreement that one party Pays the payment on time, and one party guarantees timely delivery and payment collection. This agreement can ease the distrust between the two parties to a certain extent and guarantee both parties’ basic rights and interests [12]. Although the letter of credit settlement method has many advantages, its potential risks cannot be ignored. The letter of credit settlement is a three-party settlement, which means the applicant has a financial risk of deceiving, forging the letter of credit, adding soft terms, forging documents, or fraud [13]. First, remittance as a settlement method may prolong the time for capital transactions, and the payer and importer will bear corresponding risks [14]. Second, in remittance, if the transaction method is cash on delivery, etc., the payee and the exporter must also bear the corresponding risks [15]. Third, if the importer and exporter conduct transactions in the form of bills of exchange, fraudulent bills of exchange may occur, and the exporter needs to bear great risks [16]. Fourth, suppose the transaction is conducted by telegraphic transfer or letter transfer. In that case, there may be cases where the importer may request to withdraw the remittance after transferring the telegraphic transfer or letter transfer to the exporter, which also greatly impacts the final settlement. Big risk [17].

3.3 Collection Risk

Compared with remittance and remittance settlement, more international trade uses collection settlement, especially the settlement method of documentary collection. Exporters control goods by Documents to control the release of goods [18]. If the payment is not received, the importer will not be able to get the delivery receipt. This settlement method is fair to both parties in the trade. However, collection settlement also has certain risks [19]. Because international trade takes place between national enterprises and enterprises of other countries, the scale of the cooperative bilateral enterprises, the market conditions, economic conditions, and commodity prices of the importing and exporting countries are not equal [20], which will easily make it difficult for the importer to pay the goods on time or refuse payment. Each country’s economic situation is different, so the economic environment also affects international trade [21]. After receiving the goods [22], the exporter will re-offer the price according to the current market price according to the economic situation and pay for the goods according to the current price. If the goods are delayed for this reason, it will affect the operation of the subsequent exporting enterprises [23].

4- PREVENTIVE MEASURES FOR INTERNATIONAL TRADE SETTLEMENT

4.1 Transportation Risks Prevention

In the process of international trade, because the transportation time is too long and there are many links in the middle, it will lead to various risks in the transportation process. However, the risk can be transferred by applying for insurance. For example, war risk, water damage risk, all risks, etc. [24], you can also choose the most suitable insurance type according to the specific situation. After the insurance is completed, if the goods are damaged within the scope of insurance, the insurance company must follow the insurance contract [25]. Pay compensation to the enterprise so that the transportation risk of the enterprise can be reduced to a certain extent so that the enterprise can get corresponding compensation in the process of international trade and escort the international trade business [26].

4.2 Financial Risk Prevention

Letter of credit is the most widely used in international trade activities. To prevent related risks, the following tasks need to be done well: investigate the qualification and credit status of cooperative customers, the purpose is to avoid risks from the source, and credit investigation needs to involve business conditions, scale, performance, etc.; investigate the situation of the issuing bank [27]. Before the transaction, the issuing bank’s credit is fully investigated to ensure the safety of the transaction. During the specific investigation, the exporter can understand the economic situation of the importer’s location [28]. The contract is the basis to ensure the smooth progress of the transaction. There is legal protection, so the obligations and responsibilities undertaken by each other should be written into the contract to prevent disputes and verify the authenticity of the letter of credit, and once any problems are found during the verification, they must be immediately fed back and dealt with to avoid affecting Subsequent transactions [29].

4.3 Remittance Risk Prevention

For credit sales risk and freight forwarding payment risk, when the exporter loses control over the goods after releasing the goods, it may encounter the situation that the importer pays overdue or even fails to pay [30], resulting in the loss of both payments and affecting the subsequent development of the enterprise. Therefore, in the settlement, it should consider opening a letter of credit combined with other methods to minimize remittance risk [31]. As for the third method – advance payment, the main risk bearer is the importer, and the importer needs to comprehensively consider various conditions [32], such as transportation costs, the total value of the goods, etc., before making the advance payment. The exporter should not only consider the fundamental interests of the enterprise but also protect the exporter’s interests and set a reasonable prepayment amount [33].

4.5 Collection and Settlement Risks Prevention

In the collection and settlement, it is also necessary to pay attention to risk prevention work, detailed prevention measures, and prevention methods [34]. First, investigate and understand the credit of partners and learn about the business scope of partners. Even if you have been working with partners for a relatively long time, don’t take it lightly, and don’t pay attention to credit and qualification reviews [35]. Second, international trade laws and regulations affect collection and settlement work. Before carrying out collection and settlement activities [36], it is necessary to understand international trade laws and regulations, especially paying attention to the trade laws and regulations of the countries of both parties to the transaction so as to avoid settlement risks. The third is to do a good job in the selection of the collecting bank. The collecting bank’s credit level greatly affects the collection work’s security [37]. Therefore, it is necessary to evaluate the credit of the bank in advance and choose a bank with high credit. The fourth is to do a good job in signing the contract [38]. If the buyer refuses to pay for the goods, it will damage the interests of the seller. By signing the contract, the behavior of the buyer can be better regulated, so we must pay attention to the signing of the contract. That is to study the contract carefully, refine the terms, and avoid affecting the interests of the seller [39].

5- CONCLUSION

The deepening of economic globalization and integration has promoted the rapid development of international trade activities, and in the entire trade activities, trade settlement methods have played an active role in promoting the development of trade activities as an important means. With the deepening of world integration and economic globalization, the trade relationship between different countries is getting closer and closer. International trade plays an important role in the development of the national economy. The change in the mode, in turn, promotes the development of international trade. Due to different languages, communication barriers are caused, resulting in the inability to communicate effectively about the relevant settlement process in the trade settlement process. Due to many external factors, there are many risks in international trade settlement. In order to promote long-term economic development in international trade, it is necessary to establish correct development concepts, innovate risk prevention methods, and avoid many risks in international trade settlement in all directions and through multiple channels so as to promote international trade. It is very important to strengthen the risk and prevention of international trade settlement.

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