Question

What are the various alternatives available to an exporter from the view point of realizing export proceeds? Discuss the risks associated with each of these alternatives.

Answer 1

There are various alternatives available for an exporter to realize the proceedings. It is mandatory for exporters to realize payment within 12 months from the date of export (Special Economic Zones doesn't have any ceiling limit). 
1. Foreign Currency Account: Participants in international exhibition/trade fair, an Indian entity, a person resident in India being a service exporter may operate a foreign currency account outside India to realize the payments. However, realizing from sale of goods through fair/exhibition has to be done within one month which can be a risk factor.
2. Diamond Dollar Account: Available for firms/companies engaged in purchase and sale of rough or cut and polished diamonds/precious metal jewellery, etc. and having an average annual turnover of Rs. 3 crore are permitted to transact through Diamond Dollar Account.
3. Exchange Earners Foreign Currency (EEFC) Account: An Indian resident is permitted to open with authorized bank EEFC Account for foreign exchange earnings. It is like current a/c with no interest provision. The account can be opened as joint account with any relative. However, risk involved here is that the joint account holder cannot operate the account during the lifetime of the exporter which can be a risk on life of the exporter.
4.  Advance Payments against Exports: Exporters can take advance payment and are required to ship the goods within one year of payment. The risk is always there in advance payment received, the export conditions may be changed by the importer, pressure for early shipment, export order not fulfilled within timeframe.
5. Counter-Trade Arrangement: Counter trade means adjusting value of goods imported into India against value of goods exported from India. The arrangement is entered between the Indian party and the overseas party through an Escrow Account opened in India in USD. 

Answer 2

Initially, if not always, all exporters must try to go through ECGC or Export Credit Guarantee Corporation of India Ltd to cover their credit exposures against defaults. This Government of India undertaking insures the exporters against credit risks.
Sometimes, post-shipment or on receipt of goods, the overseas buyer may raise a complaint regarding quality or other issues. It is, therefore, prudent to get the consignment for export tested in advance by a mutually agreed testing authority. In international trade, SGS is one such body. Failure to do this, could lead to the exporter's payment getting stuck on the basis of a justified or frivolous complaint.
In international trade, payments are made directly in advance, by sending documents directly to buyers or through banks. Through Banks, the best mode of transaction is against Letters of Credit or LCs. An LC is a document issued by a Bank in the buyer's country and stipulates all the clauses of the transaction, which must be adhered to by the exporter. It is best for the exporter to accept an LC which is irrevocable and does not have a recourse to the buyer after it is opened. If the exporter so desires, he can request the LC also be a confirmed one, i.e. one that is confirmed by a bank in his home country or by any First Class Bank of international repute; the latter is absolutely necessary if the buyer is of doubtful integrity or is a citizen of a country where the Banking system is unstable.
In summing up, I'd recommend (1) credit risk insurance, (2) proper quality inspection and certification, and (3) transaction only against Letters of Credit for ensuring safety of transactions in international trade.