PERCEPTION OF FINANCIAL AND PAYMENT TERMS RISKS: THE ANALYSIS
OF AEGEAN EXPORTERS
Aykan Candemir1, Ali Erhan Zalluhoglu2, Erdal Demiralay3
1Ege University, Faculty of Business and Administrative Sciences, 35040, Bornova, Izmir,
2 Ege University, Faculty of Business and Administrative Sciences, 35040, Bornova, Izmir,
3 HRM (Human Resources Management), Cumhuriyet Meydani Mayis Is Merkezi
Kat:5 D:503 Alsancak, Izmir, Turkey
Abstract: In recent years, the volume of international trade has increased enormously due to the effects
of globalization and liberalization of trade. However, political and economic changes, changes in consumer
demand, market structures, product and market life cycles, domestic and foreign competition and the degree of
effects caused by these changes became more and more significant. Such changes forces the firms making or
intending to make business globally to implement dynamic strategies and action plans. Considering above
mentioned points, this study aims to explore the uncertainties facing the exporting firms located in Izmir. The
topics to be explored in this study will include uncertainties related with external and internal environment of the
Keywords: Risk perception, international trade, payment terms, financial risk, exporting firms.
G 32, P 45, F14, F31,
Choosing an appropriate mode of entry into international markets is a critical
decision–making process because of its consequences. There are several modes to enter
foreign markets such as exports, licenses, joint ventures, non-exclusive-non-restrictive
contracts and etc. (Forlani et al.2008).
Exporting is the simplest way and particularly important in the world exchange system
to enter foreign market. It is largely used in the entry into foreign markets of manufactured
goods firms, especially those in the earlier stages of internationalization as a cost effective
way (Khemakhem, 2008; Vyas and Souchon, 2003). The company may passively export its
surpluses from time to time or it may make an active commitment to expand exports to a
particular market. In either case, the company produces all its goods in its home country. It
may or may not modify them for the export market. In general, the expansion of a nation’s
exports has positive effects on the growth of the economy as a whole as well as on individual
firms (Cavusgil and Nevin, 1981). Exporting is of vital economic importance to trading
nations and their firms. Exports boost profitability, improve capacity utilization, provide
employment, and improve trade balances (Barker and Kaynak, 1992).
McKee and Varadarajan (1995) argue that competitive advantage is the cornerstone of
strategy, and enacted knowledge is the essence of competitive advantage. Information is an
one of the critical point in marketing decisions. Proper collection and use of information
reduces the uncertainties in the company’s decision-process regarding the overseas markets,
improving the company’s ability to cope with opportunities and threats on the export market,
and, subsequently, the company’s competitiveness (Köksal, 2008; Czinkota, 2000). It helps
managers in activities such as researching foreign markets, adapting products, finding and
contacting buyers, developing foreign channels, moving goods across great distances, and
ensuring that products are managed properly on their way to end users, pose considerable
challenges to resource-constrained, internationalising SMEs (Knight and Liesch, 2002).
Export information will significantly reduce the perceived barrier and complexity of
international activities and help to implement proactive international marketing strategies
(Vyas and Souchon, 2003; Shamsuddoha, 2009).
2. RISKS IN INTERNALIZATION PROCESS
The usage of a method in a foreign trade transaction depends upon the duration of
relationship and trust between the buyer and seller. To succeed in today’s global marketplace
and win sales against international trade presents a spectrum of risk, which causes uncertainty
over the timing of payments between the exporter (seller) and importer (foreign buyer). For
exporters, any sale is a gift until payment is received. Therefore, exporters want to receive
payment as soon as possible, preferably as soon as an order is placed or before the goods are
sent to the importer. For importers, any payment is a donation until the goods are received.
Therefore, importers want to receive the goods as soon as possible but to delay payment as
long as possible, preferably until after the goods are resold to generate enough income to pay
The international business/strategic management literature lacks a generally accepted
definition of international risk (Miller, 1992). Risk usually refers to unanticipated or negative
variation in revenue, cost, profit, or market share international risk generally could be defined
as the dangers firms faced in terms of limitations, restrictions, or even losses when engaging
in international business (Zafar et al. 2002). Risk is also defined as (1) the uncertainty
associated with exposure to a loss caused by some unpredictable events and (2) variability in
the possible outcomes of an event based on chance. The degree of risk depends on how
accurately the results of a change event could be predicted; the more accurate the prediction,
the lower the degree of risk (Jackson and Musselman, 1987). Risk perception is the perceived
degree of risk inherent in a certain situation. Risk taking is defined as one of the three
dimensions of entrepreneurial orientation of a company and refers to the willingness of the
management to commit significant resources to opportunities that might be uncertain. Risk
taking depends on risk propensity and risk perception. The higher the risk propensity and the
lower the risk perception, the more likely it is that risky decisions will be made (Leko-Šimi´c
and Horvat 1999). The main features of risk are (Fıkırkoca, 2003):
Generally fully and clearly unknown or projected,
Can change by time,
Can be manageable concept,
Has a negative effect on outcomes.
Risk management is described as the performance of activities designed to minimize
the negative impact (cost) of risk regarding possible losses (Schmit and Roth, 1990). Redja
(1998) also defines risk management as a systematic process for the identification and
evaluation of pure loss exposure faced by an organization or an individual, and for the
selection and implementation of the most appropriate techniques for treating such exposure.
The process involves: identification, measurement, and management of the risk. The
objectives of risk management include: to minimize foreign exchange losses, to reduce the
volatility of cash flows, to protect earnings fluctuations, to increase profitability and to ensure
survival of the firm (Abor, 2005).
3. PERCEPTION OF FINANCIAL AND PAYMENT TERMS RISKS
Trade is a two sided transaction that might be performed by seller and buyer. The
seller’s obligation is to deliver the goods at given amount, at specified quality and in a
informed period of time according to sales contract. The buyer’s obligation is to pay value of
the goods. Therefore, exporters want to receive payment as soon as possible, preferably as
soon as an order is placed or before the goods are sent to the importer. For importers, any
payment is a donation until the goods are received. Therefore, importers want to receive the
goods as soon as possible but to delay payment as long as possible, preferably until after the
goods are resold to generate enough income to pay the exporter.
The importer or exporter should ask himself some of the following questions before
selecting the most appropriate method of payment (Onkvisit and Shaw, 2004).
How reliable is the exporter?
How long has the exporter been shipping?
Is the exporter’s product subject to inspection?
How creditworthy is the importer?
Has the importer demonstrated the ability to pay promptly?
Can the importer count on getting the goods on time?
What credit terms are offered by the competition?
What are the political and economic conditions within the importer’s and exporter’s
What is the value of the goods?
Is this a one-time shipment or does the possibility exists for additional orders?
Is the product standardized or specialized, and is it resaleable?
After carefully evaluating the previous questions the importer or exporter is now
prepared to select the proper payment method.
3.1. PAYMENT TERMS RISKS IN TRADE
Gatti (1997) discusses various techniques that importers and exporters can use to
reduce the costs they incur in international trade transactions. Chatterjee (2001) describes the
role and caveats to be followed in the usage of L/C payments. Collins (2002) mentions
various methods of collecting money by an exporter from a foreign buyer, and how some
methods work better for the exporter and others benefit the buyer. He describes that next to
advance payment, a L/C is likely the safest option.
Although payment terms except for Letter of Credit are not exactly arranged by ICC
(International Chamber of Commerce) or by any other agreements, most common types used
in international trade are Cash-in-advance Payment (Cash Payment), Cash Against Goods,
Cash Against Documents, Letter of Credit and Credit Acceptance Payments.
3.1.1. Cash-in-advance Payment (Cash Payment)
Payment by cash in advance requires that the buyer pay the seller prior to shipment
of the goods ordered (Hinkelman, 2008). With the cash-in-advance payment method, the
exporter can avoid credit risk or the risk of nonpayment, since payment is received prior to the
transfer of ownership of the goods. Payment before shipment eliminates risk of non-payment.
However the exporter may lose customers to competitors over payment terms (ICC,2006).
Although cash payment may seem as having minimum level of risk or no risk for the exporter
the date of the payment may create risk. The buyer has a power to cancel the contract until the
date of payment. Until the date of payment, if the seller already ordered the raw materials and
any other inputs for production or already started to produce the goods, all the spending until
payment date the seller will face to lose the value of the goods until this time.
3.1.2. Documentary collection (D/C) (Cash Against Documents (CAD))
Documentary collection (D/C) or with other name Cash against documents is a
transaction whereby the exporter entrusts the collection of a payment to the remitting bank
(exporter’s bank), which sends documents to a collecting bank (importer’s bank), along with
instructions for payment (ICC, 1995). Funds are received from the importer and remitted to
the exporter through the banks in exchange for those documents. D/Cs involve using a draft
that requires the importer to pay the face amount either at sight (document against payment
[D/P] or cash against documents) or on a specified date (document against acceptance [D/A]
or cash against acceptance) (ICC,2006).
The exporter retains the title to the goods until the importer either pays the face
amount at sight. When the documents arrives the collecting bank, collecting bank (the
consignee) invites buyer to receive endorsed (ownership transferred to buyer) documents. The
buyer has to pay total value of the goods before receiving the documents. If the buyer does
not want to pay the value of the goods or don’t have a good financial position to pay the value
of the goods, there is not any authority to pressure or to put under obligation to pay the value
of the goods.
Cash against documents is recommended for use in established trade relationships
and in stable export markets. This payment is riskier for the exporter, though D/C terms are
more convenient and cheaper than an L/C to the importer. Bank assistance is needed in
obtaining the payment. The process is simple, fast, and less costly than L/Cs. Banks’ role is
limited. Although the banks control the flow of documents, they neither verify the documents
nor take any risk. They can, however, influence the mutually satisfactory settlement of a D/C
transaction. Although the title to the goods can be controlled under ocean shipments, it cannot
be controlled under air and overland shipments, which allow the foreign buyer to receive the
goods with or without payment.
3.1.3. Cash Against Goods (CAG)
Cash Against Goods also named as open account transaction is a sale where the
goods are shipped and delivered before payment is due, which is usually in 30 to 90 days.
Obviously, this option is the most advantageous to the importer in terms of cash flow and
cost, but it is consequently the highest-risk option for an exporter. Because of intense
competition in export markets, foreign buyers often press exporters for open account terms. In
addition, the extension of credit by the seller to the buyer is more common abroad. Therefore,
exporters who are reluctant to extend credit may lose a sale to their competitors. However,
though open account terms will definitely enhance export competitiveness, exporters should
thoroughly examine the political, economic, and commercial risk as well as cultural
influences to ensure that payment will be received in full and on time. Exporters may also
seek export working capital financing to ensure that they have access to financing for
production and for credit while waiting for payment.
Cash Againts Goods includes maximum risk when compared with other payment
terms. The exporter must consider this risk level before accepting this payment term. Total
value of the goods is under the risk. Additional finance techniques and tools can be applied
for risk minimization.
3.1.4. Letter of Credit (L/C)
The letter of credit (by which the necessary trustworthiness of the importer buyer is
guaranteed by his bank) is the most widely used method as a form of payment in export
activities (Katsioloudes, Hadjidakis, 2007). A L/C is a commitment by a bank on behalf of the
buyer that payment will be made to the beneficiary (exporter) provided that the terms and
conditions stated in the L/C have been met, consisting of the presentation of specified
documents. The buyer pays his bank to render this service. An L/C is useful when reliable
credit information about a foreign buyer is difficult to obtain, but the exporter is satisfied with
the creditworthiness of the buyer’s foreign bank. This method also protects the buyer since the
documents required to trigger payment provide evidence that the goods have been shipped or
delivered as promised (ICC,2006). If the exporter fulfils all the conditions of the L/C - the
bank will pay, regardless of the situation of the buyer. If the seller did not comply with the
conditions in the L/C, the bank will pay only if buyer expressly agrees to it.
3.1.5. Credit Acceptance Payment
Credit acceptance payment is usually used in the documentary collection (D/C) type
of payment term and is a transaction whereby the exporter entrusts the collection of a payment
to the remitting bank (exporter’s bank), which sends documents to a collecting bank
(importer’s bank), along with instructions for payment. Funds are received from the importer
and remitted to the exporter through the banks in exchange for those documents. D/Cs involve
using a draft that requires the importer to pay the face amount either at sight (document
against payment [D/P] or cash against documents) or on a specified date (document against
acceptance [D/A] or cash against acceptance). The draft gives instructions that specify the
documents required for the transfer of title to the goods. Although banks do act as facilitators
for their clients under collections, D/Cs offer no verification process and limited recourse in
the event of non-payment. Drafts are generally less expensive than letters of credit (L/Cs).
For risk analysis avalization is key determinant for payment obligation. There are
two cases for avalization. The case where only the buyer signs the draft named as buyer
avalised credit acceptance. Only buyer is under obligation of payment at due date. Exporter
has no control of goods and may not get paid at due date. In the second case the buyer and
collecting bank (importer’s bank) sign the draft named as buyer and collecting bank avalized
credit acceptance. Additionally collecting bank is under obligation to pay at due date.
3.2. FINANCIAL RISKS IN TRADE
In recent years, risk management has received increasing attention in both corporate
practice and literature. This is particularly true for the management of financial risks, i.e. the
management of foreign exchange risk, interest rate risk and other financial market risks
(Abor, 2005:306). Finance is one of determinants were identified which satisfied the
definition “tangible export performance determinants” (Valos ve Baker, 1996) and lack of
export finance to hinder export success (Bilkey, 1978).
3.2.1. Foreign Exchange Risk
Foreign exchange risk is the exposure of an institution to the potential impact of
movements in foreign exchange rates (Bank of Jamaica,1996). Foreign exchange risk
management has become increasingly important since the abolishment of the fixed exchange
rate system of Bretton Woods in 1971. This system was replaced by a floating rates system in
which the price of currencies is determined by supply and demand of money. Given the
frequent changes of supply and demand influenced by numerous external factors, this new
system is responsible for currency fluctuations (Abor, 2005).
The adverse movement in the exchange rate can unfavorably affect a party in the
transaction that is involved in either payment or receipt of foreign currency at the later date,
but over a short time horizon (Sirpal, 2009). Foreign exchange risk arises from two factors:
currency mismatches in an institution’s assets and liabilities (both on- and off-balance sheet)
that are not subject to a fixed exchange rate and currency cash flow mismatches. Such risk
continues until the foreign exchange position is covered (Bank of Jamaica, 1996). This risk
may arise because of trade contracts, which are denominated in terms of either the exporter’s
or the importer’s currency, will only deliver the goods at a future date. Since movements in
exchange rates are unpredictable, this can create uncertainty about future profits from export
trade. As a result of risk aversion and future profit uncertainty, exporting firms that are
exposed to exchange rate movements would be forced to shift away from risky markets.
Hence, this would result in a lower volume of foreign trade (Wong and Tang:2008)
Foreign exchange risk appears in emerging markets’ portfolio investments because of
potential of high returns. Altough its risks, it can be managed in various ways such as futures,
swaps and options contracts, payments netting, prepayment, leading and lagging and hedging
with derivatives (Al Janabi, 2006; Abor, 2005; Wong and Tang, 2008; Sirpal, 2009).
3.2.2. Interest Rate Risks
An interesting issue appeared in the financial asset pricing literature is the impact of
interest rate risk and pricing in the stock markets for financial institutions. Definition of
interest rate risk has several approaches for different categories such as accounting, banking
or insurance and etc. Most commonly interest rate is the possibility that the value of an asset
will change adversely as interest rates change.
According to financial theory changes in interest rates should affect the value of the
firm. Hence there has been much interest in evaluating the level of exchange rate exposure
or interest rate exposure a firm or industry faces. The issue of exposure to interest rate risk is
of importance to individual investors and firms. For example, changes in interest rates can
affect an investor holding a portfolio consisting of securities from different countries.
Changes in interest rates will alter the firms’ financing costs, affecting the amount of loan
interest and principal payments and impacting cash flows of the firm (Hyde, 2007).
Ameer (2009) stated in his research that the banks used options, futures, swaps,
forwards, and other synthetic derivatives to hedge their foreign-currency and interest-rate
exposures. This is important to point out that all the sample firms except banks disclosed that
trading in derivatives is not allowed under their financial risk management policy. Therefore,
the notional amount of derivatives for banks is the sum of the notional amount of hedging and
trading (non-hedging) derivatives.
Kolb (1983), defines to effectively control interest rate ris, a manager has to consider
five key factor. These are ;
The maturity of the hedged and hedging instrument
The coupon structure of the hedged and hedging instrument
The length of the time the hedge will be in effect
The risk structure of interest rates (yield differences between instruments due
solely to default risk) and
The term structure of interest rates (the shape of the yield curve)
3.2.3. Liquidity Risk
Liquidity refers to the level of cash and near-cash assets held, as well as cash inflows
and outflows of these assets. McMahon and Stanger (1995) emphasize the importance of
liquidity in a small firm as being “a matter of life or death for the small business” since a
small business can “survive for a long time without a profit, but fails the day it can’t meet a
critical payment”(Ekanem, 2010). The concept of liquidity can be summarized as the ability
for traders to execute large trades rapidly at a price close to current market price. The liquidity
risk refers to the loss stemming from costs of liquidating a position. To manage the liquidity
risk a good risk measure is needed to account for the impact of the liquidity shock on tradable
securities and portfolios (Zheng and Yukun,2008). Liquidity management takes the form of
cash management and credit management. Whilst the most important aspect of cash flow
management is avoiding extended cash shortages, credit management involves not only the
giving and receiving of credit to customers and suppliers, but also involves the assessment of
individual customers, the credit periods allowed and the steps taken to ensure that payments
are made in time (Poutziouris et al., 1999; Ekanem,2010 )
4. METHODOLOGY AND FINDINGS
The main objective of this field study is to analyze the risk perception of Aegean
Exporter Companies when operating in international market including payment and financial
terms. Thereby, perception level of risk which can be categorized as financial and payment
terms risk by Aegean Exporter Companies. Also we research, what kind of methods are used
to minimize and eliminate perceived risk from financial and payment terms risk and what are
the usage density level of these methods. In this study, the factors such as sector, size,
foundation year, export experience etc. are analyzed to see whether there is any effect on risk
perception or not.
In this study, exporters located in the Aegean Region of Turkey are analyzed. An e-
mail survey was conducted used to generate data in order to test the hypotheses. With its
organized industrial zones and free zones, Aegean region is one of the important center for
manufacturing and trade of the Turkish economy. In Aegean region, The total number of
exporters is 3775, but only 2889 firms registered their e-mail addresses as contact information
was selected from the Aegean Exporter’s Union and other governmental institutions database
system. The sample included businesses from a wide range of industrial sectors. A web based
questionnaire were prepared also e-mailed as attached document to the firms and expected to
be answered by the top managers, export managers and export specialists. Two weeks after
sending the e-mails, a follow-up e-mail was sent for non-responses. In total, out of 224 firms
19 were deemed ineligible (e.g. not properly filled) and 205 firms were taken for analysis.
Company policies restricting the giving of information to external parties; and time
constraints forms the main reasons for non-participation and non-response.
In this study, NUTS classification which was created by the European Office for
Statistics (Eurostat) as a single hierarchical classification of spatial units used for statistical
production across the European Union is used to determine for compare perceived risks of
each terms between subregions.
Sub sectors consisting the exporters were gathered into three main sectors i.e.
agriculture, industry and mining in accordance with the classification of Undersecretariat of
Foreign Trade of The Republic of Turkey.
From the frequency tables (see table 1 and 2) it can be seen that majority of the firms
are dealing with industrial production and also majority of firms are both producer and
exporter. The foundation dates of the firms are classified according to turning points in
Turkish Economy. 1987 is the year when Turkey applied for the full membership to the
European Union, 1994 and 2001 are the years when Turkey passed through economic crisis.
1995 is the year when the Customs Union with the EU came into force. Also from the table it
can be seen that majority of the firms are 100% Turkish.
Table 1: Frequency Table I
Size of the Firm (classification according to number of
Big (250 and over)
Type of Activity
Producer and Exporter
Export Experience Between
Only Exporter (No
Export Experience Between
Export Experience Between
Year of Establishment
Export Experience 30
Years and More
1985 and before
1986 – 1993
1994 – 2001
2002 and later
Foreign invested company
Market orientation (Foundation of the Firm)
Location for NUTS
Founded primarily for
TR31 Izmir and subregion
Founded primarily for
TR32 Aydin and subregion
Founded both for
domestic and foreign
TR33 Manisa and
No. of Employed in Export Department
Export Sales /Total sales
4 and over
Nobody work about
According to the new Small and Medium Sized Enterprises definition by the Turkish
Law in accordance with the EU, majority of the firms are medium sized (42,8%) and majority
of the firms (43,9%) are founded before 1987. Although most of the firms have less than four
employed in export department (71,2%), half of the firms (52,7%) have high export rates
(51%-100%), this may show the export effectiveness of the firms.
The questionnaire consisted questions to find out the characteristics of the exporters and
likert scale of 5 items (1= not important at all… 5= very important) were developed to
determine the uncertainty perceptions of the firms. Then the 5 item likert scale was
transformed into 3 item scale for payment term questions (not important to important) in order
to more meaningful results and better interpretation. Following this transformation, analyses
Table 2. Perceived Risk Point of Financial Terms
Total Risk score
Foreign Exchange Risks
Interest Rate Risk
According to Table 2, total risk score was calculated by addition of all given points. But
to get more accurate solution the average risk point is calculated to compare the perceived risk
of financial terms. “Foreign exchange rate” and also “cash against goods” terms are found out
to be the most risky options perceived by the exporters in Aegean Region.
Table 3. Perceived Risk Point of Payment Terms
Cash against goods
Cash against document
Credit Acceptance Payment (Buyer avalised credit acceptance)
Credit Acceptance Payment (Buyer and collecting bank avalised
Letter of credit
Cash in advance
As it seen in Table 3, risk point is between 1-3 (least risky-most risky). Given points
were added and divided to total answer to find the average risk point of each payment term.
As it pointed before, paying cash is the least risky implication in trade. As a result, exporters
firstly prefer to get their payment in cash and followed by “letter of credit” as the second best
choice in payment. Moreover, decision of the payment term is highly determined by together
(59,1%) including as buyer and seller.
Table 4. Most Used Payment Terms
Cash in advance
Letter of credit
Cash against document
Cash against goods
Credit Acceptance Payment (buyer and collecting bank avalised credit acceptance)
Credit Acceptance Payment (buyer avalised credit acceptance)
As an interesting result, although exporters try to handle payment and financial term’s
risks, most of the exporters do not use any instruments to manage their risks (Table 4). As
seen from table that the most preferable tools for the exporters are letter of guarantee and
Eximbank insurance to manage their risks. Nearly half of the exporters only use this
managing tools continuously (Table 5).
Table 5: Risk Minimization Methods of Payments Terms
Letter of guarantee
Independent t-test and one-way ANOVA test was applied to test the differences
between descriptive variables which is stated in Table 1 for perceived risks of exporters to the
payment and financial terms. Null Hypothesis was:
Ho= There is no difference among sectors for perceived risks of exporters to the
Although there is no difference between groups there some some differences within
the groups. Considering the exchange rate risks, the mean for agriculture sector was 4,48 and
for the mining sector the mean was 4,07 which means the exporters of agricultural products
tend to give higher importance. This is why mining sector is based on natural resources and
prices of natural resources determine mostly by taking into account exchange rate. Also there
are risk perception difference on cash in advance and letter of credit between exporters of
agricultural and industry products. Perception of cash in advance and letter of credit are less
risky by exporters of agricultural products than exporters of industry product.
Ho= There is no difference among number of employers for perceived risks of
exporters to the payment/financial terms.
There is a difference in liquidity risk between small firms and big firms (over 250).
For the big firm (3,94) it is easier to obtain financial resources (i.e. credit) than small firms
(4,38) because of their potential to payback and recognition in market. Another point is that
“cash against goods” is perceived as the most risky payment term for most of the exporters,
however big firms (2,53) perceive “cash against goods” less risky than small (2,76) and
medium firms (2,75). The mean of perceived exchange rate risks for agriculture sector was
4,48 and for the mining sector the mean was 4,07 which means the exporters of agricultural
products tend to give higher importance exchange rates.
Ho= There is no difference among NUTS regions for perceived risks of exporters to
the financial terms.
Within 95% confidence interval, one way ANOVA test was applied to the groups for
the values F=7,292, df=2 ve p=0,001. For the foreign exchange risks, the differences between
the groups were found for risks of NUTS region. Thus null hypothesis was rejected. For the
Manisa subregion, foreign exchange risk is perceived as less risky than the others.
Ho= There is no difference among type of an exporters activity for perceived risks of
exporters to the payment terms.
According to independent sample t-test, differences were found in perception of cash
against goods risk between the producer and exporters firms and only exporter firms (t=-
2,560, df=157, sig=0,011). From the analysis, it can be seen that the perception for this
payment term of only exporter firms (2,31) is more risky than the producer and exporters
firms (2,03). This is because the only exporters are firstly buying goods and then delivering
them so they are taking all risks and if any problem occur after delivering they have to solve
Analyses were conducted to the perception of risk minimizing tools through the
descriptive variables which is stated in Table 1.
Ho= There is no difference among number of employers for most used risk
minimizing tools of exporters in payment/financial terms.
Although there is no difference between groups, there some some differences within
the groups. Considering the Letter of guarantee and, the mean of big firms was 1,54, small
firms (1,88) and medium firms are (1,93). As it shown in means small and medium firms are
using letter of guarantee more than big firms. Nevertheless big firms (1,65) are using
“forward” more than small firms (1,22) because of special rules of usage “forward”. Besides
“forward” and “letter of credit”, there is a difference between big firms and small firms in
usage frequency of Eximbank credit. Bigger firms (1,96) use Eximbank credits more than
small firms (1,52).
Ho= There is no difference among year of establishment for most used risk
minimizing tools of exporters in payment/financial terms.
Within 95% confidence interval, one way ANOVA test was applied to the groups for
the values F=4,417, df=3 ve p=0,05. For the year of establishment the differences between the
groups were found for risk for letter of guarantee from the descriptives. Thus null hypothesis
was rejected. Considering the letter of guarantee, the mean for over thirty years firms was
2,05. This value is greater than the lower 30 years firms means of perception. This is
interesting that the newer firms are using this risk minimizing tool less than older ones.
Ho= There is no correlation between export experience and perceived risks of
exporters to the payment /financial terms.
On the contrary to expectations there is no statistical relationship between export
experience and perceived risks of exporters to the payment /financial terms.
Ho= There is no correlation between export sales/total sales of a firm and perceived
risks of exporters to the payment /financial terms.
On the contrary to expectations there is no statistical relationship between export
sales/total sales and perceived risks of exporters to the payment /financial terms.
Since the buyers and seller are located in different countries, foreign trade transactions
are more risky and cost more according to domestic trade activities. Parts can meet some risks
during realizing foreign trade transactions and they use some different payment methods. But,
sometimes exporter has advantage regarding to importer, and sometimes importer has more
Several factors affect the foreign trade activities of firms, and their perception and
behaviour patterns. These may be the country and the sector to which the exporting firm
belongs, the characteristics of the firm, its export level, size, organisational structure, human
resources, international experience, export sales/total sales rate and nature of the products to
be traded. Some factors such may be considered more important than commonly known
factors such as export experience, age of the firms.
In order to have a successful transaction, parts have to choose the payment method in
thought of minimize their risk. Payment methods in international trade are similar to those in
domestic business. However, firms appear to experience greater impact, greater perceived
risk, in their export activities, compared to their domestic activities. In international trade, the
means of payment are frequently known as the “terms of payment.” By the way, financial
management is also important to continue the export activies and managing risks.
This study examines perception of exporter’s payment and financial risks and how to
manage these risks in international trade among various firms in Aegean Region. The survey
results indicate the risk perceptions towards the methods of payment as well as financial risks;
such as cash in advance payment, cash against documents, cash against goods, letter of credit
and credit acceptance payment along with foreign exchange rate risk, liquidityand interest rate
SMEs constituting the 95% of the firms in Turkey, face several kinds of risks when
considering the payment terms in international trade. The situation prevails when the firms in
the Aegean Region is taken into account. When risk perceptions of the firms dealing with
international trade are regarded it can be said that the firms are aware of the risks thay may
face. Although they prefer minimum risks i.e. cash payment and letter of credit, they behave
fatalist when dealing with risks since they do not use risk minimizing tools. This is one of the
interesting findings of the study.
Furthermore an interesting result is the number of years in export experience of a firm is
also found to have no relationship(s) with any risk perception of financial and payment
term(s) in international trade. Similarly, export sales/total sales of a firm is also found to have
no relationship(s) with any any risk perception of financial and payment term(s).
Firms should more intensively manage their export activities, compared to their
domestic channels, for improving performance. And thus the managers of exporting firms
should be educated and trained to anticipate the dynamics of the payment and financial terms
in which they will be operating before being faced with decisions to be affected by risks.
Aegean region has an important power in Turkey international trade. However, this
study present us the measures such as hedging techniques and usage of risk minimizing tools
should be further promoted. Moreover, the knowledge, awareness, and availability of the risk
minimizing tools should also be enhanced. Further studies may be include other dimensions
of risk in trade and how to manage them.
Abor, J. 2005. Managing Foreign Exchange Risk Among Ghanaian Firms, Journal of. Risk
Finance, 6, pp. 306-318.
Al Janabi, Mazin A.M. 2006. Foreign exchange trading risk management with value at risk:
Case analysis of the Moroccan market, The Journal of Risk Finance, 7 (3), pp.273 – 291.
Ameer Rashid, 2009. Value-relevance of foreign-exchange and interest-rate derivatives
disclosure: The case of Malaysian firms, Journal of Risk Finance, 10(1), pp. 78-90.
Bank of Jamaica, 2005. Foreign exchange risk management, March.
Barker, A.T. and Kaynak, E. 1992, An empirical investigation of the differences between
initiating and continuing exporters, European Journal of Marketing, 26 (3), pp. 27-36.
Bilkey, W.J. 1978. An attempted integration of the literature on the export behaviour of firms,
Journal of International Business Studies, Spring-Summer.
Çavuşgil, S.T. and Nevin, J.R. 1981. Internal determinants of export marketing behavior: an
empirical investigation, Journal of Marketing Research, 18 (1), pp. 114-119.
Chatterjee, A.K. 2001. “Letter of credit – how to secure your payment-be aware of potential
traps in L/C payment”, FAIDA – Newsletter on Business Opportunities from India and
Abroad, 2(7) , available at: www.infobanc.com/articles/faida_07.htm (accessed May 29,
Collins, M. 2002. Collecting your exporting dollars, CanadaOne Magazine, available at:
www. canadaone.com/ezine/april02/exporting.html (accessed January 24, 2010).
Czinkota, M.R. (2000). International information cross-fertilization in marketing. European
Journal of Marketing, 34(11/12), pp.1305-1314.
Fatemi, A. 2000. “Risk management practices of German firms”, 26 (3), pp. 1-17.
Forlani, D., Parthasarathy, M. and Keaveney, S.M. 2008. Managerial risk perceptions of
international entry-mode strategies: The interaction effect of control and capability,
International Marketing Review, 25 (3), pp. 292–311.
Gatti, M.M. 1997. Maximizing profitability in international trade, TMA Journal,
November/December, pp. 82-85.
Hinkelman, E. G. 2008. Short Course in International Payments: Letters of Credit,
Documentary Collections and Cyber Payments in International Transactions (3rd Edition), ,
Petaluma, CA, USA: World Trade Press, http://site.ebrary.com/lib/ege/Doc?id=10305911&
Hyde, S. J. 2007. The response of industry stock returns to market, exchange rate and interest
rate risks. Published in: Managerial Finance, 33 (9), pp. 693–709.
ICC, ICC 522-Uniform Rules for Collections, 1995, ICC Publications, Paris, 9-10.
ICC Uniform Customs and Practice for Documentary Credits 2007 Revision, Paris, 2006,
Jackson J.H and Musselman V.A. 1987. Business: contemporary concepts and practices
Englewood Cliffs, NJ: Prentice-Hall.
Köksal, M. H. 2008. How export marketing research affects company export performance:
Evidence from Turkish companies. Marketing Intelligence & Planning 26(4), pp. 416-430.
Katsioloudes M. I. and Hadjidakis S. 2007. International Business: A Global Perspective,
Khemakhem, R. 2008. Explaining the entry mode choice among Tunisian exporting firms,
European Journal of Marketing, 44, pp. 223-244.
Knight, G.A. and Liesch, P.W. 2002. Information internationalisation in internationalising the
firm, Journal of Business Research, 55, pp. 981-995.
Kolb, R., Chiang, R. (1981), "Improving hedging performance using interest rate futures",
Financial Management, Autumn, pp.72-79.
Leko-Šimi´c M. and Horvat, J. 1999. “Risk taking propensity and export performance of
croatian exporters”, Managing Global Transitions, 4 (4), pp. 313–326.
McKee, D. and Varadarajan, P.R. 1995. Special issue on sustainable competitive advantage,,
Journal of Business Research, 33(2), pp. 77-79.
McMahon, R., and Stanger, A. 1995. Understanding the small enterprise financial objective
function. Entrepreneurship: Theory & Practice 19(4), pp.21–39.
Miller KD. 1992. A framework for integrated risk management in international business.
Journal of International Business Studies; 23(4), pp. 311– 331.
Onkvisit S., and Shaw J.J. 2004. International Marketing, Analysis and Strategy, Routledge.
Poutziouris, P., Chittenden, F. and Michaelas, N. (1999), The Financial Affairs of Private
Companies: Research, Manchester Business School, Manchester.
Redja, G. 1998. Principles of Risk Management and Insurance, Addison-Wesley, New York.
Schmit, J.T. and Roth, K. (1990), “Cost effectiveness of risk management practices”, Journal
of Risk and Insurance, Vol. 57 No. 3, pp. 455-470.
Shamsuddoha, A.K. Ali, M. Y. Ndubisi, N. O. 2009. Impact of government export assistance
on internationalization of SMEs from developing nations, Journal of Enterprise Information
Management, 22 (4), pp. 408-422.
Sirpal R. 2009. Methods of payment and foreign-exchange risk management among firms in
Brunei Darussalam, The Journal of Risk Finance, 10 (4), pp. 377–392.
Valos, M. & Baker M. (1996). Developing an Australian model of export marketing
performance determinants. Marketing Intelligence & Planning, 14(3), pp. 11–20.
Vyas, R. and Souchon, A.L. 2003. Symbolic use of export information: a multidisciplinary
approach to conceptual development and key consequences, International Marketing Review,
20 (10), pp. 67-94.
Wong, K. N. and Tang, T. C. 2008. The effects of exchange rate variability on Malaysia's
disaggregated electrical exports, Journal of Economic Studies, 35(2), 154-169.
Zafar U. A., Mohamad O., Tan Brian and Johnson J. P. (2002), International risk perceptions
and mode of entry: a case study of Malaysian multinational firms, Journal of Business
Research, 55 (10), pp.805-813.
Zheng, H. and Shen, Y. 2008. Jump liquidity risk and its impact on CVaR, Risk Finance
Incorporating Balance Sheet, 9 (5), pp. 472-497.