Credit Insurer Recommends Checklist for Successful Trade with Russia

For many countries exports to Russia significantly increased in 2010 and made the world’s biggest country after China one of the most important growth markets. However, trading with Russian customers also involves risks and peculiarities that exporters need to get acquainted with. And to help companies looking to trade with Russia, trade credit insurer Atradius has created a 10-point-plan that summarises the most important aspects for successful trade with this complex nation.

 

“We see time and time again how tough many companies find it to navigate Russian trade”, says Michael Karrenberg, Atradius Risk Services Director for Germany, Central and Eastern Europe.

 

“But trade with Russia is not fundamentally different from supply relationships with other export markets. You just need to be aware of a few important differences.”

 

Not going to court is one of the ten recommendations. This is because Russia has yet to sign treaties agreeing to the mutual enforcement of court judgments that extend to Western countries. So judicial proceedings mostly remain ineffective on both sides and can be a waste of time. As a result, it is a “must” for exporters to include an arbitration clause in their agreement. These are generally recognised by Russian courts.

 

Avoid Complex Import Schemes

 

The 10-point-plan also emphasises the need for simplicity and clarity when trading with Russia. In recent decades complex trade structures have become increasingly common, particularly in the food and electronics industries as companies have sought to reduce the impact of Russian customs payments and import taxes. This often involved the use of one or more offshore entities, typically located in Cyprus, deliveries to non-Russian warehouses, imports via Russian special purpose vehicles and settlement of invoices by other offshore entities.

 

These import schemes have recently been under increasing scrutiny by the Russian authorities, often involving the confiscation of the imported products, which then typically remain unpaid for the supplier. There have also been cases where investigations were initiated not only against the importing entity, but also against the foreign seller for aiding and abetting tax evasion by the importer. “Those suppliers who cannot give a valid economic rationale for involving offshore entities should stipulate direct deliveries and payments”, says Torsten Syrbe of Clifford Chance CIS in Moscow, who contributed to the 10-point-plan.

 

Understand Who You are Dealing with Before Delivery

 

The complex structures of Russian companies highlight just how difficult credit assessments can be. “It is not unusual for us to get three different balance sheets from a single entity," says Karrenberg from Atradius. “There is only one way to get a true overview of a company’s ability to pay and that’s by visiting it.” The credit insurer has 20 years of risk management experience in Russia at its fingertips and is in direct contact with almost all of its customers’ Russian buyers.

 

For the individual exporter it is almost impossible to singlehandedly get a real picture of its Russian business partner, not least because of the size of this market. “Because of this, we advise companies to agree securities with Russian customers”, says Andreas Tesch, Director of Global at Atradius. “Then additional protection can be obtained through trade credit insurance, enabling the exporter to completely focus on the opportunities that the rapidly growing Russian market has to offer.”


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