AU769985B2 - Trade risk assessment system - Google Patents

Description

I AUSTRALIA Patents Act 1990

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COMPLETE SPECIFICATION STANDARD PATENT

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TRADE RISK ASSESSMENT SYSTEM

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I The following statement is a full description of this invention, including the best method of performing it known to me:

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I APPLICANT: TRADESCORE INTERNATIONAL PTY LTD ABN 21 093 490 076

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I TRADE RISK ASSESSMENT SYSTEM The present invention relates generally to trade finance and more specifically to methods and systems for assessing the credit risk of trade transactions.

When goods and services are exchanged for valuable consideration between parties in different countries there are a large number of factors affecting the successful outcome of the exchange.

The parties involved, an importer and an exporter, have varying knowledge and experience of the competencies of each other and are looking for certain factors in the transaction that will give them comfort that the exchange will take place as agreed. The exporter wants to be assured that they will receive the agreed amount in value within the agreed amount of time, whilst the importer, on the other hand, wants to be assured that the agreed goods and services are delivered to them within the agreed amount of time.

On most occasions the importer or exporter will require some form of finance or credit facility from a financial institution to enable the transaction to take place.

Trade finance can take the form of self-finance where an exporter pays for the goods without borrowing (or using non-specific borrowings) and waits for payment from the importer or receives an advance payment from a financial institution at the time of shipment with the financial institution receiving payment from the importer at the agreed time. Whilst an importer may be able to pay for the goods without borrowing from a financial institution the goods may not be shipped by the overseas exporter without a promise of payment from a reputable body, such as a financial institution, in the form of a letter of credit.

Trade transactions create a credit risk for the trade financier that will require them to assess a wide range of factors that effect the credit risk, before proceeding to a decision as to whether they will finance the trade transaction.

The institutions (the trade financiers) involved in assessing these trade credit risks are not only financial institutions but also include the importers or exporters themselves as well as connected bodies, such as credit risk insurance agencies or companies.

For example, before exporting the goods the exporter must either purchase raw materials to manufacture or purchase finished goods. Regardless of the state of the goods the exporter will be required to pay (cash or credit) sometime before export and will finance the export until they receive advance payment from a financial institution or final payment from the importer. The exporter will need to assess all the relevant credit risk factors for each individual buyer.

Financial Institutions, for example, will take over the financial credit risk of the export transaction by advancing cash to the exporter at the time of the export, usually evidenced by invoices and associated shipping documents. The financial institution will not be paid until after the importer pays in accordance with the contract between them and the exporter, which is usually sometime after the goods arrive in the importers country. The trade financier will need to assess all the relevant credit risk factors for each individual exporter and their export transaction.

Importers, for example, will usually require some form of credit sponsoring in the form of a letter of credit addressed from one financial institution (representing the importer) to another (representing the exporter) before the exporter sends the goods or services. The importer may also require some form of cash support to make payment at the agreed time. The trade financier will need to assess all the relevant risk factors for each individual importer.

The letter of credit is a trade credit risk for the trade financier because it promises to pay the exporter for the goods shipped provided pre-determined documents are presented and regardless of whether the importer pays.

Whilst government agencies and private companies involved in credit risk trade insurance do not usually finance a trade transaction they still assume a credit risk for a trade transaction on the basis that if payment does not pass from the importer to the exporter the insurer is required to make good the financial loss to the exporter, within pre-determined bounds. They will need to assess all the relevant factors before proceeding with assumption of the risk.

Risk assessment procedures for financial institutions, at the present time, is to take the total dollar value of the transaction or invoice and require the importer or the exporter to pledge collateral or security for a similar amount to the financial institution by way of charged assets in the form of real property, tangible assets or strength of balance sheet.

In the case of a large number of exporters, the current method of assessing the risk of the transaction is to extensively use trade credit risk insurance, without assessing all the factors or assessing only some of the factors. Trade insurance carries a cost by way of premiums with high premiums usually applying to exports to high-risk countries.

In the case of an importer, the current method of assessing credit risk of the transaction by the trade financier is to require cash or charged assets for an amount similar to the invoice value of the transaction or accumulated transactions to be pledged to the trade financier before they establish a letter of credit in favour of the exporter and well before the transaction takes place.

A significant problem with current methods is that decisions are made inconsistently and inaccurately based on individual assessor's experience resulting in individual assessments that grant finance to some and not to others engendering a disproportionate balance of safety and commerce.

A further problem with the current methodology of financing trade transactions is that vast sums of money are frozen by being tied up in pledged assets and are not available for further volumes of trade transactions. This is due mainly to the lack of knowledge and understanding of the exact credit risks within a trade transaction.

An aim of the present invention is to provide all parties involved in a trade transaction with methods and systems for assessing the credit risk associated with trade transactions and highlight factors that at least ameliorate the above problems.

According to a first aspect, the invention provides a method of enabling the credit risk in a trade transaction to be assessed including steps of; providing in a computer system a number of component fields, each field relating to a component of a trade transaction, each component field having a range of status levels being factors indicative of the status of the component and each having a score expressed as a numeric value associated with it, the numeric value of the score being indicative of the risk to the trade transaction of the component at that status level; I providing a user interface associated with the computer system to enable a user to select for a I said trade transaction, a status level for each component field; and generally a value representative of the risk associated with the transaction utilising the total of each of the selected 1 5 status levels value.

I The result contained within the total component and status scores can be expressed in numeric form and/or text description of the credit risk.

I Notwithstanding the components and status values and description contained within the n invention variations and/or modifications may be made to parts previously described without departing from the spirit or ambit of the invention.

I A risk assessment method according to the present invention has substantial benefits.

I The invention allows expert knowledge to be shared across a broad spectrum of trained and untrained people without increasing risk to the trade financier as the ultimate risk assessment is I based not only on the choice of status level, but by virtue of the score associated with each status I 15 level. In this way, the method of the invention is able to fill a gap in knowledge, accuracy and consistency of decision making that exists with traditional trade financiers due to the specialist I nature of trade transactions and the diminishing number of experienced and knowledgeable I people involved in the assessment of credit risks in financing transactions across the globe. An advantage of the method is that it has the ability to increase exports by making finance more I 20 available without increasing the risk, improve decision-making, transfer expert knowledge and I enhance risk management.

The method allows the complex and numerous components unique to a trade transaction to be I taken into consideration and enables it to be presented to a trade financier in a consistent and I accurate format through the structured arrangement of component fields.

Preferably, the method further includes the step of applying a weighting to the component field I wherein the value representative of the risk is calculated utilising the weightings.

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The advantage of using a weighting system is that it enables the components to be rated against I another according to the importance of their influence in the transaction, thereby enabling the risk assessment to be more accurate.

The specific components of a trade transaction that are the subject of the method may vary S 5 depending on the complexity of the system. Nevertheless, preferably components fields are provided which are designed to assess the credit risks associated with the exporter, the importer, the local country, the overseas country and the goods (or services) themselves.

I Allocated to each component field is a set of unique status levels that allow the trade financier to accurately and consistently assess the credit risk level of each component.

The range of levels of a status field is weighted according to the level of credit risk associated I with the component linked with the status range.

The selection of a particular level of status for a component may change the importance of the components when compared to other components. Where the importance of a component and I hence its weighting is linked to the importance of other components depending on the status S 15 level selected, the weightings of any or all linked components' weightings will change. This ability to change the weighting of a component and hence its credit risk influence on the final I assessment, is dependent on the level of credit risk attached to the status level selected and is important in arriving at an accurate and consistent credit risk assessment of the trade transaction.

The interaction between the set of components and the status fields attached to them, as well as the interaction between each component according to their weighting which can be variable according to the status levels selected, is used to calculate a specific answer that is presented in the interface and will enable the user to assess the credit risk of the trade transaction.

I In one form the resultant credit risk assessment is presented as a percentage, with higher 3 percentage indicating higher risk. However, it is to be appreciated that any other range of alphanumeric values could be used. These may be in alphanumeric form, or may be other I graphic representations.

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Once the risk value is established, the credit risk assessment can then be used in any decision making process as a relevant factor as to whether the transaction is to be financed, and if so, to the extent of the amount of finance that is to be made available. Typically, the controlling entity has a predetermined application of the levels of the numerical answer to the decision making process. For instance, where the credit risk assessment is given as a percentage, levels above may need a negative decision. Answers between 20% and 55% may mean a positive decision but will restrict the amount of finance available. An answer below 20% may translate into a positive decision of the highest possibility.

In one form, the weighting and value levels for component and status fields may be varied by entities controlling the trade risk assessment system. In this way, the system is more flexible and provides a convenient method of individually customising the assessment system to suit the lending criteria of individual trade financiers.

In a preferred form, the user of the system is unable, in its normal operation, to adjust the weighting and value levels for component and status fields. A user is only required to select the suitable status level reflecting the status of the individual component based on the information regarding the transaction. By this approach, the resultant calculated risk assessment is able to be better controlled by the entity running the system and provides consistency across different users of the system.

In the preferred form, the method of risk assessment is operated over a computer system such as a personal computer that has a display and input device such keyboard, mouse, touch screen, voice activation or the like. Further, the system may be run as stand-a-lone software or may be on a distributed network such as an intranet, to enable multiple user access. Preferably, the user interface displays the component fields and its associated status levels so as to enable easy selection by the user using input device.

In another form the method of risk assessment is operated using written instructions to set the components and the status selection fields and alphanumeric values.

6 In yet a further aspect, the present invention relates to a computer software system for enabling the credit risk of a trade transaction to be assessed, the system including a plurality of component fields, each field relating to a component of a trade transaction, each component field having a range of status levels, the status levels being factors indicative of the status of the component and each having a score expressed as a numeric value associated with it, the numeric value of the score being indicative of the risk to the trade transaction of the component at that status level, selecting means operative to enable a user for a said trade transaction to select a status level for each component field, and processing means operative to generate a value representative of the risk associated with the transaction utilising the score of each of the selected status levels.

Preferably the selecting means includes a user interface that is operative to be displayed on the display device of a computer system.

Preferably the system includes a weighting criteria which is operative to weight individual component fields and/or the status levels wherein the processing means is operative to generate a value representative of the risk utilising both the weighting criteria and the value of each of the selected status levels. Preferably the weighting criterion varies between an import and an export transaction.

It is convenient to hereinafter describe an embodiment of the present invention with reference to the accompanying drawings. In the drawings: Figure 1 is a flow chart illustrating the functions of a credit risk assessment system for trade transactions; Figure 2 is a selection entry interface for an import transaction of the system of Figure 1; Figure 3 is a selection entry interface for an export transaction in the system of Figure 1; Figure 4 is user interface for the system of Figure 1; and Figures 5A to 5D are summary reports generated by the system of Figure 1.

Figure 1 illustrates a flow chart for a credit risk assessment system 10 for trade transactions. The system 10 is structured to include a plurality of component fields 11. These fields relate to constituent parts of a trade transaction that have a bearing on the risk of that transaction. Further, different component fields 11 and/or different status fields 26 for export transactions and 17 for import transactions, may be used depending on whether it is either an export or an import transaction.

The system 10 is designed to run on a computer system incorporating a display device to enable user input. Figure 2 illustrates a user interface 12a for calculating the risk on an import transaction whereas Figure 3 illustrates a user interface 12b for calculating the risk on an export transaction. The interfaces 12a, 12b detail the component fields for each of the import and export transactions. As illustrated in Figure 2, the component fields for the import transactions include a customer grading score field 16, importer integrity field 13, primary market price stability field 14, secondary market field 15, commodity perishability field 18, overseas country reliability field 19, overseas party risk field 20, foreign exchange influence field 21, cash flow capability field 22, possession of shipping documents field 23, and end to end capability field 24.

The interface 12b for the export transaction includes the same fields as the import field with the addition of an export insurance field 25. A detailed explanation of the relevance of each of these components is given below.

As illustrated in Figure 1, each component field includes at least one status level 26 for export transactions and at least one status level 17 for import transactions. The status levels 26 for export transactions and status level 17 for import transactions of any particular component field defines different factors that reflect the status of the component in its associated component field.

The factors contained within the export status field 26 may vary from the factors contained within the import status field 17.

In general, each component is capable of being handled in a number of ways. Whether it is well handled, handled at a moderate level or poorly handled will result in the finalisation of the transaction at different levels of competency that will have a direct bearing on the result. The purpose of the status levels is to define certain factors that reflect the status of that particular component field.

For instance, the component field "client integrity" 13, five status levels defined, being known to be high, reputed to be high, not known, reputed to be low or known to be low, for both export transactions and import transactions. In general the integrity of the importer is crucial to the successful outcome of a trade transaction. High integrity in an importer is much better than low integrity as there is a higher expectation that the importer will fully comply with the contract between the importer and the exporter.

Each status level 26 for export transactions and status level 17 for import transactions is given a score 28 for export transactions and 37 for import transactions, which has a numerical value. The use of a numerical value is to allow the system 10 to making algorithmic and algebraic calculations in determining the final risk assessment. As such, the score associated with respective status levels 26 for export transactions and 17 for import transactions is indicative of the associated risk of that status level to the trade transaction.

In the illustrated form, the numeric value is defined in terms of a percentage where there is an increased percentage with increasing risk.

The system 10 further includes a weighting criteria 29. In the illustrated form, a separate weighting 30 is given for exports as compared to imports weighting 31. The weighting criteria 29 is applied against each of the scores 28 for an export transaction and scores 37 for an import transaction in calculation of the final result. The purpose of the weighting criteria 29 is to enable the components to be rated one against the other according to the importance of their influence on the credit risk of the trade transaction. Therefore more important or influential components attract a higher weighting than the less important components. In the illustrated form, the weightings are given as percentages with the sum total of the export weightings 30 and the sum total of the import weightings 31 equalling 100% each.

The weighting factors will vary according to the score of each status level whereby the existence of one element in the formula will increase or reduce the weighting in another element.

This is particularly important where there are stages of risk and levels of risks at different times during the trade transaction.

In operation of the system 10, a user accesses an opening screen 32 of the user interface as illustrated in Figure 4. An initial choice is made as to whether the system 10 is to be used for accessing the risk of an import or an export transaction by selecting either of the appropriate icons 33 and 34. Depending on the icon selected, either the import or the export user interfaces (12a, 12b) are displayed as illustrated in Figures 2 and 3. The user then selects a status level for each of the component fields 11. Each of the component fields includes a text entry area in the form of drop down boxes. Selecting the arrow in any component field displays the status levels associated with that component field as a drop down menu to the component field. The user then selects an appropriate status level for each of the component fields depending on the user's assessment of the particular transaction under review. Once completed, the user selects the result icon box 35 as illustrated in Figure 2 to enable a resulting report 36 to be generated. Sample resulting reports are shown in Figures 5A to The system 10 calculates a percentage risk result that is indicative of the credit risk assessment by summing together the weighted scores of the selected status levels as well as an alpha answer indicating the level of credit risk for the total trade transaction.

For instance, the contribution to the final estimate of credit risk of importer's integrity 13 FIG I for an export transaction is derived by choosing the appropriate export status 26 FIG I, for example 'Known to be high', and using the associated score 27 FIG I and multiplying this with the default export weighting 30 FIG 1 to arrive at the contribution to the final assessment of a maximum of 100%. If the export status chosen is for example 'Not known' the associated score 27 FIG 1 will increase because the credit risk of this status level is higher and when multiplied by export weighting 30 FIG 1 will arrive at a higher credit risk contribution to the final assessment of a maximum 100%.

The weighting of components and therefore their importance of influence on credit risk within a trade transaction may vary against each other according to particular status levels chosen.

For instance, the default export weighting 30 FIG 1 of importer's integrity 13 FIG 1 will reduce if the status level chosen for component export insurance 25 FIG 1 is 'Policy opened A plus approved counterparty B' 26 FIG 1.

The export weighting of importer's integrity 13 FIG I will reduce further if the status level chosen for component export insurance 25 FIG 1 is 'Policy opened A plus approved counterparty B plus buy/sell contract C plus assignment D plus dispute resolved' 26 FIG 1.

The magnitude of the answer indicates to the user the level of competency or level of credit risk in the subject transaction. For instance, in a trade transaction the answer will tell the trade financier the percentage of credit risk and the level of collateral security they need to take over the transaction. For the exporter, it will indicate whether export insurance should be taken if the percentage answer moves above a certain level, whether there are actions they can take to reduce the levels of credit risk or whether to proceed with the export. For the importer, it will indicate whether there are actions they can take to reduce the credit risks or whether to proceed wvith the import.

The system 10 is designed so that in normal operation, the only choice a user has in calculating a credit risk assessment is to select from the predefined status levels.

There is no indication of the scores 28 for an export transaction or scores 37 for an import transaction or the weightings 29 associated with those particular status levels. This is designed to ensure consistency in the result. However, the system 10 is flexible enough so as to enable particular scores and/or weightings to be pre-set so as to enable the system to accord with the lending criteria of an individual financial institution or credit risk level of a trade financier. such as an exporter or importer. Once pre-set, this lending criteria is then reflected in each of the risk assessments calculated using the system as adjusted.

Further, there is preferably a predetermined application of the levels of the numerical answer to the decision making process. For instance, levels above 55% may mean a negative decision.

Answers between 20% and 55% may mean a positive decision but will only go so far. An answer below 20% translates into a positive decision of the highest possibility.

The component fields 11 are structured to cover the core components of any trade transaction. In the illustrated form, the core components are the exporter, importer, local country, overseas country, and goods (or services). The breakdown of the different component fields into these core components is as follows: Exporters- customer grading score 16, overseas importer's integrity 13, export insurance Importer customer grading score 16, local importer's integrity 13, primary market price stability 14 Local country cash flow capability 22 Overseas country- overseas country reliability 19, foreign exchange influence 21, secondary market 15, overseas party risk 20. end to end capability 24 Goods (or services) commodity perishability 18, possession of shipping documents 23 Whilst it is not essential to the understanding of the operation of the system 10, the following is an outline of each of the risk assessment of the various component fields. It is to be appreciated that this discussion is not limiting on the invention and that further the status levels and component fields identified may vary.

Customer Grading Score (16) This component focuses on an assessment by the trade financier of the financial strength of their exporting and importing customer including strength of balance sheet, level of profitability, financial ratios compared to industry standards, quality of management, timrne in business and track record of repayment of debt.

Status levels for this component are set out in 26 FIG 1 for export transactions and 17 FIG I for import transactions. Customer Grading 1 is considered a low credit risk status level and Customer Grading 5 is considered a high credit risk status level. Selection of status levels for Customer Grading 1 and 2 will interchange the weighting 29 FIG 1 between components customer grading score 16 FIG 1, component cash flow capability 22 FIG 1 for both import and export transactions as well as local importer's integrity 13 FIG 1 for import transactions.

Export Insurance Risk Cover This component focuses on the availability and extent of insurance cover by export credit insurance companies around the world to give financial protection to the exporter against nonpayment for goods for specified risks.

Status levels for this component are set out in 26 FIG 1 for export transactions and 17 FIG 1 for import transactions. The status levels for this component are cumulative whereby each additional step taken by the exporter lowers the credit risk. A policy opened A with an approved counterparty B, a buy/sell contract C, has assigned their policy to a trade financier D and has received legal acknowledgement that there is no commercial dispute regarding the shipment will have the lowest credit risk for this component. The status levels showing fewer factors progressively create an increasing credit risk.

Selection of status levels 'policy opened A plus an approved counterparty B' 26 FIG 1 will interchange the component export weighting 30 FIG 1 of export insurance 25 FIG 1, importer's integrity 13 FIG 1 and overseas party risk 20 FIG 1. Selection of status levels 'policy opened A plus approved counterparty B plus buy/sell contract C' 26 FIG 1 will interchange the component export weighting 30 FIG 1 of export insurance 25 FIG 1, importer's integrity 13 FIG 1, overseas country reliability 19 FIG I and overseas party risk 20 FIG 1. Selection of status level 'policy opened A plus approved counterparty B plus buy/sell contract C plus assignment D plus dispute resolved' 26 FIG 1 will interchange the weightings between components export insurance FIG 1, overseas country reliabilityl9 FIG 1, overseas importer's integrity 13 FIG I, overseas party risk 20 FIG 1 and commodity perishability 18 FIG 1.

IMPORTERS

Importer's Integrity (1 3) This component focuses on the integrity of the importer, local importer in the case of an import transaction and overseas importer in the case of an export transaction, to act legally and professionally in accordance with the buy/sell contract regardless of opportunities to disrupt payment.

Status levels for this component are set out in 26 FIG 1 for export transactions and 17 FIG 1 for import transactions. An importer's integrity that is known to be a high status level creates a lower credit risk than one where integrity is known to be a low status level.

Primary Market Price Stability (14) This component focuses on one of the major possibilities for cause of interruption to a trade payment whereby a falling market price can force the importer to disrupt payment and negotiate a lower contract price.

Status levels for this component are set out in 26 FIG 1 for export transactions and 17 FIG 1 for import transactions. A stable price status level creates the lowest credit risk whilst a falling price status levels creates the highest credit risk.

LOCAL COUNTRY Cash Flow Capability (22) This component focuses on the alignment of the cash flow created by a trade transaction highlighting any time gap between receipt of sales and payment for supply and its effect on the financial needs of the exporter (export) or importer (import).

Status levels for this component are set out in 26 FIG I for export transactions and 17 FIG 1 for import transactions. Payment from within own resources status level is a low credit risk compared to where the status level show that the sales receipts are expected late, which is a high credit risk.

OVERSEAS COUNTRY Overseas Country Reliability (19) This component focuses on the trade financier's own assessment of credit risk created by different countries around the world usually based on the level of foreign reserves, political intervention in trade, political stability, movement of international payments (hard currency) and trade barriers that can lead to the possibility of a trade transaction failing.

Exporters Status levels for this component are set out in 26 FIG 1 for export transactions.

A country with a prime credit standing status level is a low credit risk when compared to an unacceptable credit standing status level and therefore a high credit risk.

Import Status levels for this component are set out in 17 FIG I for import transactions.

A country with an acceptable status level is a lower credit risk than a country requiring care.

Foreign Exchange Influence (2 1) This component focuses on the movement of the value of currencies in different countries where adverse movements in exchange rates creates situations whereby the importer may have to pay more in local currency whilst an exporter may receive less in local currency, placing pressure on the profitability of the transaction. There are many instruments (generic term is Foreign Exchange Contracts or FEC) in the financial markets that can reduce the credit risk from foreign currency movements and usage of these is an important status within this component.

Status levels for this component are set out in 26 FIG 1 for export transactions and 17 FIG 1 for import transactions. The risk of a movement or a number of movements in the exchange rates increases with time. A low credit risk status level is sight/term pegged rates whilst a high credit risk status level is 180 days No FEC.

Secondary Market This component focuses on the varying levels of possibility of selling the goods to an alternative buyer should there be a refusal by the original importer to pay for the goods.

Status levels for this component are set out in 26 FIG 1 for export transactions and 17 FIG 1 for import transactions. The status level of a strong secondary market in the country of import rates as a low credit risk whilst the highest credit risk is a status level where there is no secondary market at all.

Overseas Party Risk This component focuses on the conduct of the overseas party in past transactions as an indicator of future conduct.

Export The overseas party of an export transaction is the overseas importer.

Import The overseas party of an import transaction is the overseas exporter.

Status levels for this component are set out in 26 FIG 1 for export transactions and 17 FIG 1 for import transactions. An overseas party with a poor track record creates a high credit risk status level whilst an overseas party that has a good track record creates a low credit risk status level.

End-to-End Capability (24) This component focuses on whether the trade financier has some form of representation in the country at the other end of the transaction that can give helpful assistance should there be a disruption to the trade transaction.

Status levels for this component are set out in 26 FIG 1 for export transactions and 17 FIG 1 for import transactions. An overseas party that is a customer of the trade financier's own overseas company creates a low credit risk whereas no representation in the overseas location has a high credit risk status level.

GOODS SERVICES Commodity Perishability (18) This component focuses on the credit risk associated with perishable goods and the factors not covered by standard marine insurance, including goods with time deadlines like fashion items.

Status levels for this component are set out in 26 FIG I for export transactions and 17 FIG I for Simport transactions. Perishability High Risk is the highest credit risk status level with Min non-perishable being the lowest credit risk status level.

Possession of Shipping Documents (23) I 5 This component focuses on the credit risk level achieved depending on whether the trade financier controls or possesses the shipping documents of title until payment is received or the importer legally accepts the shipment.

I Status levels for this component are set out in 26 FIG I for export transactions and 17 FIG I for import transactions. The lowest credit risk status level is achieved when the transaction is a short term or sight transaction and the trade financier has full control of the shipping documents of I title. The highest credit risk status level is where the trade financier does not have control of the I documents, which are sent by the exporter directly to the importer.

EXAMPLES

I The following four examples illustrate the operation of the system 10 in assessing the risk of a trade transaction.

Example 1 is an export transaction where the exporter exhibits a higher risk as evidenced by the Sstatus levels selected for the different component fields.

SExample 2 illustrates an export transaction where the exporter exhibits a lowered risk as evidenced by the status levels selected for the different component fields.

S 20 Example 3 illustrates an import transaction where the importer has a higher risk as evidenced by I the status levels selected for the different component fields.

Example 4 illustrates an import transaction where the importer has a lowered risk as evidenced I by the status levels selected for the different comnponent fields.

I The following table illustrates the selected status levels for each of the four examples.

Corresponding result summary pages are illustrated in Figures 5A to

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COMPONENTS EXAMPLE 1 EXAMPLE 2 EXAMPLE 3 EXAMPLE 4 EXPORT HIGH EXPORT- IMPORT HIGH IMPORT RISK LOW RISK RISK LOW RISK

EXPORTER

Export Insurance No policy Commercial Not applicable Not applicable dispute resolved Customer Grading Customer Grading Customer Grading Customer Grading Customer Grading Score -5 -1 -5 -1

IMPORTER

Importer integrity Known to be low Known to be high Known to be low Known to be high Primary Market Price Stability Falling Stable Falling Stable

LOCAL

COUNTRY

Cash flow Receipt late Own internal Sales receipts late Own internal capability resources resources

OVERSEAS

COUNTRIES

Overseas Country Unacceptable Prime Credit Care needed Acceptable Reliability Credit Standing Standing Overseas Party Poor track record Good track record Poor track record Good track record Risk Foreign Exchange 180 days No Sight/Term 180 days No Sight/Term Influence FEC Pegged rates FEC Pegged currencies Secondary Market No secondary Importing country No secondary Importing country market strong market strong End-to-End No representation Customer, own No representation Customer, own Capability branch/group branch/group GOODS &/OR

SERVICES

Commodity High risk Min non- High risk Min non- Perishability perishable perishable Possession of Term transaction Sight transaction Term transaction Sight transaction shipping No control Control No control Control documents FINAL SCORE 100% 6% 100% 2%

Claims (19)

1. The trade risk assessment system invention provides a method of enabling the assessment and measurement of the credit risk of an export or import trade transaction by means of a computer system with a number of component fields relating to the components of a trade transaction and each having a value, each component with a range of status fields and each status having a value associated with it and when combined gives a final numeric or alpha score with unique instructions attached to each score indicative of the level of credit risk of the trade transaction, including steps of: a. providing a user interface associated with the computer system to enable a user to select status levels for each component field for a said trade transaction b. providing a number of component fields, each field relating to a component of an export or import trade transaction and enabling computer implemented process by i. selecting a component dealing with the evaluation of the financial strength 15 of the exporter or importer and then selecting a status level that best oo :reflects the status of the component ii. selecting a component dealing with the integrity (willingness to pay) of the importer and then selecting a status level that best reflects the status of the component 20 iii. selecting a component dealing with the primary contracted price of the traded goods and then selecting a status level that best reflects the status of the component iv. selecting a component dealing with the ability to sell the goods to another =eoooo buyer and then selecting a status level that best reflects the status of the component v. selecting a component dealing with the perishability (life-span) of the traded goods and then selecting a status level that best reflects the status of the component vi. selecting a component dealing with the availability of export credit insurance and then selecting a status level that best reflects the status of the component vii. selecting a component dealing with the international rating of the overseas country and then selecting a status level that best reflects the status of the component viii. selecting a component dealing with the overseas party track record to the trade transaction and then selecting a status level that best reflects the status of the component ix. selecting a component dealing with movements between the value of the local currency and the invoice currency value of the traded goods (foreign exchange rates) and then selecting a status level that best reflects the status xofthe component x. selecting a component dealing with the financial cash flow of the trade transaction and then selecting a status level that best reflects the status of the component 20 xi. selecting a component dealing with the control of the shipping documents of title to the goods and then selecting a status level that best reflects the status ofthe component xii. selecting a component dealing with the assistance available overseas in S. finalising the trade-transaction and then selecting a status level that best reflects the status of the component c. each component field having a score expressed as a numeric or alpha value associated with it d. each component field having a range of status levels being factors indicative of the status of the component e. each status level having a score expressed as a numeric or alpha value associated with it f. the numeric or alpha value of the component field can change depending on the status chosen in any of the component fields g. the numeric or alpha value of all scores is combined by the system to express a final result in numeric and or alpha values indicative of the credit risk to the trade transaction h. The final result is available from the user interface or in hard copy and includes specific numeric and alpha answers indicative of the credit risk and instructions for the user to follow and are linked to the status chosen for each component i. The specific answers and instructions are unique to this system and allow an assessment and measurement of the level of credit risk

2. The process of Claim 1 comprising, prior to choosing a particular status, a process of verifying information of the financial strength of the exporter or importer S The process of Claim 1 wherein determining the integrity of the importer to pay includes using preliminary information about the importer. The process of Claim 1 wherein determining the correct status to be chosen requires i preliminary information about the primary contracted price of the traded goods. The process of Claim 1 wherein determining the correct status to be chosen requires S. preliminary information about the ability to sell the goods to another buyer.

6. The process of Claim 1 wherein determining the correct status to be chosen requires preliminary information about the. perishability or life-span of the goods. 21

7. The process of Claim 1 wherein determining the correct status to be chosen requires preliminary information about an export credit insurance policy.

8. The process of Claim 1 comprising prior to choosing a particular status a process of verifying information of the credit rating of the overseas country.

9. The process of Claim 1 wherein determining the correct status to be chosen requires Spreliminary information about the overseas party to the trade transaction The process of Claim 1 wherein determining the correct status to be chosen requires preliminary information about the risk associated with exchange rate movements.

11. The process of Claim 1 wherein determining the correct status to be chosen requires preliminary information about the cash flow of the transaction.

12. The process of Claim 1 wherein determining the correct status to be chosen requires preliminary information about the control of the shipping documents of title.

13. The process of Claim 1 wherein determining the correct status to be chosen requires preliminary information about the type of assistance available at the other end of the trade transaction.

14. The process of Claim 2 is to consider the strength of balance sheet, level of profitability, •financial ratios, quality of management, time in business and debt repayment history of the local exporter or importer. The process of Claim 3 is to consider the willingness of the importer to pay for the goods 20 in terms of the buy/sell contract.

16. The process of Claim 4 is to consider any variation between the contracted price and the global price at the time of assessment. ooooo

17. The process of Claim 5 is to determine whether there is a marketplace where an alternative buyer for the goods can be found at the time of the assessment.

18. The process of Claim 6 is to determine the life-span of the goods and whether they will reach the importer in time.

19. The process of Claim 7 is to determine the extent of export credit insurance applying to the trade transaction. The process of Claim 8 is to decide on the rating of the overseas country by assessing the level of foreign reserves, political influences and stability and trade barriers.

21. The process of Claim 9 is to ascertain the previous track record of the exporter shipping the goods or the importer paying for the goods in accordance with the buy/sell contract.

22. The process of Claim 10 is to determine the length of time before payment is completed and decide whether or not to take out protection for exchange rate movements.

23. The process of Claim 11 is to compare the time frame between expected debtor payment and expected creditor payment for the goods to determine cash flow of the transaction.

24. The process of Claim 12 is to determine whether the exporter or the importer is in control of the shipping documents of title. The process of Claim 13 is to determine whether there is any assistance at the other end of the trade transaction and the degree that the assistance can affect the credit risk.

26. A system for carrying out an assessment of the credit risk of an export or import trade transaction, the system comprising of: a. A means of providing an identifiable credit risk described in percentage and text medium b. A means of providing an explanation of the credit risk level of each status 20 c. A means of providing a series of suggestions on action to be taken for each status "chosen 00$ d. A means of transferring expert knowledge across a range of users to achieve consistent assessments of the level of credit risk of a trade transaction Dated this 24 th Day of November 2003 TRADESCORE INTERNATIONAL PTY LTD 23