During my recent business meetings in Paris, a common concern emerged from my discussions with European, American and Chinese interlocutors: the fear of late, partial or unpaid payments in trade with Africa. This concern, which is raised almost immediately whenever there is any question of trading with this continent, reveals a major obstacle to accelerating trade. Yet there are effective strategies for mitigating these risks and fostering fruitful collaboration.
1. The Letter of Credit: An ancient but reliable solution
Letters of credit are a tried-and-tested solution, issued by banks to guarantee payment. This method offers considerable security, provided the bank intermediary is reliable. However, it is subject to time constraints and rigor that limit any flexibility once the commercial agreement has been concluded. Despite these constraints, the letter of credit remains a solid option for transactions requiring a payment guarantee.
2. Credit Insurance: Assessing and Qualifying Risk
Using a credit insurance company can help to "qualify" the risk of payment default. Players such as COFACE or ALLIANZ TRADE play a crucial role in this process. However, the main challenge lies in obtaining reliable information. In Africa, many customers are misidentified, misjudged or judged on the basis of outdated or even erroneous information. While these insurances offer a layer of protection, they do not guarantee payment in full and on time.
3. A Hybrid Approach: Local Knowledge and Combined Solutions
The most effective strategy might be to combine the two previous methods, by teaming up with a partner with in-depth knowledge of the African market. Such a partner can assess the seriousness of a potential customer based on a variety of information, often absent from credit insurers' databases. This approach enables us to navigate with greater certainty in a complex business environment, where reliable data is sometimes hard to come by.
The Challenge of Non-Convertible or Partially Convertible Currencies
Another aspect not to be overlooked is the presence of numerous non-convertible or partially convertible currencies in Africa. This reality requires increased intervention by central banks, resulting in more administrative procedures and delays. This factor also contributes to the negative perception of African customers as "bad payers".
Conclusion
Trading with Africa, despite its challenges, offers enormous opportunities. By adopting a strategic approach and using the right tools, it is possible to minimize payment-related risks while capitalizing on the continent's commercial potential. The key lies in market knowledge, judicious use of financial instruments and adaptation to regional specificities. A final word of advice: before talking price, remember to factor the cost of payment risk into your future negotiations.