The lack of a letter of credit exposes the exporter to the risk that the foreign importer will default on payment.The exporter can insure against this possibility by:

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Buying export credit insurance is the best option for an exporter to insure against the possibility of the foreign importer defaulting on payment. This insurance provides coverage against commercial and political risks and can minimize the financial losses of the exporter. Other options such as approaching the World Bank or obtaining pre-export financing may not be feasible or cost-effective solutions for small and medium-sized exporters. Filing a suit against the importer in court can be a challenging and time-consuming process, and taking financial aid from Ex-Im Bank may not be available for all exporters or may come with its own set of regulations and requirements. Therefore, buying export credit insurance is the most practical solution for exporters to manage their credit risk.

The Lack of a Letter of Credit Exposes the Exporter