Mitigating payment risks and improving your sales

Lo Jongbloed

ING Bank

Consultant Trade Finance Services

Agenda

• Risks in International Trade• Payment Instruments frequently used in Export to

Turkey• Brief Explanation Letter of Credit instrument• Example Export order• Questions

Risks in International Trade

• Risk on Buyer

• Bank Risk

• Political-/Country Risk

• Currency Risk

• Transport Risk

• Etc

Lets get serious now!

Payment instruments frequently used in Export to Turkey

• Advance Payment

• Covered by a bankguarantee as a security instrument to be issued by Exporters bank

• Open Account

• Covered by a bankguarantee as a security instrument to be issued by Importers bank

• Cash Against Documents

• Letter of Credit

For Capital goods there is an increase demand in Turkey for long-term financing with ECA cover.

Definition Letter of Credit

A Letter of Credit is a commitment, from the Turkish Bank in favor of the seller, that payment will be irrevocably effected by them upon presentation by the seller of documents that must comply with the terms of the Letter of Credit

Outline of Export LC

Issuing Bank

Apply for

Letter of Credit

Issue Letter of Credit

ING to inform Exporter:

Confirmed LC

Turkish Buyer

Dutch Exporter/

Potential order for Export to Turkey

Contract Value : EUR 500.000,-

Payment terms : Upon readiness of goods

Payment Instrument proposed : Advance Payment or Sight LC

However ………

Competition offers suppliers

credit for 365 days

Impact 365 days payment terms

Impact for Turkish importer:

Deferral of funded Turkish Lira debt obligation resulting in

• Lower interest charges

Impact for Exporter:

• Increases working capital

• Increases Days Sales Outstanding (DSO)

Proposed Solution

• Same transaction while adopting payment conditions of 365 days

and including financing costs in commercial contract.

• Extend payment term under LC security upto 365 days.

• Request your bank to discount deferred payment obligation

without recourse.

Proposed Practice (Conclusion)

• Exporter could benefit sustainably from proposed practice

by applying non-recourse discounting.

• Decreases both Working capital and DSO.

• LC instrument can be used not only as risk mitigating

instrument but also as financing instrument

ING is keen to support Dutch Exporters with its export endeavours

Questions ?

Contact Details

Commercial Banking

Transaction Services

Lo Jongbloed

Consultant Trade Finance Services

Weena 501-505, P.O. Box 2338, 3000 CH Rotterdam

M +31 65 57 98576 E lo.jongbloed@ing.nl