welcome to the webinar "understanding international payment risks and export financing...
TRANSCRIPT
Welcome to the Webinar
"Understanding International Payment Risks and Export Financing
Solutions”
September 26, 2012
The webinar will start shortly
Today’s Presenters….
Rebecca Torres Commercial Officer, U.S. Department of Commerce, Clearwater, FL
Julie Balzano Export Development DirectorNMMA Pembroke Pines, FL
Charlotte Starfire DirectorSunTrust, Global Trade SolutionsAtlanta, GA
Ian MacDonaldPresidentUnderwater Lights USA, LLCFort Lauderdale, FL
NMMA Export Development Program
• Launched in July 2012
• To support the industry’s growing export needs & opportunities
• Position NMMA globally as THE sourcing destination
• Offer more programs & services to member companies– USA Pavilions at International Shows– Webinars– Inbound buying delegations to Miami Boat Show– Market research tools– Trade lead program
New
Mark Your Calendar: 2013 Marine Equipment Trade Show (METS): Nov. 2012
Next Webinar: 15 step crash course on creating an export
plan: December 2012
Inbound buying delegation to MIBS: Feb. 2013
Rio de Janeiro Boat Show: April 2013
Korea Int’l Boat Show: May 2013
World Yacht Show: Sanya, China: Oct. 2013
Strategic Partnership
Contact: Julie Balzano
Export Development Director
Tel: 954-441-3234
E-mail: [email protected]
www.nmma.org/international
U.S. Department of Commerce Marine Technology Team
Presentation by Rebecca Torres, Commercial OfficerU.S. Export Assistance Center, Clearwater, FL
Trade specialists in over 100 U.S. cities and 83 countries worldwide tied to U.S. Embassies
Industry specialization
Corporate and Trade Association Partnerships
Customized client solutions
Quantifiable results
U.S. Commercial Service Network
USFCS/NMMA Strategic PartnershipSign up at: http://export.gov/nmma/
Marine Industry Specific Webpage
International Methods of Payment and Financing Strategies for Exporters
Getting Paid and Managing Risk
Prepared for the National Marine Manufacturers Association Charlotte Starfire
September 26, 2012Prepared for:National Marine Manufacturers Association Charlotte StarfireSeptember 26, 2012
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International Payment Risks
So you have decided to export…
Order from overseas buyer?
Made decision to diversify your business?
In any case, you’ll treat this transaction the same as a U.S. sale….hmmm….
You have additional risks…
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LanguageCurrencyBanking regulationsCredit terms and risksTransportation / PackagingInsurance – Shipping – WarRegulations and laws vary by country
Risks of International Trade
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Commercial Risks
Any event that prevents the buyer from paying or prevents the seller from delivering the product or service
Bankruptcy or insolvency by the buyer Protracted default Problems with payment arrangements Problems with the merchandise Contract disputes Additional costs for financing, insurance, and shipping
Commercial risks exist in both domestic and international sales
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Country and Political Risks
Any event or unforeseen factor not necessarily within control of the buyer and/or exporter caused by cross border issues
Government or political intervention Problems with currency exchange Problems with the movement of merchandise Acts of God
Political risks vary by country/region and are a concern only in international sales
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Exporter Risk
High
Importer Risk
Low
Trade Terms
Open Account
Documentary Collection (Time)
Documentary Collection (Sight)
Letters of Credit (Time)
Letters of Credit (Sight)
Payment in Advance
Comparison of Risks
International Methods of Payment
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Selecting Payment Methods
Can your business afford the loss if it is not paid? Will extending credit and the possibility of waiting several months
for payment still make the sale profitable? Can the sale be made only by extending credit? How long have the buyers been operating, and what is their credit
history? Has your business sold successfully to the buyer before? Are there reasonable alternatives for collecting if the buyer does
not pay? (Does the buyer’s country have the legal and business infrastructure for settling disputes fairly and swiftly?)
If shipment is made but not accepted, can alternative buyers be found?
Questions to Ask Yourself
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Determine financing strategy based on:Risk tolerance of your firmExport markets you focusing onCash flow cycles and availability of financingUS vs. Non-US content of goodsVolume of exportingSize and frequency of export sales Industry norms for sales termsCurrency issues
Trade Finance Strategy
Consult a bank with international trade finance experience in your local market.
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A payment instrument issued by a bank on behalf of its customer, the importer or buyer.
The issuing bank substitutes its own credit standing for that of its customer (the importer).
The issuing bank undertakes to pay the beneficiary (the exporter) for the goods or services; the beneficiary is assured of payment by the issuing bank, instead of the importer.
Payment to the beneficiary (exporter) is contingent upon presentation of documentation that conforms to the terms of the letter of credit.
The exporter is not obligated to ship or perform under the letter of credit if the terms of the LC are not acceptable.
Export Letters of Credit
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Advised vs. Confirmed The Advising Bank simply ‘advises’ the exporter of the letter of credit; the
advising bank is not responsible for the decision to pay out on the letter of credit. That is the responsibility of the issuing bank.
The Confirming Bank undertakes the obligation of the issuing bank to pay under the letter of credit.
SWIFT - Society for Worldwide Interbank Financial Telecommunication supplies secure messaging services and interface software to banks worldwide. Banks send letters of credit through the SWIFT network to each other. Banks have to subscribe to SWIFT.
INCOTERMS – (International Commercial Terms) – Thirteen (13) Universally recognized definitions of international trade terms – like FOB, CIF, EXW, etc. – developed by the International Chamber of Commerce (ICC). They define trade contract responsibilities and liabilities between buyer and seller.
UCP 600 -(Uniform Customs and Practice for Documentary Credits) Developed by the International Chamber of Commerce
Terms for Letters of Credit
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Consider the reputation and financial strength of the issuing bank.
What about the political and economic environment in the country of issue?
What about foreign currency controls in the country of issue that might impact the issuing bank’s ability to pay upon receipt of conforming documents?
Do country of issuance risks make obtaining a confirmation difficult? (ex: Venezuela)
What is your quality/relationship with the buyer?
Do you need a confirmed credit?Do you need a confirmed credit?
Confirmed Credit
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Methods of Payment
Payment process whereby the exporter sends shipping documentation through banking channels to collect from buyer.
Banks do not issue irrevocable commitment to pay; but, the documents are not released to the buyer without the buyer’s payment (sight) or commitment to pay (time or deferred).
It is important that the collection form be properly completed and the documents presented with the draft.
Air cargo can be picked up upon presentation of copies of the Airway Bill;
Ocean shipments require a full set of original bills of lading to pick up the shipment.
Documentary Collections
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ImporterRelies on the exporter to ship goods as orderedPayment is made before goods can be inspectedDoesn’t tie up buyer’s credit
ExporterRetains control of title to the goods until payment is
madeTransaction is facilitated through banksCollections are a simple and inexpensive payment
method, but less secure than letters of credit
Risks and Benefits of Documentary Collections
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Recommended for sales to long-standing customers with satisfactory payment history
Exporter takes both commercial and political risks
Risk to Seller: completely relies on Buyer to pay invoice when due
Risks to Buyer: no risks
Export credit insurance provides risk mitigation against both commercial and political risks
Open Account
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Export Credit Insurance
However, should they also consider credit insurance for accounts receivable: AR is their 2nd most fluid asset after cash Timed Payment Obligations If a company writes off $100K in AR and their margin is 10%, it will
need $1million in new sales to offset the hit to its bottom line
Yet, > 94% of open account sales by US firms are uninsured
How Does Credit Insurance Help? Mitigate payment risk Expand sales by offering better terms Increase access to working capital
When U.S. firms think of insurance they typically think: Finished Goods Work in Progress Buildings/Equipment People
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Working Capital Guarantee Programs: Ex-Im Bank and SBA
Delegated Authority Lenders under the U.S. Export-Import Bank’s (Ex-Im Bank) Export Working Capital Program are permitted to commit an Ex-Im guaranty for loans without prior approval from Ex-Im
Preferred lender with the Small Business Administration’s (SBA) Export Working Capital program can commit an SBA guaranty for loans up to $5 million.
Funding available for procurement, inventory, or production of export orders, including services
Financing up to 90% of foreign accounts receivable and 75% of export related inventory
Support for pre or post export financing
Financing Strategies for Exporters
U.S. Small Business Administration Export Working Capital
Program Export Express International Trade Loans PLP Status
Export-Import Bank of the U.S. Export Working Capital
Program Foreign Buyer Financing Export Credit Insurance Delegated Authority
Lender
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The SBA Export Express offers small businesses the working capital necessary to develop or expand their export markets
Target clients include – Manufactures, wholesalers, export trading companies and service exporters who demonstrate that loan proceeds will enable them to enter a new export market or expand an existing export market
Max $500,000 line of credit or term loan, one year in business required
SBA guarantees between 75% to 90% of the loan amount Proceeds can be used for export working capital purposes,
international trade shows, purchase real estate and equipment related to exports, standby letters of credit when required as a bid/performance bond or advance payment guarantee.
SBA Export Express
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Insured Foreign Receivables Financing (IFRF)
Export accounts receivable financing Advances made at the time export shipments are made Source of repayment and collateral is insured export accounts
receivable Private sector export credit insurance or Export-Import Bank
insurance is assigned to the bank
Foreign Receivable Financing
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Strategy: Establish a relationship with a currency partner that provides you access to a
wide range of currency risk management products and advisory services
Working closely with your currency partner to implement a hedging strategy to mitigate your FX exposure and protect your profit margins
Sales agreements that contain a statement which protect Buyer and Seller from excessive moves in the currency market
Currency Risks
What sales are overlooked when pricing only in USD?
Should you consider a sales program in foreign currency?
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You might want to consider:Foreign currency accounts, used to collect your foreign currency receipts and provide you the ability to disburse payments for expenses you may be incurring in that same currency.
Countries/Currencies Most Adaptable to Local Currency Pricing
Currency Risks
Australia Canada
Denmark 12 countries Euro based Great Britain
Hong Kong Japan
Mexico New Zealand
Norway Singapore South Africa Sweden
Switzerland
Numerous restricted currencies and Countries.
Check with your currency partner.
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Directing Methods of Payment
Be proactive - take control of the transaction Decide what your best alternatives are and prioritize them. Be clear - name a payment method as basis of transaction For L/C’s - use a letter of instruction, and request a specimen
copy of L/C prior to issuance For L/C’s - Request a review from BOTH your banker and
freight forwarder prior to shipment For Drafts/Collections – check out the collecting bank before
shipment
Plan Ahead
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Understand your objectives
Understand your methods of payment and the risks with each
Understand the impact exporting will have on your working capital
Understand that a long-term commitment to exporting is necessary
International Trade Strategy
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Charlotte Starfire Director
Global Trade Solutions 303 Peachtree Center
Suite 225 Atlanta, GA 30303
404-588-7508
Contact SunTrust for International Services
• Manufacturer of underwater lights• Based in Fort Lauderdale, Florida• 25% of sales are international
A Real Life Testimonial….
The Challenge:• After the crisis in 2009, international customers stopped paying
their bills
• Struggled to ascertain financial viability of our foreign buyers
• Lost our confidence to extend credit. Became a gamble for us
• We couldn’t take on the added risk!
The Solution:
Ex-Im Bank’s Export Credit Insurance
•Completed application and, once pre-qualified, we had confidence again to extend credit to foreign buyers (both new and existing)
•If customer doesn’t pay, we mitigate our risk with this policy
•Reimburses us 95% of insured amount - after account becomes 90 days past due
•Costs us approx.. 1.5% on the amount we insure
Helped us retain our international business!
Thank You!
Q & A