Transcript General
York College Small Business Development Center International Trade Initiative Global Edge Workshop “FINANCING INTERNATIONAL GROWTH PART 2” WEBINAR Thursday, January 12 th 2012
Chip Thomas The American Export Training Institute A Division of Export Risk Management, Inc.
Funded in part through a Cooperative Agreement with the Small Business Administration (SBA). All SBA-funded programs are extended to the public on a nondiscriminatory basis. Reasonable accommodations for persons with disabilities will be made if requested at least two weeks in advance.
US Foreign Trade
Billions of US Dollars
2600 2500 2400 2300 2200 2100 2000 1900 1800 1700 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 88 90 92 94 96 98 00 02 04 06 08 10 Imports Exports
Payment/Financing Scenarios
Pre-Shipment Needs Working Capital Production Packaging Shipment Post-Shipment Payment Financing Risk Protection
Sources for Payment/Financing
Pre-Shipment Buyer Credit/Financing Banks/Credit Unions Finance Companies Government Agencies (EXIM, SBA…) Post-Shipment Banks Finance Companies Government Agencies (EXIM, SBA…)
If you were an international seller of merchandise, when would you want payment?
Payment Methods
Cash in Advance Letter of Credit Documentary Collection Open Account
Choice of Methods
Buyer - Seller Relationship Buyer’s/Seller’s Credit Standing Country Conditions Other: Logistics Competition “Gut Feeling”
Payment Terms
Sight - immediate payment; location specific Usance/Time - future payment Deferred Payment - future payment
Incoterms 2010
Rules for Any Mode or Modes of Transport EXW = FCA = CPT = CIP = DAT = DAP = DDP = Ex Works Free Carrier Carriage Paid To Carriage and Insurance Paid To Delivered At Terminal Delivered At Place Delivered Duty Paid Rules for Sea and Inland Waterway Transport FAS = FOB = CFR = CIF = Free Along side Ship Free On Board Cost and Freight Cost Insurance and Freight
Financing Options for US Exporters
Banks: Letters of Credit Documentary Collections Other Private Sources: Credit Insurance Accounts Receivable Financing Factoring Forfaiting Government: EXIMBANK and SBA OPIC CCC TDA USAID
Letters of Credit
Two Types Documentary/Commercial • Active Payment Instrument • Active Financing Tool Standby • Passive Payment Instrument • Passive Financing Tool – Performance – Financial – Trade-Related
20 Characteristics of a Commercial LC 1. Irrevocable 2. Issue Date and Expiry Date/Expiry Location 3. Issuing Bank/Advising Bank 4. Importer/Exporter 5. Value/Currency 6. Description of Goods/Services 7. Required Documents 8. Payment Terms 9. INCOTERMS 10. Port-to-Port Information (Dispatch to Destination) 11. UCP 600 12. LC Fees - who pays?
13. Latest Ship Date 14. Presentation Date 15. Partial Shipments (allowed, not allowed) 16. Transshipments (allowed, not allowed) 17. Paying Bank 18. Drawee Bank 19. Reimbursing Bank 20. Confirming Bank
Documentary Collections
Disguised Open Account Transactions Less secure than Letters of Credit More secure than Open Account Benefits: Don’t encumber buyer’s line of credit Very inexpensive Effective if properly structured • Use of correct INCOTERMS 2010 • Role of banks and freight forwarders
Eximbank Programs
Pre-shipment: Working Capital Guarantee Post-shipment: Short-Term: • Small Business Insurance Policies • Single-sale and Portfolio Policies • Bank Insurance Policies Medium Term: • Single Shipment Policies • Repetitive Shipment Policies • Guarantees • Loans • Project Finance
Working Capital Guarantee
Needed for : Pre-shipment financing To be used when: There is a lack of collateral to acquire bank financing Lender is unwilling to increase line of credit Company needs working capital to finance exports Banks will not lend against foreign accounts receivable Exporter wants to improve cash flow Benefits: Helps pay for raw materials Increases borrowing base Is relatively inexpensive Provides local bank with a 90% guarantee Quick approval
For More Information
Chip Thomas General Manager American Export Training Institute (AETI) 419 Leslie Lane West Chester, PA 19382-7776 Tel: 610-563-6335 Email: [email protected]