Transcript How To Grow International Sales by Offering Credit Terms but Minimizing Risks Warren Bares J.

How To Grow International Sales
by Offering Credit Terms
but Minimizing Risks
Warren Bares
J. Maxime Roy, Inc.
Ex-Im Bank Registered Broker
 Export credit insurance can help your
company:
 Increase foreign sales
 Finance foreign sales
Increasing Foreign Sales
 Become more competitive by offering
credit terms
 Your customer would prefer to use your
money rather than theirs
 Interest rates are high in many countries
Prime Lending Rates
Around the World
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Colombia
Mexico
Peru
India
Russia
Nigeria
 USA
13%
7%
21%
12%
15%
18%
3.25%
Cash-In-Advance
 Less risk to the seller
 More risk to the buyer - risk of seller not
shipping or performing per agreement
 Buyer will either have to use their own cash
or bank line of credit
 May cause seller to lose business to
competitors who offer open account
Letter of Credit
 Buyer’s bank issues letter of credit
 Seller is protected – can rely on bank to pay upon
presentation of documents
 Buyer is protected – bank will only pay once seller
has performed according to the conditions in the
letter of credit
 Disadvantages
 Costs
 Issuing Bank charges – 1% to 2% of the Letter of Credit
 Confirming Bank charges –
 Ties up capital of buyer
 Complexity
Documentary Collection
 Seller’s bank transfers documents to buyer’s bank
 Sight Draft Documents Against Payment - Buyer’s
bank releases documents to buyer upon payment
 Documents Against Acceptance – Buyer goes into
their bank and signs draft promising to pay in
certain number of days (30, 60, 90 days) and
receives documents to clear goods
 Disadvantage to seller – not a guarantee of
payment by the buyer’s bank. Bank pays upon
receipt of payment from the buyer. Risk to Seller.
Open Account
 Low risk to buyer
 Higher risk to seller
 Risk of default due to commercial and political risks
 Seller Considerations:
 Reduces cash flow while waiting on payment
 Makes seller more competitive – will increase sales
 Buyer Considerations:
 Their interest rates are high – they want your
credit
How can the seller offer credit
terms without taking on the risk?
Export Credit Insurance
Credit insurance company
assumes the risk
Risks covered by Export
Credit Insurance
 Commercial Risks - insolvency,
bankruptcy, and protracted default
 Political Risks - war, revolution, civil
unrest, expropriation, currency transfer
risk, and cancellation of export or import
licenses.
Political Risks - updated
 North Korea – Unpredictable leadership /
possible war with South Korea
 Cyprus – financial crisis
 Iran – nuclear ambitions / tension with Israel
 Arab Spring – In February of 2011 Egypt’s
President, Hosni Mubarak resigned
 Syria
Bank Financing of Foreign Accounts Receivable
 Most lenders will not allow foreign accounts receivable
as collateral in a borrowing base calculation.
 However, foreign accounts receivable that are creditinsured are eligible for inclusion in the borrowing base.
 Improve cash flow and liquidity by borrowing against
insured foreign accounts receivable.
Credit Insurance - Coverage
and Cost
 Policies available to insure one buyer or
multiple buyers.
 Policies tailored to “Small Business” and
policies for larger companies
 Coverage is 90-100% of the invoice amount,
after deductible
 Some policies have no deductible
 Rates depend primarily on payment terms &
country of the buyer(s)
 Pre-paid and pay-as-you-go policies
Ex-Im Bank Small Business MultiBuyer Policy
 Exporter must qualify as “Small
Business” by SBA Size Standards
 Must have less than $7.5MM in foreign
credit sales on average over the prior 3
years
 Must be in business for at least one year
 Must have a positive net worth
Policy Parameters
Small Business Multi-buyer
Policy
Express Policy
Indemnity
Private buyers – 95%
Sovereign Buyers – 100%
Private buyers – 95%
Sovereign Buyers – 100%
Deductible
None
None
Rate schedule
0-60 days open account – 0.55%
61-120 days open acct. - 0.90%
•Rates applied to amount of invoice
•Rates do not vary by country
0-60 days open account – 0.65%
61-120 days open acct. - 1.06%
•Rates applied to amount of invoice
•Rates do not vary by country
Minimum Premium
None
None
Advance Premium
None
None
Premium Payment
•Calculate and pay premium on ALL
•Calculate and pay premium on all
foreign credit sales for the month
insured shipments for the month
•Premium due by the end of the month
following the month of shipment
•Premium due by the end of the month
following the month of shipment
Credit information required to
underwrite buyer limits
•Details on next two slides
Credit information required to
underwrite buyer limits
•Details on next two slides
Buyer Underwriting
CREDIT AND FINANCIAL INFORMATION
REQUIREMENTS for Special Buyer Credit Limit
Applications
 Up to $100,000: Either credit agency report, one trade
Reference, or ledger history
 $100,001 to $300,000: credit agency report and either a trade
reference, ledger history, or buyer’s financial statements for
last 2 fiscal years
 $300,001 to $1million: Credit agency report and 2 trade
references and the Buyer’s audited or signed unaudited
financial statements for the last 2 fiscal years with notes
Over $1 million:
•Credit Agency Report and
•2 Trade References and
•a Bank Reference and
•Buyer’s audited financial
statements for the last 3 fiscal
years
Ex-Im Bank U.S. Content Requirements
Short -Term Insurance
 Goods and services insured must be shipped
from the United States
 Eligible goods and services are those produced
or originated entirely in the U.S.; or those
containing U.S. and foreign-originated
components
 Each item must be at least 51% U.S. content
on a cost-basis.
Credit Insurers
 Export-Import Bank of the United States (Ex-Im
Bank)
 Official Export Credit Agency of the U.S.
 Carries the “Full Faith and Credit” of the U.S.
Government
 Private Credit Insurance Companies / S&P
Ratings:
 Atradius (A-)
 Coface North America (A-)
Private Credit Insurance Companies
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Chartis (A+)
Euler Hermes ACI (AA-)
Great American Insurance / FCIA (A)
HCC Insurance Holdings (AA)
QBE Insurance Corp. (A+)
Zurich Emerging Markets (AA-)
Lloyds of London
Ex-Im Bank or Private Insurance?
 Ex-Im Bank
 “Full Faith and Credit” of the U.S. Government
 Offers lower cost insurance to “Small Businesses” (no
minimum premium)
 Open in more countries than most private insurers
 Not subject to insurance market cycles
 Unlimited capacity
 Exports must meet U.S. Content Requirements
 Does not support sales to military buyers
 Private Insurers
 No U.S. content restrictions
 No restrictions on selling to foreign military
 May offer more competitive rates / terms for larger businesses
Export Credit Insurance
 Safely Increase Foreign Sales
 Finance Insured Foreign Accounts
Receivable
Summing it up: Increasing Foreign Sales
 Give your foreign customers what they
want – Credit
 Pass the credit risk on Ex-Im Bank or a
private credit insurer
Our role as Broker
 Confer with client to determine which policy type best meets their
needs
 Obtain quotes from Ex-Im Bank and / or private insurers
 Review quotes with client and bind the policy selected
 Ongoing work with client to help with shipment reporting,
establishment of buyer coverage limits, documentation
requirements and other policy management details
 Assist with claims – from filing through the point of getting paid
 Premium rates are the same with or without a Broker!
For further
assistance…
 J. Maxime Roy, Inc.
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Warren Bares
911 Lee Avenue, Suite 410
Lafayette, LA 70501
Office (337) 235-7548
Cell (337) 298-0664
Email: [email protected]