Welcome to the Webinar "Understanding International Payment Risks and Export Financing Solutions

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Welcome to the Webinar "Understanding
International Payment Risks and Export Financing
Solutions
September 26, 2012
The webinar will start shortly
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Todays Presenters.
Charlotte Starfire Director SunTrust, Global
Trade Solutions Atlanta, GA
Julie Balzano Export Development Director NMMA
Pembroke Pines, FL
Rebecca Torres Commercial Officer, U.S.
Department of Commerce, Clearwater, FL
Ian MacDonald President Underwater Lights USA,
LLC Fort Lauderdale, FL
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NMMA Export Development Program
New

• Launched in July 2012
• To support the industrys 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

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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 Intl Boat Show May 2013
• World Yacht Show Sanya, China Oct. 2013

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Strategic Partnership
Contact Julie Balzano
Export Development Director Tel
954-441-3234
E-mail jbalzano_at_nmma.org www.nmma.org/internati
onal
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Promoting U.S. Marine Technology Products and
Services Worldwide

• U.S. Department of Commerce
• Marine Technology Team

Presentation by Rebecca Torres, Commercial
Officer U.S. Export Assistance Center,
Clearwater, FL
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U.S. Commercial Service Network

• 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

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USFCS/NMMA Strategic PartnershipSign up at
http//export.gov/nmma/
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Marine Industry Specific Webpage
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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, 2012

Prepared for National Marine Manufacturers
Association Charlotte Starfire September 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, youll treat this transaction the
  same as a U.S. sale.hmmm.
• You have additional risks

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Risks of International Trade

• Language
• Currency
• Banking regulations
• Credit terms and risks
• Transportation / Packaging
• Insurance Shipping War
• Regulations and laws vary by country

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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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International Methods of Payment
Comparison of Risks
Exporter Risk
Importer Risk
Trade Terms
High
Low
Open Account Documentary Collection
(Time) Documentary Collection (Sight) Letters of
Credit (Time) Letters of Credit (Sight) Payment
in Advance
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Selecting Payment Methods
Questions to Ask Yourself

• 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 buyers
  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?

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Trade Finance Strategy
Consult a bank with international trade finance
experience in your local market.

• Determine financing strategy based on
• Risk tolerance of your firm
• Export markets you focusing on
• Cash flow cycles and availability of financing
• US vs. Non-US content of goods
• Volume of exporting
• Size and frequency of export sales
• Industry norms for sales terms
• Currency issues

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Export Letters of Credit

• 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.

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Terms for Letters of Credit

• 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

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Confirmed Credit
Do you need a confirmed credit?

• 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
  banks 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?

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Methods of Payment
Documentary Collections

• 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 buyers 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.

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Risks and Benefits of Documentary Collections

• Importer
• Relies on the exporter to ship goods as ordered
• Payment is made before goods can be inspected
• Doesnt tie up buyers credit
• Exporter
• Retains control of title to the goods until
  payment is made
• Transaction is facilitated through banks
• Collections are a simple and inexpensive payment
  method, but less secure than letters of credit

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Open Account

• 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

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Export Credit Insurance

• When U.S. firms think of insurance they typically
  think
• Finished Goods
• Work in Progress
• Buildings/Equipment
• People

• 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, gt 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

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Financing Strategies for Exporters

• Working Capital Guarantee Programs Ex-Im Bank
  and SBA

• Delegated Authority Lenders under the U.S.
  Export-Import Banks (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
  Administrations (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

• 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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SBA Export Express

• 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.

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Foreign Receivable Financing

• 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

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Currency Risks
What sales are overlooked when pricing only in
USD? Should you consider a sales program in
foreign currency?

• 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

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Currency Risks
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
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
Plan Ahead

• 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/Cs - use a letter of instruction, and
  request a specimen copy of L/C prior to issuance
• For L/Cs - Request a review from BOTH your
  banker and freight forwarder prior to shipment
• For Drafts/Collections check out the collecting
  bank before shipment

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International Trade Strategy

• 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

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Contact SunTrust for International Services

• Charlotte Starfire
• Director
• Global Trade Solutions
• 303 Peachtree Center
• Suite 225
• Atlanta, GA 30303
• 404-588-7508
• Charlotte.Starfire_at_suntrust.com

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A Real Life Testimonial.

• Manufacturer of underwater lights
• Based in Fort Lauderdale, Florida
• 25 of sales are international

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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 couldnt take on the added risk!

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The Solution

• Ex-Im Banks 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 doesnt 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!

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Thank You!

• Q A