Destination Central America: Latin America

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Selling Overseas 101 Managing Payment Risk and
Financing the Sale Jerry Watterworth Regions
Bank [phone] Jerry.Watterworth_at_Regions.com

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Managing Payment Risk and Financing the Sale

• Getting Paid and Managing Risk
• Methods of Payment
• Credit Insurance
• Foreign Exchange
• Financing Options
• Using Letters of Credit
• Working Capital for the exporter
• Programs for the foreign buyer
• Forfaiting
• Conclusions

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Methods of Payment

• Cash in advance
• Wire transfer
• Check or draft
• US vs. Foreign
• Credit card

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Methods of Payment
Letters of Credit

• Instrument issued by a bank on behalf of a buyer
  (importer) in favor of a seller (exporter),
  promising payment upon presentation of documents
  in compliance with the letter of credit.
• Sight vs. Time (deferred payment)
• Advised vs. Confirmed
• Transferable LCs
• Back-to-Back LCs

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Export Letter of Credit Process
Regions Bank
Letter of Credit (Sight/Time)
Documents
Advising / Confirming Bank
Issuing / Opening Bank
Documents
L/C
Application
Documents
Beneficiary Seller Exporter
Goods
Applicant / Buyer Importer
Contract
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Risks and BenefitsLetters of Credit

• Importer
• Assurance that the shipped goods are as ordered.
• Payment is made after the shipment is out of
  exporters control
• Exporter
• Assurance that the payment will be made
• Banks are in the middle of the process
• Can use buyers credit to obtain goods

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Methods of Payment
Collections/Documents Against Payment

• Payment process whereby a sight draft and the
  documents are sent by the exporter (or their
  bank) to an overseas collecting bank, and
  documents are released upon payment to the
  collecting bank. It is important that the
  collection form be properly completed and the
  documents presented with the sight draft.
• Sight
• Time (or deferred)

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Documentary Collections
Transaction between Buyer and Seller whereby
documents are forwarded through banking channels
for payment and/or acceptance.
Cash
Documents
Presenting Bank
Remitting Bank
Cash
Docs
Cash
D/P
D/A
Buyer
Seller
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Risks and Benefits Collections

• Importer
• Relies on the exporter to ship goods as ordered
• Payment is made before goods can be inspected
• 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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Methods of Payment

• Open account terms
• ship the goods and wait for the payment. Keep
  your fingers crossed.
• Options
• Uninsured
• Insured

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

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Export 101 How to Finance the Sale

• Financing Options
• Using Letters of Credit
• Foreign Receivables Financing
• Working Capital for the US exporter
• Programs for the foreign buyer
• Forfaiting
• Conclusions

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Trade Finance Options

• Use the importers credit
• Transferable letters of credit
• An export letter of credit which may be
  transferred, in whole or part, to another
  beneficiary/supplier
• Back-to-Back letters of credit
• An export letter of credit used as collateral to
  issue another new commercial letter of credit to
  a supplier
• Letters of credit
• Sight
• Time
• Carry the receivable and wait for payment
• Discount the proceeds (Bankers Acceptance)

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What is Ex-Im Bank?

• Ex-Im Bank is an independent agency of the
  United States
• Established in 1934
• Headquartered in Washington, DC
• 8 sales offices
• Mission Support U.S. Exports to create and
  sustain U.S. jobs

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Trade Finance OptionsEx-Im Bank Programs

• Programs for the Exporter
• Pre-export working capital (can include foreign
  accounts receivable financing)
• Post-export Foreign Receivable Financing
• Programs for the Foreign Buyer
• Short-Term Buyer Credit Financing
• Medium-Term and Long-Term Buyer Financing via
  insurance/guarantee programs

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Pre and Post Export Financing
Programs to assist the US Exporter
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Pre Post Export Financing(Working Capital
Guarantee)

• Profile
• A US exporter of automotive parts wants to grow
  its business by expanding its product lines and
  entering new foreign markets.
• Need
• The company needs working capital to maintain
  inventory and offer terms to attract foreign
  buyers.
• Solution
• A Working Capital Guarantee supported by Ex-Im
  Bank. With the guarantee, the US exporter
  obtained a line of credit supported by export
  inventory and foreign receivables.

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Foreign Buyer Credit Financing
Programs to Assist the Foreign Buyer
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Medium Term Buyer Credit

• Profile
• A naval unit in the Dominican Republic wanted to
  buy 2 new ships and refurbish 4 existing ships to
  strengthen drug interdiction and reduce illegal
  immigration. The total cost of the project was
  26 million.
• Need
• The US supplier did not have the capacity to
  extend financing under its own facilities.
• Solution
• A Medium Term Guarantee from Ex-Im Bank allowed
  the DR Government to obtain 5-year financing for
  this project.

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Trade Finance Options - Forfaiting

• Forfaiting is the discounting of international
  trade receivables on a non-recourse basis.
• Tenors may range from a few months to several
  years (typically 3 to 5 years).
• Sums involved may range from a few hundred
  thousand to millions.
• Pricing is usually a fixed rate basis, and is
  based on the country and foreign bank risk.
• Converts a term sale into a cash transaction, and
  improves cash flow
• 100 financing, and no US-content requirements

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Financing Needs Summary

• Assess and address your working capital needs
• Meet with your bank to explore your financing
  options
• Explore LC Tools (time LCs, transferable LCs,
  Back-to-Back LCs)
• Explore government assistance programs
• Florida Export Finance Corporation, or other
  State agencies
• Small Business Administration (SBA)
• Export Import Bank of the U.S. (Ex-Im Bank)
• Financing for the exporter or the foreign buyer
• Consider Credit Insurance
• Explore Discounting Receivables

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Selling Overseas 101 Managing Payment Risk
and Financing the Sale Jerry Watterworth Regions
Bank [phone]