September 26, 2012
Welcome to the Webinar
"Understanding International
Payment Risks and Export
Financing Solutions”
The webinar will
start shortly
Today’s Presenters….
Julie Balzano
Export Development Director
NMMA
Pembroke Pines, FL
Charlotte Starfire
Director
SunTrust, Global Trade
Solutions
Atlanta, GA
Rebecca Torres
Commercial Officer,
U.S. Department of Commerce,
Clearwater, FL
Ian MacDonald
President
Underwater Lights USA, LLC
Fort 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
–
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USA Pavilions at International Shows
Webinars
Inbound buying delegations to Miami Boat Show
Market research tools
Trade lead program
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 Officer
U.S. Export Assistance Center, Clearwater, FL
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
USFCS/NMMA Strategic Partnership
Sign 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, 2012
Prepared for:
National Marine Manufacturers Association
Charlotte Starfire
September 26, 2012
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…
‹#›
Risks of International Trade
Language
Currency
Banking regulations
Credit terms and risks
Transportation / Packaging
Insurance – Shipping – War
Regulations and laws vary by country
‹#›
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
‹#›
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
‹#›
International Methods of Payment
Comparison of Risks
Exporter Risk
High
Trade Terms
Importer Risk
Open Account
Low
Documentary Collection (Time)
Documentary Collection (Sight)
Letters of Credit (Time)
Letters of Credit (Sight)
Payment in Advance
‹#›
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 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?
‹#›
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
‹#›
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.
‹#›
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
‹#›
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 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?
‹#›
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
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.
‹#›
Risks and Benefits of Documentary Collections
Importer
 Relies on the exporter to ship goods as ordered
 Payment is made before goods can be inspected
 Doesn’t tie up buyer’s 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
‹#›
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
‹#›
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, > 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
‹#›
Financing Strategies for Exporters
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
Export-Import Bank of the U.S.
 Export Working Capital
Program
 Foreign Buyer Financing
 Export Credit Insurance
 Delegated Authority Lender
U.S. Small Business Administration
 Export Working Capital
Program
 Export Express
 International Trade Loans
 PLP Status
‹#›
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.
‹#›
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
‹#›
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
‹#›
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.
‹#›
Directing Methods of PaymentPlan 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/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
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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
‹#›
Contact SunTrust for International Services
 Charlotte Starfire
 Director
 Global Trade Solutions
 303 Peachtree Center
 Suite 225
 Atlanta, GA 30303
 404-588-7508
 [email protected]
‹#›
A Real Life Testimonial….
• Manufacturer of underwater lights
• Based in Fort Lauderdale, Florida
• 25% of sales are international
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
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