How to Get Paid For and Finance Your Export Sales

AIM Seminar 2010

SunTrust International
Marsha Sompayrac (804) 782-5558 782Marsha.sompayrac@suntrust.com HaiHai-nah Ellison( (804) 782 7476 HaiHai-nah.ellison@suntrust.com Richmond, Virginia
2

INTERNATIONAL METHODS OF PAYMENT

Trade Terms Exporter Risk Open Account High Importer Risk Low

Documentary Collection(Time) Documentary Collection (Sight) Letters of Credit (Time) Letters of Credit (Sight) Payment in Advance

International Trade Banking

Open account... are you really sure? (You ship the goods, they sell them and then pay you...maybe)

How can we be sure hell pay?!

Cash in Advance?
(They send you the money then you ship the goods!)
Be careful! Dont ship before you are sure you are in receipt of collected funds
wire transfer: make sure they have complete instructions & verify receipt check - determine that check has been paid by drawee bank foreign check - may take up to 3 weeks to clear
5

Trade Services
(Traditional Bank Products)
A. Letter of Credit (sight) The buyers bank promises to pay the seller if the seller presents documents that comply with the conditions listed in the letter of credit. Payment will be at sight (immediate) upon presentation of conforming documents. Letter of Credit (time) The same as above except that payment will be at a designated time after presentation of compliant documents. Example: 30 days after bill of lading date. Provides terms for buyer but seller must wait for payment. LC Discount & Acceptance (time) A simple form of trade finance, which gives the buyer time to pay but your company receives cash following shipment. Build in the cost!!
6

B.

C.

Trade Services (Traditional Bank Products) (continued)

D. Collections (sight) Similar documents as in letter of credit but there is neither bank examination nor promise of payment by bank. Should be used with strong or long established buyer as it carries risk of nonnonpayment by the buyer. . Collections (time) Similar to sight, but gives buyer time to pay. Like open account but carries a protest mechanism.

E.

Commercial Letter of Credit

arrangement by a bank to settle international commercial transaction provides a measure of security for parties involved creates contractual framework for trade transaction payment

Letters of Credit
L/Cs are a payment mechanism, not a quality assurance device. device. To assure quality, product inspection must be made. (e.g.: SGS or other method) Bank guarantee of payment. If the documents outlined in the Letter of Credit are in complete compliance with the terms and conditions of the letter of credit, payment will be made. Documents are checked for discrepancies, or differences between what is required and what is submitted. Discrepancies will usually delay payment.
9

Payment under L/C is effected

against receipt of documents only...not against shipment or examination of merchandise if documents comply with credit terms

10

Confirmed Letter of Credit

A confirmed letter of credit carries the obligation of both the issuing bank and the confirming bank to pay the exporter if the terms and conditions of the credit are met.
Foreign country risk is eliminated, as the risk moves to the US bank. Cash flow may improve, as payments are from a US vs. Overseas bank. Additional expense, as another bank (confirming) is now involved in the transaction.
11

If you want your L/C confirmed...

consult with SunTrust Bank whether or not L/C can be confirmed, if issued request confirmation when setting up sales contract with buyer determine up front who will pay confirmation commission

12

Letters Of Credit Standby

Bid Bonds Performance Bonds

Standby Letters Of Credit

Advance Or Down Payment Guarantee

Guarantees

13

Documentary Collections
International Method of Payment No Credit Approval Required Collection processing handled in Atlanta SunTrust acts as collecting bank for payment against shipping documents pertaining to international transaction Not recommended for sales on extended terms
International Trade Banking
14

One of the most common questions for people interested in international trade is What is the best method of payment for international shipments?
Terms of Trade Time of Payment Cash In Advance Letter of Credit Bef re s i e is Goods Available to Risk to Exporter Buyer ent After ent N ne Risk to Importer Relies n exporter to s ip oods s ordered

When shipment is made

After payment Very little, or none, Ass red shipment is depending on made t relies on terms exporter to ship goods as ordered After payment If draft is npaid, must dispose of goods Before payment Relies on uyer to pay as agreed ame as unless allowed to inspect goods None 15

Collection

On presentation of draft to yer As agreed

Open Account

One of the most common questions for people interested in international trade is What is the best method of payment for international shipments? (continued)
Seven F t r t nsi er
Cash 1. Customer relationship 2. Nature of order 3. 4. olitical situation conomic situation New Custom Unstable Unstable No Yes Yes

ef re Settling
Letter f Credit New Custom Unstable Unstable No Yes Yes

ent er s
Collection Established Normal Stable Stable Yes No No Open Account Established Normal Stable Stable Yes No No
16

5. Competitors offer terms 6. isk of price changes

7. Need to control cash flow

These methods are fine but what if your customer wants extended terms of payment or your competitors are offering better terms? Trade Finance may be the solution to your customers needs and the way to make exports a manageable part of your growth strategy. Trade Finance Who Can Receive Financing? ** Seller (Exporter) ** Buyer (Importer) ** Buyers Bank (If buyers credit is poor) ** Foreign Country or Agency
17

Trade Finance Tools

Export-Import Bank of the U.S. Pre Export Working Capital Program Insurance and Guarantees for short, medium and long term financing Private Insurance covering commercial and political risk

International Trade Banking

18

EXIM Bank Programs

1. EXIM Bank Programs US Government Agency that supports US exporters whose products contain at least 50 percent US content. EX-IM Bank does not EXcompete with commercial lenders, but assumes the risks they cannot accept. Short term, medium term, and long term financing programs Coverage in over 150 countries Some restrictions to the program (military exports and some countries are excluded)

19

EXIM Working Capital Gntee

. PrePre-Export Financing **Assists US exporters to obtain loans to produce goods or services for export. Exim guarantee repayment to the lender, making it possible for banks to extend financing to the exporter. ** Loans Can Be either Transaction Specific or Revolving ** High Advance Rates on Inventory and Receivables, including Work in Process
20

EXIM Medium Term Program

b.

Guarantee or Insurance Post Export Financing Foreign Buyer Financing

**1-5 year repayment, exceptionally 7 years and <$10 million **1** 15 percent down payment, 85 percent financed amount ** Guarantees can be used for both products and services ** Fixed Rate or Floating Rate Financing Available
21

EXIM Long Term Program

Long Term Guarantee/Loan Amounts over $10 million and > 7 years 15 percent down payment, 85 percent financed amount Buyer financing of very large items (aircraft) and project finance EXIM will consider making loan directly to the foreign buyer. No US commercial bank exposure.
22

Export Credit Insurance

Available through EXIM Bank and Private Sector Insurers **Enables US exporters to extend open account credit terms to international buyers.. Insured export receivables looked upon favorably by banks. **Provides policies that protect US exporters against foreign buyer default
Commercial risk insurance (buyer bankruptcy and insolvency) Political risk (war, inconvertibility of currency)

** Short Term and Medium Term Insurance Policies ** Multi Buyer or Single Buyer Policies
23

Avoid Quoting Price without knowing the financing details! details! Train your sales team to build your portion of financing costs into the sale. This minimizes eroded margin and is exactly what your foreign competition is doing

24

International Banking at SunTrust

Offering a full range of international financial solutions to meet our clients needs including: International Methods of Payment and Currency Risk Management to facilitate trade and mitigate financial risks Financing vehicles for importers and exporters Established global network of correspondent banks Focus on high quality service and finding customized solutions
International Trade Banking
25