Export Payment Methods and Financing Webinar

Tekle Sebhatu, Ph.D.

November 18, 2011http://www.stcinternational.us

stcintL@q.com

Import Payment Methods and Risks Agenda

• The different payment methods• Questions you should consider before

selecting payment method• Risk associated with each payment method• Letter of credit and discrepancies• Financing options• Q & A

Consider the Following Questions Before Selecting Payment Method

• Do you have a good relationship with your buyer?• Can you extend credit? • What payment method are you asking? Why?• Do you need financing to make the purchase from

your supplier (middleman)?• What are your options if buyer refuse to accept the

product? What will you do?• Can you afford to loss it all and your business

survives?

Payment In Advance

Brazilian Importer

American Exporter

1. Importer Pays for Goods

2. Exporter Ships Goods After Being Paid

Open Account

Brazilian Importer American Exporter

1. Exporter Ships the Goods

2. Importer pays after the Goods are Received

Consignment

Brazilian Importer American Exporter

1. Exporter Ships the Goods

2. Importer pays after the Goods are Resold

Consignment• Buyer receives goods before payment• Buyer pays on agreed terms of payment after

goods are resold.• Goods available to buyer upon delivery• Buyer: No risk• Seller: High risk (relies on buyer to sell and pay)• Seller often extends credit to buyer to remain

competitive

Documentary Collection

Figure 15-3

2. Exporter ships Goods

Brazilian Bank

3.Exporter Delivers

Docs.

1. Negotiation

Brazilian ImporterAmerican Exporter

American Bank4. Bank Delivers

Docs.

5. Importer

Pays

6.Bank Provides

Docs

8.Exporter’s

Bank Pays

Exporter 7. Bank

Pays

Documentary Collection Document Against Payment(D/P) or Sight Draft

• Buyer pays to receive documents (Presentation of the draft)

• Goods available to buyer after payment is made

• Buyer risk: might receive wrong goods• Seller risk: buyer not paying for the goods• Not used for extended terms.

Principal Parties to a Letter of Credit Transaction

• The Applicant: Buyer (importer) requesting LC to be issued.

• The Beneficiary: Seller (exporter) in whose favor the LC is issued.

• The Issuing Bank: Buyer’s bank issues the LC.

• The Advising Bank: Seller’s bank Authenticate LC and advise seller

• The Negotiating Bank: Seller’s Bank, reviews documents (LC) documents, forwards to the Issuing Bank (Importer bank).

• The Confirming Bank: Seller’s Bank, guarantees payment to seller if the Issuing Bank fails to pay (Optional).

Types of Letters of Credit

• Revocable or Irrevocable• Transferable• Back-to-back• Usance• Red clause• Revolving• Standby

Letters of Credit

Figure 15-3

5

Brazilian

Issuing Bank

4

1 Brazilian Importer

American Exporter

American

Advising Bank 7

2 109

3

6

8

11

Common Discrepancies

• Letter of Credit Expired• Late Presentation of

Documents• Late Shipment• Short Shipment• Shipment - Incorrect

Ports• Incorrect Insurance

• Inconsistent Documents

• Description Differ on L/C and Invoice

• Partial shipment not allowed

• Documents Not Signed

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Benefits of Using LC to Buyer• Timely delivery of goods• Buyer in a better position to ask better prices

and faster deliveries.• May attract large number of suppliers who

believe in LC• Power to refuse payment if there are any

mistakes in the documents • Risk of loosing money is minimized if the

seller fails to provide all shipping documents

What Lenders Look!What Lenders Look!

CollateralCollateral

CharacterCharacter

Cash flowCash flow

The 5 “C” Lenders

Look When Evaluating Loans

The 5 “C” Lenders

Look When Evaluating Loans

CapitalCapital

ConditionsConditions

Private Sector Financing OpportunitiesPrivate Sector Financing Opportunities

Private Sector Export

Financing

Export intermediariesExport intermediariesPrivate trade finance companies

Private trade finance companies

FactoringFactoringBuyers and suppliers

ForfaitingForfaiting

Commercial BanksCommercial Banks

U.S. Small Business Administration

Ex-Im Bank Programs

SBA Export Express Loan • Participate in foreign trade show• Translation of product brochure/catalog• General lines of credit for export purposes• Transaction specific/complete export orders• SBA Guaranty

• 85% of loan up to $150K• 75% of loan $150K - $250K (maximum)

• Terms (negotiate fixed or variable with lender)• 6.5% over prime for <$50K OR 4.5% loan > $50K

• Loan maturity – 5-10 years (working Capital) or 10-15 years (machinery and equipment)

• Qualify- 12 months in business

Free Powerpoint template from www.brainybetty.com

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Thank You for participating!

For additional information please visithttp://www.stcinternational.us

Email: stcintL@q.com