FinancingFinancingInternational Trade & International Trade &

TransactionsTransactionsDr. Katalin CsekőDr. Katalin Csekő

Trade FinanceTrade FinanceTrade finance is needed both by the exporter Trade finance is needed both by the exporter

and importerand importer Exporter:Exporter: gap between time of delivery time and gap between time of delivery time and

of the payment actually made;of the payment actually made; Importer: Importer: gap between the time he has paid for gap between the time he has paid for

the goods and the time the goods are sold for a the goods and the time the goods are sold for a profit.profit.

Why is financing needed?Why is financing needed? to bridge the time gaps and lapses;to bridge the time gaps and lapses; to ensure the smooth operation;to ensure the smooth operation; to avoid cash flow problems;to avoid cash flow problems; Self-financing if banks are reluctant to do so;Self-financing if banks are reluctant to do so;

Forms of trade financingForms of trade financingMost common trade financing instruments are: Most common trade financing instruments are:

(deferred payments)(deferred payments)

Documentary collection;Documentary collection;

Discounting of bills of exchange;Discounting of bills of exchange;

Documentary credit; Documentary credit;

Factoring;Factoring;

Forfeiting;Forfeiting;

Lombard crediting; Lombard crediting;

How to finance the exporterHow to finance the exporter 1.1.

Possibilities for the exporter:Possibilities for the exporter:

► CreditCrediteded by the bank, by the bank,

► If the export deal incorporates the use of:If the export deal incorporates the use of:

Bill of Exchange;Bill of Exchange;

Documentary collection;Documentary collection;

Documentary credit; (L/C)Documentary credit; (L/C)

Exporter may obtain cash: by negotiation Exporter may obtain cash: by negotiation

of the documents or discounting the bill.of the documents or discounting the bill.

How to finance the exporterHow to finance the exporter 22

► Payment can be done: Payment can be done:

With recourseWith recourse: the bank will have a recovery : the bank will have a recovery

/reimbursement from the exporter if the bill of /reimbursement from the exporter if the bill of

exchange remains unpaidexchange remains unpaid;;

Without recourse Without recourse if the bank will not have if the bank will not have

the amount of the bill of exchange as to its the amount of the bill of exchange as to its

tenor, it has no right for recovery;tenor, it has no right for recovery;

How to finance the How to finance the importersimporters

Deferred payment; Money transfer without Deferred payment; Money transfer without security tool at a defined time; Current-security tool at a defined time; Current-debt/liability=accounts payable;debt/liability=accounts payable;

Documents against payment type of Documents against payment type of documentarydocumentary collection;collection;

Documentary credit with acceptance, and Documentary credit with acceptance, and with deferred payment;with deferred payment;

Bank-credit or loan;Bank-credit or loan;

Documentary collectionDocumentary collection 1 1..

►Debiting vs. Documentary collection;Debiting vs. Documentary collection;►Usage set up by ICC→ URC 522;Usage set up by ICC→ URC 522;►Actors: Actors: ►Principal= Exporter → has to bear all Principal= Exporter → has to bear all

costs of the process; Remitting costs of the process; Remitting bank= seller’s bank; Presenting & bank= seller’s bank; Presenting & Collecting bank= Buyer’s bank;Collecting bank= Buyer’s bank;

►Documents: commercial vs. Financial Documents: commercial vs. Financial (B/E, cheque)(B/E, cheque)

Documentary collectionDocumentary collection 2. 2.

► At sight = D/P type;At sight = D/P type;►Deferred payment= D/A type;Deferred payment= D/A type;► Forms: Forms: ►Open account trade: goods to be delivered Open account trade: goods to be delivered

to the address and to the order of the to the address and to the order of the buyer;buyer;

► Indirect: to the address of the buyer/or Indirect: to the address of the buyer/or forwarder and to the order or the bank; forwarder and to the order or the bank;

►Direct: to the address and to the order of Direct: to the address and to the order of the bank; the bank;

BILL OF EXCHANGEBILL OF EXCHANGE 1 1NEGOTIABLE (Transferable) Payment NEGOTIABLE (Transferable) Payment

INSTRUMENT;INSTRUMENT;

Different national regulations are Different national regulations are

based on:based on:► UK Bills of Exchange Act 1882;UK Bills of Exchange Act 1882;► Uniform Law on Bills of Exchange, Geneva Uniform Law on Bills of Exchange, Geneva

Convention 1932; (mainly Europe(Convention 1932; (mainly Europe(► UCC;UCC;► UNCTAD Uniform Convention;UNCTAD Uniform Convention;

B/E B/E Parties involvedParties involved Bill of Bill of

Exchange 2Exchange 2

► The Drawee: The Drawee: to whom the bill is addressed, the to whom the bill is addressed, the buyer, a bank which will pay on the buyer’s behalf;buyer, a bank which will pay on the buyer’s behalf;

► The DrawerThe Drawer: the seller, the person who draws the : the seller, the person who draws the bill;bill;

► The PayeeThe Payee endorses the Bill of Exchange in favor endorses the Bill of Exchange in favor of the next beneficiary (endorsee) full or in blank; of the next beneficiary (endorsee) full or in blank; The seller is commonly the payee;The seller is commonly the payee;

► The PayeeThe Payee: the beneficiary, who gets the money;: the beneficiary, who gets the money;

► The AcceptorThe Acceptor: the drawee, as soon as he has : the drawee, as soon as he has signed his name across the Bill of Exchange/ signed his name across the Bill of Exchange/ willingness to pay the Bill of Exchange at maturity.willingness to pay the Bill of Exchange at maturity.

► The EndorserThe Endorser: the Payee or any other person who : the Payee or any other person who signs his name on the back of the Bill of Exchange.signs his name on the back of the Bill of Exchange.

The core elements Bill of The core elements Bill of Exchange 3Exchange 3

UNCONDITIONAL UNCONDITIONAL PROMISE OR PROMISE OR ORDER ORDER TO PAY;TO PAY; SUM CERTAIN IN MONEY;SUM CERTAIN IN MONEY; REQUIRING THE PERSON TO WHOM IT IS ADDRESSED TO REQUIRING THE PERSON TO WHOM IT IS ADDRESSED TO

PAY, ON DEMAND, OR AT A FIXED OR DETERMINABLE PAY, ON DEMAND, OR AT A FIXED OR DETERMINABLE FUTURE TIME, FUTURE TIME,

TO OR TO THE ORDER OF A SPECIFIC PERSONTO OR TO THE ORDER OF A SPECIFIC PERSON= HOLDER = HOLDER IN DUE COURSE=FREE OF ANY CLAIM AND DEFENSES OF IN DUE COURSE=FREE OF ANY CLAIM AND DEFENSES OF ANY THIRD PARTIES;ANY THIRD PARTIES;

TO BEARER, HOLDERTO BEARER, HOLDER;; THE RULES OF B/E IS TO BE APPLIED TO B/L AND OTHER THE RULES OF B/E IS TO BE APPLIED TO B/L AND OTHER

DOCUMENTS OF TITLE (CERTIFICATE OF INSURANCE, DOCUMENTS OF TITLE (CERTIFICATE OF INSURANCE, WAREHOUSE WARRENT)WAREHOUSE WARRENT)

Geneva ConventionGeneva Convention Bill of Bill of Exchange Exchange 44

The followingThe followingss must be stipulated in a valid B/E: must be stipulated in a valid B/E:► 1.The tenor of 1.The tenor of Bill of ExchangeBill of Exchange is to be drawn up in is to be drawn up in

the language the instrument;the language the instrument;► 2.Unconditional order to pay a sum certain in money 2.Unconditional order to pay a sum certain in money

=quasi money; =quasi money; ► 3. The name of the 3. The name of the person who is called upon to person who is called upon to

pay = drawee;pay = drawee;► 4. The due date of payment: at sight /deferred time;4. The due date of payment: at sight /deferred time;► 5. The place where payment is due;5. The place where payment is due;► 6. The name of the 6. The name of the person to whom or to whose person to whom or to whose

orderorder payment is to be made= payee;payment is to be made= payee;

► 7. The date and place where the Bill of Exchange has 7. The date and place where the Bill of Exchange has been issued;been issued;

► 8. The signature of the8. The signature of the person who issues the Bill person who issues the Bill of of Exchange= drawer; Exchange= drawer;

Negotiation of the Bill of ExchangeNegotiation of the Bill of Exchange 5 5

by endorsement by endorsement if there is an order if there is an order clause (to the order of) or it is missingclause (to the order of) or it is missingfull orfull orblank endorsementblank endorsementIncludes the physical delivery;Includes the physical delivery;

by cessionby cession before the notary public, if the before the notary public, if the paper paper not to order”.not to order”.

Discount calculations Bill of Exchange 6Discount calculations Bill of Exchange 6

discount on a Bill of Exchange of USD 1.000.000,- for discount on a Bill of Exchange of USD 1.000.000,- for 91 days at 8,5% would be:91 days at 8,5% would be:

discount=discount= principalprincipal 1.000.000 1.000.000 x __8,5 x __8,5 % % x 91x 91 daysdays

360 360 x 100x 100

payee gets: USD 1.000.000,- 21.486= 978.514,-USDpayee gets: USD 1.000.000,- 21.486= 978.514,-USDPayee gets: principal less discount.Payee gets: principal less discount.

Promissory NotePromissory NoteDate and Place of Issuance: Date and Place of Issuance: Budapest, 10th September 2011.Budapest, 10th September 2011.

I Interker Kft. (Address, Registry. No.) pay against I Interker Kft. (Address, Registry. No.) pay against thisthis

promissory note promissory note to the orderto the order of Helm Hamburg Co. (Address, of Helm Hamburg Co. (Address,

Registry. No.) Registry. No.) EUR 50.000,- FiftyEUR 50.000,- Fifty Thousand EUR on NovemberThousand EUR on November 11, 11,2011 in Budapest2011 in Budapest at at Citibank Budapest Citibank Budapest AAcccc. . No 13-No 13-

45679034 45679034 Peter.Peter. J J FoldesFoldes

Interker KftInterker KftBudapestBudapest

The Bill of ExchangeThe Bill of Exchange

Date and place of issue:Date and place of issue:Budapest 16th October 20Budapest 16th October 201111Pay against this Bill of Exchange to the order ofPay against this Bill of Exchange to the order ofSmith and Co Ltd New York USD 20.000,-, TwentySmith and Co Ltd New York USD 20.000,-, TwentyThousand USD on 16th December 2011 inThousand USD on 16th December 2011 inNew York, Credit Bank New York Account New York, Credit Bank New York Account

No.34519987No.34519987

DDrrawn to:awn to: Issued by: Issued by:Black and White Ltd Trader Co Black and White Ltd Trader Co New York BudapestNew York Budapestdraweedrawee drawer drawer