International Documentary Products and Trade Finance Financing Your Exports and Getting Paid May 25, 2011 Valerie Warga Global Trade Solutions ,

2 Agenda I.Impact of Global Trade II.International Methods of Payment III.Other Trading Risks IV.Trade Finance

3 Impact of Global Trade  The U.S. is the world’s largest exporter of goods and services, notwithstanding media reports that China recently overtook Germany as the leading exporter of goods. U.S. exports of goods and services surpassed 1.83 trillion in 2008 and 1.55 trillion in 2009, according to the U.S. Dept of Commerce  70% or more of the businesses involved in global trade are small or medium size. 95% of the world’s consumers live outside the U.S., according to the US Dept of Commerce  More than 50 million American workers are employed by companies that engage in international trade, representing approximately 40% of the private sector workplace, according to the U.S. Dept. of the Treasury  97% of the quarter million U.S. companies that export are small-medium sized enterprises (SME’s) and account for nearly a third of U.S. merchandise exports according to the U.S. Dept. of Commerce  The U.S. remains the world’s largest manufacturer. U.S. factories account for 21% of the world’s manufacturing value added-or 60% more than China, the second largest manufacturer, according to the UN Industrial Development Organization  The U.S. Dept. of Agriculture reports that one in every three acres on American farms is planted for export markets

4 Exporter Risk High Importer Risk Low Payment Terms Open Account Documentary Collection(Time) Documentary Collection (Sight) Letters of Credit (Time) Letters of Credit (Sight) Payment in Advance International Methods of Payment

5 Selecting Payment Terms Questions to Ask  Can your business afford the loss if the invoice 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?

6 International Methods of Payment Least risk for exporter, highest risk for importer  Payment made by importer prior to shipment  Importer’s payment methods: Wire Transfer Check Draft Credit Card  Goods are available to the importer upon delivery  There is no risk to the exporter and no credit management is required  The importer loses the use of funds until goods arrive and risks the exporter not shipping goods as ordered, in partial or not at all Payment In Advance

7 International Methods of Payment  A payment instrument issued by a bank on behalf of its client the importer in favor of a exporter, assuring payment upon presentation of documents in compliance with the letter of credit.  The issuing bank substitutes its own credit standing for that of the importer  The LC assures the beneficiary (exporter) of payment when the terms of the LC are met Eliminates exporter’s commercial risk (bankruptcy, insolvency, protracted default, etc) If confirmed, eliminates foreign bank risk and political risk (government intervention of currency, movement of merchandise, acts of war, acts of god, etc.)  The exporter is not obligated to perform if the terms of the LC are not acceptable. It is important for the exporter to communicate detailed requirements of the LC (confirmation, ship dates, transferable, shipping instructions, etc.)  Letters of Credit deal with documents only and do not remove quality or contract risks Letters of Credit

8  Less secure than a letter of credit, but more secure than open account  Payments and documents continue to flow through banks  Importer must pay before receiving the shipping documents or title to the goods  The exporter risks the importer not making payment or taking title to the goods  The importer risks goods have not shipped according to the terms of the sale  Documentary Collections does not encumber the importers line of credit  Inexpensive compared to letters of credit Documentary Collections International Methods of Payment

9 Least risk for Importer, highest risk for exporter  Goods are available to the importer upon arrival  Exporter relies on the importer to pay the invoice when due  Importer continues to maintain exporter performance risk  Only recommended for sales to long-standing customers with satisfactory payment history Open Account

10 Other Trading Risks Incoterms ® is a universally recognized set of definitions of international trade terms, developed by the International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial term like EXW, they can sell and buy without discussing who will be responsible for the freight, cargo insurance, and other costs and risks. For details visit:

11 Trade Finance Foreign Buyer Term Financing Exporters of U.S. manufactured capital goods and related services are often asked by their buyers to provide financing in order to close a sale. This is especially true in emerging markets where interest rates are high and/or access to bank financing is limited. SunTrust Bank, through our partnership with the U.S. Export-Import Bank (Ex-Im Bank) can provide financing directly to qualified overseas buyers of U.S. manufactured products and related services. Export Working Capital Guaranty Programs The US Ex-Im Bank and SBA sponsored working capital guarantee programs assist US exporters with obtaining loans for financing the production of goods or service for export. Insured Foreign Receivables Financing Post-export financing available to exporters who are shipping to overseas buyers on open account credit terms. Insured foreign receivables can be used as collateral to make financing available to exporters to ease working capital demands. SBA Export Express As a Preferred Lender with the SBA, SunTrust is able to offer an Export Express loan program to companies that meet the SBA’s criteria for eligibility and demonstrate that financing will be used towards entering a new export market or expanding an existing one. Our export express option is a streamlined program that allows us to approve SBA qualified loans with our own paperwork, documents and guidelines in less time than the standard SBA loan approval process.