Presentation on theme: "Export Payment Methods and Financing Webinar Tekle Sebhatu, Ph.D. November 18, 2011"— Presentation transcript:
Export Payment Methods and Financing Webinar Tekle Sebhatu, Ph.D. November 18, 2011 http://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 ImporterAmerican Exporter 1. Exporter Ships the Goods 2. Importer pays after the Goods are Received
Consignment Brazilian ImporterAmerican 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 Bank 4. Bank Delivers Docs. 5. Importer Pays 6.Bank Provides Docs 8.Exporters 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: Buyers bank issues the LC. The Advising Bank: Sellers bank Authenticate LC and advise seller The Negotiating Bank: Sellers Bank, reviews documents (LC) documents, forwards to the Issuing Bank (Importer bank). The Confirming Bank: Sellers 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 ImporterAmerican Exporter American Advising Bank 7 2 10 9 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
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 14
What Lenders Look! Collateral Character Cash flow The 5 C Lenders Look When Evaluating Loans The 5 C Lenders Look When Evaluating Loans Capital Conditions
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 Loan maturity – 5-10 years (working Capital) or 10-15 years (machinery and equipment) Qualify- 12 months in business
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