1. Selling Overseas 101: Managing Payment Risk and Financing the Sale Jerry Watterworth Regions Bank (561)361-5655 Jerry.Watterworth@Regions.com

2. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 2 Managing Payment Risk and Financing the Sale  Getting Paid and Managing Risk –Methods of Payment –Credit Insurance –Foreign Exchange  Financing Options –Using Letters of Credit –Working Capital for the exporter –Programs for the foreign buyer –Forfaiting  Conclusions

3. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 3 Methods of Payment  Cash in advance –Wire transfer –Check or draft US vs. Foreign –Credit card

4. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 4 Methods of Payment  Instrument issued by a bank on behalf of a buyer (importer) in favor of a seller (exporter), promising payment upon presentation of documents in compliance with the letter of credit. –Sight vs. Time (deferred payment) –Advised vs. Confirmed –Transferable LCs –Back-to-Back LCs Letters of Credit

5. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 5 Regions Bank Issuing / Opening Bank Advising / Confirming Bank Application Beneficiary Seller Exporter Documents Contract Goods Documents Letter of Credit (Sight/Time) Documents Applicant / Buyer Importer L/C Export Letter of Credit Process

6. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 6 Risks and Benefits: Letters of Credit  Importer –Assurance that the shipped goods are as ordered. –Payment is made after the shipment is out of exporter’s control  Exporter –Assurance that the payment will be made –Banks are in the middle of the process –Can use buyer’s credit to obtain goods

7. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 7 Methods of Payment  Payment process whereby a sight draft and the documents are sent by the exporter (or their bank) to an overseas collecting bank, and documents are released upon payment to the collecting bank. It is important that the collection form be properly completed and the documents presented with the sight draft. –Sight –Time (or deferred) Collections/Documents Against Payment

8. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 8 Transaction between Buyer and Seller whereby documents are forwarded through banking channels for payment and/or acceptance. Remitting Bank Presenting Bank Cash Documents CashDocsCashD/PD/A Seller Buyer Documentary Collections

9. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 9 Risks and Benefits Collections  Importer –Relies on the exporter to ship goods as ordered –Payment is made before goods can be inspected  Exporter –Retains control of title to the goods until payment is made –Transaction is facilitated through banks –Collections are a simple and inexpensive payment method, but less secure than letters of credit

10. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 10 Methods of Payment  Open account terms – ship the goods and wait for the payment. Keep your fingers crossed…….  Options –Uninsured –Insured

11. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 11 Foreign Exchange To make or receive payments in currency other than one’s local currency To hedge against currency fluctuations To profit from currency fluctuations To buy and sell foreign assets Control costs and profit margins Reduce cost of currency conversions Minimize foreign exchange risks when borrowing in foreign currency Benefits Types of F/X Transactions: Spot (present day) Forward (agreement to buy or sell currency in the future) Flexible Window (Flexible Forward): A forward contract with a window for currency delivery (i.e., 30 day window) rather than set date Options (the rights, not obligation, to buy or sell currency in the future) Foreign Currency Accounts: Accounts utilized to hold and manage control of foreign currencies from anywhere in world Foreign Loans Lending in foreign currencies for companies with expanded business overseas (can be collateralized by accounts receivables); payments are made in foreign currencies F/X Transactions

12. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 12 Directing Methods of Payment  Be proactive - take control of the transaction  Decide what your best alternatives are and prioritize them.  Be clear - name a payment method as basis for the transaction  For L/C’s - use a letter of instruction, and request a specimen copy of l/c prior to issuance  For Drafts/Collections – check out the collecting bank before shipment  Request a review from BOTH your banker and freight forwarder prior to shipment

13. Export 101 How to Finance the Sale  Financing Options –Using Letters of Credit –Foreign Receivables Financing –Working Capital for the US exporter –Programs for the foreign buyer –Forfaiting  Conclusions

14. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 14  Use the importer’s credit –Transferable letters of credit An export letter of credit which may be transferred, in whole or part, to another beneficiary/supplier –Back-to-Back letters of credit An export letter of credit used as collateral to issue another new commercial letter of credit to a supplier –Letters of credit Sight Time –Carry the receivable and wait for payment –Discount the proceeds (Bankers Acceptance) Trade Finance Options

15. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 15  Ex-Im Bank is an independent agency of the United States –Established in 1934 –Headquartered in Washington, DC –8 sales offices  Mission: Support U.S. Exports to create and sustain U.S. jobs What is Ex-Im Bank?

16. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 16 Programs for the Exporter Pre-export working capital (can include foreign accounts receivable financing) Post-export Foreign Receivable Financing Programs for the Foreign Buyer Short-Term Buyer Credit Financing Medium-Term and Long-Term Buyer Financing via insurance/guarantee programs Trade Finance Options: Ex-Im Bank Programs

17. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 17 Borrower: Domestic Exporter Eligibility: 50% US content or added value required Mitigation: Protects against foreign buyer commercial and political risks Advance Rates: Export related A/R advance rate up to 95% Coverage: Covers 95% commercial and 100% political risk coverage on financed receivable Export Credit Insurance (Post-Export Financing) Borrower: Domestic Exporter Eligibility: 50% US content or added value required Mitigation: Covers Exporter performance risk Advance Rates: Export related A/R advance rate up to 90% Inventory must be pre-sold advance rate up to 75% Coverage: Covers 90% of the loan’s principal and accrued interest Working Capital Guarantee (Pre-Export Financing) Pre and Post Export Financing Expand international sales and market share Expand collateral base Allows customer to obtain supplier discounts Improves cash flow Mitigates foreign commercial and political risks for the Exporter and/or the Bank Benefits Programs to assist the US Exporter

18. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 18 Profile: A US exporter of automotive parts wants to grow its business by expanding its product lines and entering new foreign markets. Need: The company needs working capital to maintain inventory and offer terms to attract foreign buyers. Solution: A Working Capital Guarantee supported by Ex-Im Bank. With the guarantee, the US exporter obtained a line of credit supported by export inventory and foreign receivables. Pre & Post Export Financing (Working Capital Guarantee)

19. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 19 Foreign Buyer Credit Financing Borrower: Foreign Importer Type of Loan: Term Loan Tenor: Up to 5 years Eligibility: Ex-Im financed portion must be 100% US content including products and/or services Coverage: Coverage is 100% of the remaining 85% to be financed Product: Capital goods and related services financing Medium-Term Buyer Financing Improves cash flow for both importer and exporter Reduces foreign commercial and political risks for the Exporter and the Bank Increases competitive position by financing at interest rates that are lower than what is available in most foreign countries Benefits Short-Term Buyer Financing (FIBC) Borrower: Foreign Importer Type of Loan: Revolving Line of Credit Tenor: Up to 360 Days Eligibility: 50% US content or added value required on goods and/or services financed Coverage: Up to 98% of commercial and political risk Product: Consumer durable goods, bulk agricultural and capital goods Programs to Assist the Foreign Buyer

20. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 20 Profile: A naval unit in the Dominican Republic wanted to buy 2 new ships and refurbish 4 existing ships to strengthen drug interdiction and reduce illegal immigration. The total cost of the project was $26 million. Need: The US supplier did not have the capacity to extend financing under its own facilities. Solution: A Medium Term Guarantee from Ex-Im Bank allowed the DR Government to obtain 5-year financing for this project. Medium Term Buyer Credit

21. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 21 Trade Finance Options - Forfaiting  Forfaiting is the discounting of international trade receivables on a non-recourse basis.  Tenors may range from a few months to several years (typically 3 to 5 years).  Sums involved may range from a few hundred thousand to millions.  Pricing is usually a fixed rate basis, and is based on the country and foreign bank risk.  Converts a term sale into a cash transaction, and improves cash flow  100% financing, and no US-content requirements

22. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 22 Financing Needs Summary  Assess and address your working capital needs: –Meet with your bank to explore your financing options –Explore LC Tools (time LCs, transferable LCs, Back-to- Back LCs) –Explore government assistance programs Florida Export Finance Corporation, or other State agencies Small Business Administration (SBA) Export Import Bank of the U.S. (Ex-Im Bank) –Financing for the exporter or the foreign buyer –Consider Credit Insurance –Explore Discounting Receivables

23. The U.S. Commercial Service. Your Global Business Partner. export.gov 800.USA.TRADE 23 Selling Overseas 101: Managing Payment Risk and Financing the Sale Jerry Watterworth Regions Bank (561) 361-5655