New export markets – who isn’t selling / buying from China?
Technology improvements - both good news and bad news
Product Delivery vs. Ability to re-create Bank Products
Increase in “web” addresses vs. hard copy purchase inquires
Compliance, Compliance, Compliance
USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act), Bank Secrecy Act (BSA), Anti-Money Laundering (AML), Boycott Clauses, OFAC Review
Customer Identification Program (CIP) requirements
Subject to contractual agreement between buyer and seller
Represented by a sales contract
Sales contract should include:
Merchandise description, quantity and value in specific currency
Method of dispatch
Expected ship and/or latest ship (or delivery) date
Shipping / Freight terms
Required export / import documentation
Who pays the related costs for freight / insurance?
Method of payment with applicable credit terms
Include bank information
Who pays Banks fees?
International Methods of Payment Methods of Payment by Risk and Cost TRADE TERMS Open Account Documentary Collections (Time / Sight) Unconfirmed Letters of Credit (Time / Sight Confirmed Letters of Credit (Time / Sight ) Payment in Advance HIGH EXPORTER RISK LOW IMPORTER RISK LOW HIGH
Risk Assessment Explained Relies completely on seller to ship goods as ordered Payment in Advance No Risk – Unless buyer requests an advance payment guarantee / SBLC Relies on seller to ship goods as described in the L/C and by when, also stated in the L/C Letters of Credit Risk of own non-performance in adhering to all requirements in the L/C Relies on seller to ship goods as described in the documents Documentary Collections Relies on buyer to pay draft on presentation of documents or at maturity No Risk Open Account Relies completely on buyer to pay as previously agreed Low Risk High Risk Buyer / Importer Seller / Exporter
Summary: An irrevocable mechanism for payment; a payment facility
A financial instrument issued by a bank on behalf of its customer (the applicant) by which the bank substitutes its own credit strength in place of its customer (the applicant) in favor of the seller (the beneficiary)
The issuing bank undertakes a commitment to the named beneficiary to pay a stated amount within a specific timeframe, provided the beneficiary complies with the terms and conditions of the L/C
A Letter of Credit is NOT a Guarantee
It’s an assurance of payment to the exporter so long as the exporter performs per the terms contained within the L/C
Uniform Customs and Practices for Documentary Credits, ICC Publication 600 (UCP 600) – new as of July, 2007
Binding on all parties unless otherwise expressly stipulated in the credit (what does the L/C state…?)
Advising Bank – notifies the exporter of the opening of an L/C in their favor. The Advising Bank fully informs the exporter of the conditions of the letter of credit without making a payment commitment.
Confirming Bank – underwrites the credit obligation of the issuing bank by adding its own irrevocable undertaking for payment in addition to the issuing bank.
If discrepant documents are presented by the exporter, confirmation is voided.
Summary: A method of payment under which documents relating to a particular shipment are released to the importer on payment or acceptance of a documentary draft drawn on the importer (by the exporter)
Documentary Collections : The exporter sends the “transaction” documents to their Bank with instructions to forward them to the importer’s Bank for payment on a sight or future (time) basis
Direct Collections: The exporter sends the “transaction” documents to the importer’s Bank by using a direct collection cover letter provided by their bank for payment on a sight or future (time) basis
Faster; exporter controls mailing of package to overseas bank
Cover letter can be completed manually or “on line”
On line – exporter tracks activity in real time
Quasi-open account - “Know your customer”
Buyer is deemed an “acceptable” credit risk
The buyer and seller utilize their banks as intermediary collection agents
Incoterms 2000 Risk transfers to the buyer at named destination consistent with buyer/seller agreement Any Mode - Air, Ocean, Rail, Truck Delivered Duty Paid (DDP) (named place of destination) Risk transfers to the buyer at named destination consistent with buyer/seller agreement Any Mode - Air, Ocean, Rail, Truck Delivered Duty Unpaid (DDU) (named place of destination) Risk transfers to buyer at names destination on the pier Ocean vessel port to port Delivered Ex Quay (DEQ) (named port of destination) Risk transfers to buyer at name destination, but onboard vessel Ocean vessel port to port Delivered Ex Ship (DES) (named port of destination) Risk transfers on arrival at the name place at the frontier as agreed in the buyer/seller agreement Any Mode - mainly truck or rail, as long as delivery will be made at a land port Delivered at Frontier (DAF) (named place) Group D Risk transfers to buyer upon delivery to first carrier, even though seller has contracted for insurance Any Mode - Air, Ocean, Rail, Truck Carriage & Insurance Paid To (CIP) (named place of destination0 Risk transfers to buyer upon delivery to first carrier Any Mode - Air, Ocean, Rail, Truck Carriage Paid To (CPT) (named place of destination) Risk transfers to buyer upon goods crossing the ship's rail, even though seller has contracted for insurance Ocean vessel port to port Cost, Insurance & Freight (CIF) (named port of destination) Risk transfers to buyer upon goods crossing the ship's rail Ocean vessel port to port Cost & Freight (CFR) (named port of destination) Group C Risk transfers to buyer upon delivery point agreed buy seller and buyer Any Mode - Air, Ocean, Rail, Truck Free Carrier At (FCA) (named place) Risk transfers to buyer upon goods crossing the ship's rail Ocean vessel port to port Free On Board (FOB) (named port of shipment) Risk transfers to buyer upon delivery alongside vessel Ocean vessel port to port Free Alongside Ship (FAS) (named port of shipment) Group F Risk transfers when shipper makes goods available to buyer at seller's facility Any Mode - Air, Ocean, Rail, Truck ExWorks (EXW) (named place) Group E Transfer of Risk Mode of Transport Incoterm Group Modes of Transport and Transfer of Risk