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  • 1. International Methods of Payments and U.S. Government Int’l Finance Programs Dennis R. Chrisbaum Regional Manager, International Trade Program U.S. Small Business Administration U.S. Export Assistance Center 1625 Broadway, Suite 680 Denver, Colorado 80202 Tel: 303.844.6623 x 18; Fax: 303.844.5651 [email_address]
  • 2. Overview of Presentation
    • What risks are inherent to international business?
    • How do I get paid for international transactions?
    • What are the risks related to each method of payment?
    • How do I evaluate and mitigate those risks?
    • What financial support is available for exporters, including U.S. government programs?
  • 3. Risks Associated with Global Trade
    • Political
    • Economic
    • Cultural
    • Regulatory/legal
    • Commercial
    • Logistical
    • Financial
  • 4. International Risks
        • & 2. Political & Economic risks—research and insurance.
          • Country Watch: www.countrywatch.com
          • Economist Intelligence Unit: www.economist.com/countries
          • Political Risk Services: www.prsgroup.com
          • AIG— http://home.aigonline.com
  • 5. International Risks
    • 3. Cultural--education and training
        • Local training programs, colleges, etc.
        • Does and Taboos Around the World— by Roger Axtell
        • www.culturegrams.com;
        • www.executiveplanet.net www.executirveplanet.net
    • 4. Regulatory and legal
        • research and legal advice—ELAN program-- www.fita.org/elan
        • www.buyusa.gov/europeanunion
  • 6. International Risks
        • 5. Commercial Risks--credit checks and credit insurance
        • A. Credit agencies
        • Dun & Bradstreet: www.dunandbradstreet.com
        • Graydon America: www.graydonamerica.com
        • Credit Risk Monitor: www.crmz.com w.owens.com
        • Coface USA
          • www.coface-usa.com
  • 7. International Risks
        • B. Credit Insurance on Open Account Sales
          • Export-Import Bank: www.exim.gov
          • FCIA Management: www.fcia.com
          • Euler Hermes
          • www.eurlerhermes.com
          • Coface:
          • www.coface-usa.com
  • 8. International Risks
        • 6. Logistics/geographic—research , a good freight forwarder, and insurance
    • 7. Financial
        • international banking (methods of payments, foreign exchange, wires)
        • government financing and insurance programs can help
  • 9. International Methods of Payment
    • Cash in Advance—wire transfer/credit cards
    • Documentary Letters
    • of Credit
    • 3. Documentary Collections
    • --documents against cash
    • --documents against acceptance
    • 4. (Insured) Accounts Receivable
  • 10. Payment Method and Risk
    • Cash in Advance
    • Letter of Credit
    • Doc Collections
    • Open Account
    HIGH RISK Risk to Buyer LOW RISK HIGH RISK LOW RISK Risk To Seller
  • 11. Cash In Advance
    • Importer
    Importer’s Bank 2. Wire Transfer Exporter 1.Purchase Order/Contract 4. Ships goods 3. Payment Exporter’s Bank 5. Goods Received
  • 12. Letter of Credit Flow
    • Importer
    Importer’s Bank 2. Opens Letter of Credit Exporter’ Bank Exporter 1.Purchase Order/Contract 3. Transmits L/C 4. Advises, may confirm, L/C 5. Ships goods 6. Presents documents 7. Presents docs 8. Payment 9. Payment 10. Goods Received
  • 13. Documentary Collections
    • Importer
    5. Delivers Documents for Cash or Agreement to Pay Importer’s Bank Exporter’ Bank Exporter 1.Purchase Order/Contract 2. Ships goods 3. Delivers documents 4. Delivers docs 7. Payment 8. Payment 6. Provides Cash or Agreed to Pay for docs 9. Receives goods
  • 14. Open Account
    • Importer
    5. Wire transfer Importer’s Bank Exporter’ Bank Exporter 1.Purchase Order/Contract 2. Ships goods 6. Payment 3. Receives goods 4. Provides cash on a later date
  • 15. International Methods of Payment
    • 1. Who sets the method of payment?
    • 2. Competitive pressures, customer relations, regional preferences and, sometimes, regulations
    • 3. Method of payment will determine the financing needed for the transaction
  • 16. Trade & Investment Financing
    • A. International division of banks
    • - Letters of credit; documentary collections
    • - Foreign exchange; wire transfers
    • B. U.S. Small Business Administration , www.sba.gov/oit .sa.go
    • i . Export Express --to $150,000 with 85% guaranty; to $250,000 with a 75% guaranty
    • ii . Regular 7(a) loans --up to $2 million for fixed assets and working capital, with 75% SBA guaranty
    • iii. Export Working Capital Program --up to $2.0 million loan amount, 90% guarant y
    • C. Export-Import Bank of the United States (Eximbank)
    • D. Overseas Private Investment Corporation (OPIC)
  • 17. Transactional Financing
    • Pre-shipment Shipment Post-Shipment
    • PERFORMANCE RISK FINANCIAL RISK
    • Production costs Receivables financing
    • Material Buyer financing
    • Labor SBA/Eximbank
    • Inventory
    • Performance or Bid
    • Bonds
    • SBA/Eximbank
  • 18. Sources of Pre-shipment Working Capital Pre-Shipment 1. Buyer - cash in advance 2. Supplier - supplier credit or terms 3. Bank loan secured by collateral and/or a government guaranty **A Letter of Credit is not collateral until its terms and conditions have been performed 4. Export Finance Companies and Export Trading Companies
  • 19. Sources of Pre-shipment Working Capital
    • Post-Shipment
    • Commercial bank – discounted
    • draft or letter of credit
    • 2. Factoring or forfaiting of Accounts Receivable
    • 3. Bank loan secured by:
    • - collateral
      • - assignment of proceeds under a letter of credit
      • - assignment of proceeds under a credit insurance policy; and/ or
      • - a government guaranty
  • 20. Use of Proceeds: EWCP Loan
    • Pre-Shipment
    • Labor, inventory, materials
    • --disbursements made against a letter of credit, contract, purchase order, invoice, etc.
    • 2. Stand-by letters of credit
    • --serving as performance or bid bond
    • Post-Shipment
    • 1. Accounts receivable
    • --insured, or a strong buyer
  • 21. Eligibility Requirements: EWCP Loan
    • SBA’s 7(a) size and ownership
    • standards apply
    • 12 months of operating history
    • Transaction-based; no development
    • expenses
    • Disbursed against specific transactions
    • and/or resulting (insured) receivables
    • Eximbank’s country limitation schedule
    • (CLS) applies,see: www.exim.gov
    • Analysis:
    • 1) is the deal structured correctly,
    • 2) can the borrower perform as agreed,
    • 3) can we get paid/how secure is the method of payment ?
  • 22. Typical Advance Rates, Collateral & Fees
    • Typical Advance Rates :
    • 75% against inventory, WIP
    • 85% against insured, foreign A/R
    • 90% against Letter of Credit
    • Collateral
    • 1. Inventory and work-in-process
    • 2. Resulting foreign accounts receivable
    • 3. Assignment of proceeds under:
    • --documentary letters of credit
    • --credit insurance policies
    • 4. Other assets as required by the lender
    • 5. Personal guarantees of 20% or more owners
    • Guaranty Fee:
    • * .25% of guaranteed amount, if 12 months or less
  • 23. SBA’s Export Working Capital Program
    • Parameters
    • up to $1.66 million with 90% SBA guaranty
    • up to $2.0 million with 90% SBA/Eximbank
    • co-guaranty
    • single transaction or revolving line of credit
    • pre-shipment, post-shipment or combination
    • manufacturers, service providers, wholesales or brokers are all eligible, even if an indirect export (through another exporter of record)
    • 51% U.S. content only if Eximbank is involved
    • no military sales only if Eximbank is involved
  • 24. Case Study: Pre-shipment WC
    • Order:
    • 25 units, digitizing equipment
    • Production cycle: 2 units/wk
    • Transaction:
    • $205k L/C payable at sight
    • Partial shipments allowed
    • Expiry, four months
    • Working Capital Need:
    • $150k to produce order
    • Company : 2 years in R&D
  • 25. Case Study: Post-Shipment WC
    • Order: $300k
    • Install closed-circuit TV system
    • Mexico, March 1995
    • Transaction :
    • From COD to 12-month open account
    • 20% down ($60k); $240k AR
    • 12 monthly payments, principal ($20k) + 10% (US) interest
    • Exim Single Buyer Policy~3.5%
    • Working Capital Need:
    • $180k; down: $60k; profit: $60k
  • 26. Case Study: Performance Guaranty
    • Order
    • $660K for 9 modular pumping units for a mine in Chile
    • Transaction:
    • 50% ($330k) advance payment
    • 20%, final shipment; 20% delivery to mine site; 10% held back as 12-month warranty
    • Working Capital Need
    • $330k to support Standby LC for advance payment, 3 months
  • 27. Export-Import Bank
    • 1. Export Working Capital -- www.exim.gov
    • loans over $2.0 million
    • large businesses, or small business at SBA’s $1.5 million guaranty cap
    • special coverage for rural & environmental firms
    • 2. Export Credit Insurance
    • protects against commercial and political risk
    • * allows exporter to offer competitive payment terms—marketing tool
    • * allows exporter to borrow against A/R—finance tool
    • * allows the exporter to sleep at night—health tool
  • 28. Export-Import Bank
    • 2. Export Credit Insurance
    • a. multi-buyer policy (on worldwide buyers)
    • *small business policy: SB with $5 million or less in export credit sales average prior 2 years—95% commercial/political risk
    • * small business policy cost: $.65/$100 invoice
    • -- 25% discount if paired with Export Working Capital Loan=49cents/$100
    • b. single buyer policy—90% commercial risk
    • c. medium term policy, up to 5 years—for either exporter or lender
    • d. leasing-- operating & financing policies
  • 29. Export-Import Bank
    • 3. Loan Guarantees for Buyers
    • --for capital goods and services
    • --for project financing
    • --15% down-payment required
    • --100% guaranty on the
    • 85% financed portion
    • --generally 3-10 years
    • --OECD rate limits apply
    • Special Conditions
    • 50% U.S. content
    • non-military goods/sales only
    • reasonable assurance of repayment
    • not in competition with private sector
    • Eximbank: 1-800-565-EXIM
    • Long Beach: (562)982-4580--WY
    • Long Beach: (562) 980-4585 –AZ
    • San Francisco: (415) 705-2285-UT
    • Houston: (281) 721-0467—NM/CO
    • Washington, DC: (202) 565-3946
    • Internet: http://www.exim.gov
  • 30. Case Study: Pre-Shipment Working Capital & Foreign Buyer Financing
    • Order from Cameroon
    • $500k ice-making plant
    • Transaction :
    • 15% down payment
    • 5-Year loan from Texas bank for 85%, triggered by final shipment
    • 100% Exim cover to lender under medium-term insurance policy
    • Working Capital Need
    • $250K to complete order, 3 months
  • 31. Who Can Assist with Investment Finance ?
    • Active in 150 developing countries
    • 1. Investment financing
    • Loans:
    • typically up to 50% of project; min. 25% U.S. equity
    • direct loans from $100k to $10 million for SMEs through the Small Business Center: 800-225-5722
    • Loan guarantees up to $250 million (exceptions to $400 million in oil and gas sectors)
  • 32. Who Can Assist With Investment Risk?
    • b) OPIC-supported investment funds
    • regionally focused
    • industry sector focused
    • 2. Political Risk/Investment insurance
    • Currency inconvertibility,
    • Expropriation,
    • Political violence, war, riot, revolution
    • 3. Investment Missions
    • OPIC InfoLine: (202) 336- 8799;
    • www.opic.gov htp://www.opic.gov
  • 33. Trade & Investment Financing Summary
    • Trade Financing
    • a. Export Working Capital Programs— Pre-Shipment & Post-Shipment
    • --SBA & Export-Import Bank
    • b. Foreign Accounts Receivable Financing —Post-Shipment
    • --eligible for borrowing base, if insured
    • --factoring or forfaiting
    • Sources: banks, factors, forfaiters, SBA/Eximbank
    • c. Buyer Financing and Project Financing
    • Sources: Banks, Export-Import Bank, forfaiters
    • Investment Financing
    • --direct foreign investment by U.S. company
    • Sources: Overseas Private Investment Corporation (OPIC)—in 150 developing countries
    • --World Bank & MIGA