TRADE FINANCEPRESENTATION TO PT. MULTISTRADA ARAH SARANATRADE PRODUCT GROUPCORPORATE BANKING
Click to edit Master title styleRISKS IN INTERNATIONAL TRADE
Risk Issues in International Trade Force Major Buyer’s Risk Country Risk Stable political climate? War? Late arrival of the goods? Revolution? Damaged goods?Positive economic environment? Goods not as per contract requirement? Solid legal infrastructure? Exotic countries – OFAC List? RISKS Seller’s Risk Distance? Foreign Exchange Risk Credit worthiness of Buyer? Volatile foreign currency? Disputes? Restrictions imposed by governments? Commercial Risk Reliable information concerning the company’s track record? Insolvency of your trading partner? Default or termination on your contract?
Risks Issues in International Trade Risk Mitigation
Click to edit Master title styleCREDIT RISK ANALYSIS
Credit Risk Analysis in International TradeCustomer’s Perspective Managing Liquidity – Cash Flow Lower Cost of Financing Lower Risks : • Counter Parties • Foreign Exchange • Countries – OFAC List Best Service
Credit Risk Analysis in International Trade•Bank’s Perspective Credit Risks Lower Counter Party / Foreign Exchange / Country Risks Higher Revenue / Higher Return Lower Capital
Credit Risk Analysis in International TradeRelevant questions to the Customer about their Supplier► Who are the suppliers and how many suppliers are there?► What are the goods and amounts involved?► What method of payment applies to the contract between the supplier and our customer?► Does the supplier extend credit terms to our customer?► Who pays for freight and insurance?► If a supplier ships under DC, what is the time period between establishment of DC and receipt of documents (goods) by the DC issuing bank (DC lead time)?► What is the validity of the DC?► Does the customer require a term DC?► Are a full set of negotiable title documents consigned to the Bank available?► Is merchanting trade involved?
Credit Risk Analysis in International TradeRelevant questions to the Customer about their Buyer► Who are the buyers and how many buyers are there?► What are the goods and amounts involved?► What method of payment applies to the contract between the buyer and our customer?► Does our customer extend credit terms to the buyer?► If our customer sells under documentary collection, where are the buyers located and how soon can the documents be delivered to the buyer via the Collecting bank?► We need to determine the document transit time (the interval between our purchase of an export collection bill and the customer’s receipt of funds under D/P or D/A.► If our customer sells under DC, who are the issuing banks and does our customer require DC confirmation and/or discounting?► Can we consider GBIL for DC issuing banks (DC confirmation and discounting)?
Credit Risk Analysis in International Trade Apply international codes of practice •1 Maintain control over the How Bank help in dealing goods on behalf of theConduct delivery channel for •4 with the RISKS ? •2 exporter payment methods •3 Provide financial support
Click to edit Master title styleCOMMERCIAL CONTRACT
Commercial ContractWhat is Commercial Contract?A formal written agreement between a sellerand buyer for the sale of goods, real propertyor services
Commercial Contract Provisions of Commercial Contract Minimum Provision: Additional Provisions: Name and address of Buyer and Seller Method of packaging and marking Description of goods Inspection and test by the Buyer Shipping and delivery instruction and Warranties of the Seller documentation Banking guarantee Payment terms Remedies in case of default Insurance coverage Dispute settlement Choice of Law Insurance fee
Commercial ContractItems of Commercial Contract? Inspection Clause Description of Goods Force Majeure Quantity After sales service Price terms Delivery time / Shipment date Terms of payment Validity time Destination Packing and Marking Shipment terms : partial, transhipment, vessel age Shipping documents : Bill of Lading, Airway Bill
Commercial Contract Principles of Commercial ContractAgreement Obligatoir Penalty
Click to edit Master title stylePAYMENT METHOD IN INTERNATIONAL TRADE
Payment Methods Payment Methods Clean Payment Documentary Collection in Open Account International Trade Clean Collection and CAD Advance Payment Sight Draft and Time Draft D/P and D/A Documentary Credit Sight and Usance Revocable and Irrevocable Negotiable and Non Negotiable Confirmed and Not Confirmed
Payment Methods RISK LADDER HIGHEST RISK LEAST RISK TO EXPORTER TO IMPORTER Clean Payment - Open Account Documentary Collections Documents Against Acceptance Documents Against Payment Documentary Credit / Letter of Credit Unconfirmed Confirmed LEAST RISK Clean Payment – Advance Payment HIGHEST RISK TO EXPORTER TO IMPORTER
Clean Payment • Based on trust between Buyer and Seller. • The Exporter sends the goods and trusts the Importer to pay once the goods have been received, or, • The Importer trusts the Exporter to send the goods after payment is effected. • All shipping documents, including title documents, are handled directly by the trading parties. • Role of banks is limited to clearing funds as required.
Clean Payment OPEN ACCOUNT ADVANCE PAYMENTThe Exporter ships the goods and the The Importer sends payment directly todocuments directly to the Importer and trusts the Exporter and trusts for the Exporter tofor the Importer to send payment send the goods and documents. Exporter Exporter •GOODS •PAYMENT •GOODS •PAYMENT •1 •2 •2 •1 Importer Importer
Clean Payment OPEN ACCOUNT ADVANCE PAYMENT Seller gives credit to Buyer. Buyer provide credit to Seller. Disadvantage to Seller. Most advantageous to Seller. Protection is short for Seller when Protection is short for Buyer when Buyer freely take goods after their order of goods cannot be realized by arrival at the port of destination. Seller while Buyer has already provide the fund for such purpose. This payment method occurs because: Usually carried out only for trade • Seller has been really sure that transaction with the following Buyer will realize payment at the condition: time already set. • Trade value is not of great amount. • Seller is sure that there is no blocking payment policy from • Buyer has really trust Seller. government of Buyer’s country. • Such goods are really required and • Seller has sufficient liquidity to give there is no other choice credit to Buyer
Documentary CollectionAn arrangement whereby the exporter shipped thegoods to importer, and exporter sends the shippingdocuments and drafts to his bank for further send toimporter’s bank to collect payment and/oracceptance from the importer on his behalf.
Documentary Collection EXPORTER / DRAWER COLLECTION CYCLE IMPORTER / DRAWEE 1.Sales Contract •2 3 Goods •6Acceptance Invoice + & Invoice + Acceptance Transport Payment Transport Document & Document Payment 8 •5 4 Invoice + Transport Document 7 Acceptance & Payment REMITTING BANK COLLECTING / PRESENTING BANK
Documentary Collection Types of Documentary Collection: In term of documents submission : • Clean Collection only Draft as document collected. • Cash Against Document (CAD) the shipping document collected by Buyer’s Bank will be released to Buyer only after payment. In term of payment period (tenor) : • Sight Draft if payment is made at sight. • Time Draft if payment is made on a certain date, or in a period of several days after a certain date. In term of payment certainty : • Documents against Payment (D/P) submission of documents by Bank to Buyer after payment is made. • Documents against Acceptance (D/A) submission of documents by Bank to Buyer after acceptance.
Documentary Collection SELLER BUYER More risk : More profitable • Documentary Risk Buyer refuse • Lower transaction cost because to take goods since documents purchase of goods is not accompanied submitted to Bank are not complete. by DC Issuing. • Commercial Risk Buyer refuse to take goods due to declines of selling price of the goods. • Political Risk Buyer’s import license is suddenly revoked by local government. • Transfer Risk Transfer restriction of Buyer’s country due to lack of foreign exchange
Documentary Credit (DC) • Usually called as Letter of Credit (L/C) • A Bank’s written guarantee issued on behalf of the Buyer to pay the Seller a given sum of money provided that documents presented comply with terms and conditions of the Documentary Credit
Documentary Credit (DC)Principles Issued by Bank Every DC issued by Bank at the request of Buyer (as DC Applicant) must bear burdens and risks arising from consequences of such DC opening. Containing Payment Undertaking DC constituting a payment undertaking from Issuing Bank to Seller (as DC Beneficiary) so that Seller is no longer necessary to worry about credibility of Buyer (as DC Applicant) because Issuing Bank has undertaken it. Conditional Undertaking DC issued by Bank is a conditional undertaking means that payment will be made as long as Seller (as DC Beneficiary) has presented documents that comply with terms and conditions stipulated in the DC. Involved Certain Parties DC issued by Bank shows involved parties such as Buyer (as DC Applicant), Issuing Bank, Paying Bank and Confirming (if any) and Seller (as DC Beneficiary). Time Factor DC has also time factor such as expiry date, latest shipment date and latest presentation.
Documentary Credit (DC)Conditional Payment Undertaking The use DC as payment is a agreed for payment implementation for delivery of documents transferring proprietary rights to or supervision over any goods. In other words, the payment can only be made if documents delivered are really in accordance with DC terms and conditions. It should be realized by all parties concerned. As consequences of the documentary undertaking of the DC, DC issuing bank can not refuse payment if goods are not according to documents.Advantages of DC As instrument in goods purchase transaction especially import goods. As financing basis of DC Issuing Bank to finance importer. Constituting a safer method for the parties involved in trade transaction concerning uniformity in interpreting terms in its implementation.
Documentary Credit (DC) EXPORTER / BENEFICIARY DC CYCLE IMPORTER / APPLICANT 1. CommercialContract 5 6A Goods shipped 9 2 Payment Document Document (Sight) Payment or (Sight) DCAcceptance Advise the DC or Application (Usance) Acceptance 4 8 7B (Usance) Issue DC 3 6B Document ADVISING BANK / Payment (Sight) or Acceptance (Usance) 7A ISSUING BANK NEGOTIATING BANK
Documentary Credit (DC)Parties Involved in DC Buyer, called as Applicant or Account Party Party who requesting its Bank to issue DC and to whom the Issuing Bank will finally charge its account. Seller, called as Beneficiary Party who receiving payment undertaking from the Issuing Bank and to whom the DC is designated / issued. Issuing Bank Bank who carries out DC issuing at the request of Buyer containing payment undertaking to Seller. Advising Bank Bank who is requested by the Issuing Bank to advise / forward DC to Seller (as DC Beneficiary). Negotiating Bank Bank who is carrying out taking over or negotiation or purchase of documents submitted by Seller (as DC Beneficiary) based on the DC.
Documentary Credit (DC)Parties Involved in DC Paying Bank Bank who is designated by the Issuing Bank to make payment to Seller (as DC Beneficiary). Accepting Bank Bank who is carrying out acceptance on Time Draft drawn based on the DC by Seller (as DC Beneficiary). Confirming Bank Bank who confirms or do secures the DC issued by another bank.
Documentary Credit (DC)General Types of DC Based on Tenor of Payment ► SIGHT DC a payment undertaking issued by Issuing Bank on compliance presentation whether or not accompanied by Draft taken over from Beneficiary. ► USANCE DC a payment undertaking issued by Issuing Bank for delivery of documents together with Draft on a certain maturity date after there has been acceptance from Issuing Bank. Based on Obligatoir Principle ► REVOCABLE DC can be unilaterally amended / cancelled by Issuing Bank without prior notice to Beneficiary. ► IRREVOCABLE DC a definite undertaking from Issuing Bank for delivery of documents according to the terms and conditions in the DC. • UCP DC 2007 Revision ICC Publication No. 600 (UCP 600) accepts only Irrevocable Documentary Credit
Documentary Credit (DC)General Types of DC Based on Terms of Payment ► PAYMENT DC payment made by Issuing Bank designated in the DC. ► NEGOTIATION DC payment made by Issuing Bank, or Confirming Bank (if any), for taking over of documents, both sight and usance tenor. ► RESTRICTED DC payment or negotiation is only applicable at a designated bank nominated in the DC. Based on another Bank’s undertaking ► CONFIRMED DC an additional payment undertaking to the DC made by Other Bank by taking responsibility for and bound to the payment, acceptance and negotiation. ► UNCONFIRMED DC a payment undertaking from Issuing Bank only.
Documentary Credit (DC)Special Types of DC Standby DC DC that provide payment undertaking against Beneficiary Attestation rather than documentary evidence . Issued to guarantee performance of the transaction, goods and services, between Applicant and Beneficiary. Payment under Standby DC will be made when Applicant cannot perform the transaction (default) and it is attested by Beneficiary when claim payment to Standby DC Issuing Bank. Same purposes with Bank Guarantee issuing.
Documentary Credit (DC)International Commercial Terms (Incoterms) Incoterms are the international rules for the interpretation of trade terms. It is a term of the contract of sale and represents contemporary commercial practice. Incoterms tell the Seller and Buyer what to do with respect to : ► carriage of the goods from the Seller to Buyer. ► export and import clearance ► explains the division of costs and risks between Seller and Buyer. Incoterms clearly defines the respective obligations of the Sellers and Buyers to give notice, provide documents, provide information including security-related information, procure insurance, and pack the good properly and clear them for export and import and carry out all formalities for the export and import of the goods.
Documentary Credit (DC) SKBDN (Surat Kredit Berdokumen Dalam Negeri) Local LC issued by domestic banks to cover intra nation trade. Subject to Bank Indonesia Regulation / Peraturan Bank Indonesia (PBI) Nomor 5/6/PBI/2003. The PBI is binding to all parties involved in Local LC / SKBDN transaction.
Documentary Credit (DC)Peraturan Bank Indonesia (PBI) No. 5/6/PBI/2003 for SKBDN SKBDN hanya berlaku untuk transaksi perdagangan barang. Perpindahan barang dilakukan di dalam negeri atau perpindahan barang dari dalam negeri ke luar negeri sepanjang SKBDN diterbitkan atas dasar master L/C dan non L/C untuk tujuan ekspor. Bisa dibuka dalam valuta asing, sepanjang SKBDN terkait dengan perdagangan internasional. SKBDN tidak dapat dijadikan master L/C untuk membuka L/C ke luar negeri. Bank Pembuka memiliki waktu minimal 7 (tujuh) hari kerja perbankan setelah tanggal penerimaan dokumen untuk melakukan pemeriksaan dan menentukan pengambilalihan atau penolakan dokumen. Bank Pembuka dapat menerima penyerahan dokumen yang melewati batas waktu berakhirnya SKBDN. Prinsip Independensi. Prinsip Keterikatan pada dokumen