<ul><li>Daniel W. Holt </li></ul><ul><li>Small Business Administration </li></ul><ul><li>704-333-4886 </li></ul><ul><li>...
On Your Mark …. <ul><li>Every morning in Africa, a gazelle wakes up. </li></ul><ul><li>It knows it must run faster than th...
Building a Global Reach  to Run a Global Race <ul><li>The Intermodal Global Supply Chain </li></ul><ul><ul><li>1970 – 1 mi...
The Pace Quickens <ul><li>Changing U.S. Economy </li></ul><ul><li>1970…International trade is 7% </li></ul><ul><li>2000…In...
The Global Marketplace of the 21 st  Century – Looking Ahead (% of World GDP) 2004 2050
<ul><li>Countries Ranked by Population: 2000 </li></ul><ul><li>Country Population </li></ul><ul><li>1 China  1,262,474,301...
Types of Exporters <ul><li>Direct </li></ul><ul><li>Indirect </li></ul><ul><li>Trading Company </li></ul><ul><li>Export Ma...
Sheep/Goats <ul><li>If you can’t do it here- you can’t do it there. </li></ul><ul><li>What is your export credit policy? <...
<ul><li>Do you have a passport? </li></ul><ul><li>Business Plan? </li></ul><ul><li>Pricing  </li></ul><ul><li>Banker </li>...
DOMESTIC RISK <ul><li>BANKRUPT </li></ul><ul><li>DOES NOT WANT TO PAY </li></ul><ul><li>CAN NOT PAY </li></ul><ul><li>PROD...
International Trade Exporter (Seller) Importer (Buyer) I want  to sell. I want to  buy. Country  Border
International Trade Some Things are Different <ul><li>Language </li></ul><ul><li>Currency </li></ul><ul><li>Banking </li><...
 
 
 
International Trade Some Things are Different <ul><li>Language </li></ul><ul><li>Currency </li></ul><ul><li>Banking </li><...
FOREIGN RISK <ul><li>THE MONEY IS NO GOOD </li></ul><ul><li>THERE WAS A COUP </li></ul><ul><li>A BRIBE IS NEEDED FOR CUSTO...
COUNTRY RISK <ul><li>The first consideration will  ALWAYS   be country risk . </li></ul>
COUNTRY RISK <ul><li>If the deal is in a country that is too risky,  the customer can never be good. </li></ul>
Political Risk <ul><li>Transfer risk- shortage of foreign exchange </li></ul><ul><li>Political risk- events that prevent p...
Customer Risk <ul><li>Is the customer about to go bust? </li></ul><ul><li>Can the customer pay on our credit terms? </li><...
CONTROLS <ul><li>BANK </li></ul><ul><li>CREDIT REPORTING AGENCIES </li></ul><ul><li>INSURANCE </li></ul><ul><li>RESEARCH <...
CONTROLS <ul><li>CASH IN ADVANCE </li></ul><ul><li>FREIGHT FORWARDER </li></ul><ul><li>GOOD BUSINESS CONTROLS </li></ul>
What is the HS number? <ul><li>It ’ s like a Social Security Number, uniquely explains  your product.  Helps others who ar...
Classifying your Product <ul><li>Classify your good on WHAT IT IS, not on its end use, nor its destination (like Mexico or...
H armonized  System <ul><li>The World HS number is 6 digits long </li></ul><ul><li>US schedule B number is 10 digits long ...
Where to find the HS code: <ul><li>The Harmonized Tariff Schedule of the US is online, but can be purchased at the governm...
 
 
 
Containers and Cases  General Rules of Interpretation <ul><li>If a container is suitable for repetitive use, it must be cl...
Containers and Cases General Rules of Interpretation  <ul><li>Full cartons of eggs are classified under eggs, 040700.  Wit...
The Role of the Ocean Transportation Intermediary (OTI) The freight forwarder
The Ocean Transportation Intermediary coordinates the various parties involved in the cargo movement and the services prov...
OTI <ul><li>OTI’s combine the former operations of International Freight Forwarders (IFF) and Non Vessel Operating Common ...
OTI’s Involvement <ul><li>Provide Information </li></ul><ul><li>Prepare Documentation </li></ul><ul><li>Move the Shipment ...
Provide Information <ul><li>Available Steamship Service </li></ul><ul><li>Port Capabilities </li></ul><ul><li>Packing Requ...
Prepare Documentation <ul><li>Export Clearance </li></ul><ul><li>Carriage </li></ul><ul><li>Insurance </li></ul><ul><li>De...
Move the Shipment <ul><li>Secure (book) space on the carrier </li></ul><ul><li>Arrange for container to be placed for load...
OTI’s Receive Compensation From… <ul><li>Shipper </li></ul><ul><ul><li>Documentation and Forwarding Fees </li></ul></ul><u...
<ul><li>Freight Insurance  Why insure ? </li></ul><ul><li>Carrier’s limit of liability (COGSA & Warsaw Convention) </li></...
CARGO INSURANCE <ul><li>International transportation is risky!   </li></ul><ul><li>$30 - $50 billion in worldwide losses <...
I don’t need no stinking marine insurance
 
 
 
 
 
Basic collection terms or Accounts Receivable methods   <ul><li>Cash in Advance </li></ul><ul><li>Open Account </li></ul><...
Open Account (Seller) Merchandise AT _ SIGHT _____________ ABC CO. XYZ CO. ABC CO. AMOUNT APRIL 24, 1996 Importer (Buyer) ...
Cash Against Documents <ul><li>Advantages to Exporter </li></ul><ul><ul><li>Low cost ($ 75.00) </li></ul></ul><ul><ul><li>...
Documentary Collection Export Foreign Collecting Bank U.S. Bank  (Centura) AT _ SIGHT _____________ ABC CO. XYZ CO. ABC CO...
Commercial Letter of Credit THE PURPOSE OF A LETTER OF CREDIT IS TO ALLOW STRANGERS TO DO BUSINESS.
Letter of Credit Exporter Importer (Buyer) (Seller) Agreement  (1) B/L  (6) Merchandise Merchandise  (5) (13) (10) (2) (9)...
Does a Letter of Credit Guarantee Payment to the Exporter? <ul><li>L/C’s are  CONDITIONAL  </li></ul><ul><li>Almost 80% of...
 
 
INCO Terms 2000 International Commercial Terms http://www.iccwbo.org/index_incoterms.asp www.iccbooks.com
Incoterms Incoterms are used worldwide between a buyer and seller making all parties in the transaction aware of each pers...
EXWORKS
COST INSURANCE AND FREIGHT
FOB – Free On Board <ul><li>Exporter pays crating, containerization, transportation, loading, and port charges.  Goods cle...
Freight does not need liberating! <ul><li>There are more terms than </li></ul><ul><li>FREE ON BOARD </li></ul>
EXW …Ex Works <ul><li>Seller prepares goods and places them on the loading dock. </li></ul>
DAF – Delivered At Frontier  Seller delivers  freight, cleared for export to named port of import. (DAF Buffalo, NY)
Export Credit Insurance for Managing risk,  Improving Financing, and Enabling Trade
Insurance <ul><li>Risk protection :  Exporter can offer Open Account terms with a  payment guarantee  against non-payment ...
Export Credit Insurance for Managing risk, Improve Financing, and Enabling Trade Kathy Edwards Global Business Solutions C...
What is Credit Insurance? <ul><li>Risk mitigation insures accounts receivable against non-payment </li></ul><ul><li>Simpli...
What it is Not <ul><li>A means to make a bad credit good </li></ul><ul><li>Primary source of repayment </li></ul><ul><li>F...
Types of Coverage <ul><li>Commercial Risks  </li></ul><ul><ul><li>Insolvency of debtor </li></ul></ul><ul><ul><li>Death </...
What is NOT covered?? <ul><li>NOT COVERED </li></ul><ul><ul><li>Product disputes </li></ul></ul><ul><ul><li>Sales to buyer...
  Quotes from Insurers $27,000 $29,400 $30,000 $33,000 Estimated Premium on sales of $6 Mil .45% .49% .50% .55% Premium Ra...
Underwriting Philosophies <ul><li>Underwriting the Insured </li></ul><ul><ul><li>Length of time in business </li></ul></ul...
Underwriting the Insured <ul><li>Policyholder’s ability to assess and control risk </li></ul><ul><li>Analysis of debtor ri...
Underwriting Buyers <ul><li>Financial stability of debtor </li></ul><ul><li>Analysis on book of receivables (Spread of Ris...
Advantages of Credit Insurance <ul><li>Protection Against Bad Debt Loss </li></ul><ul><li>Increased Sales </li></ul><ul><l...
Credit Insurance as a Sales Aid <ul><li>Open account sales </li></ul><ul><li>Better credit terms </li></ul><ul><li>Develop...
Increased Sales Volume  - existing customer <ul><li>Without credit insurance: With credit insurance: </li></ul><ul><li>Cre...
Increased Sales Volume  - new customer <ul><li>Coverage:  $50,000 </li></ul><ul><li>Terms: 60 days open account </li></ul>...
Policy Assignment <ul><li>Benefits of policy can be assigned to a bank or lending institution </li></ul><ul><li>Immediate ...
Replace Letters of Credit <ul><li>Letters of Credit </li></ul><ul><ul><li>L/C’s do  NOT  guarantee payment </li></ul></ul>...
Public Underwriters <ul><li>Export-Import Bank of the United States </li></ul><ul><ul><li>Defined programs and costs </li>...
Types of Credit Insurance <ul><li>Government Insured </li></ul><ul><ul><li>Backed by the full faith and credit of the U.S....
Private Insurers <ul><li>Insure domestic as well as foreign receivables </li></ul><ul><li>No U.S. content requirement  </l...
Private Insurance Market   Export & Domestic Coverage <ul><li>AIG </li></ul><ul><li>Coface (f/k/a CNA) </li></ul><ul><li>E...
Kathy Edwards Global Business Solutions 800-499-6065
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  • Small Business Administration

    1. 1. <ul><li>Daniel W. Holt </li></ul><ul><li>Small Business Administration </li></ul><ul><li>704-333-4886 </li></ul><ul><li>Dan. Holt@mail.doc.gov </li></ul>
    2. 2. On Your Mark …. <ul><li>Every morning in Africa, a gazelle wakes up. </li></ul><ul><li>It knows it must run faster than the lion or it will be killed. </li></ul><ul><li>Every morning a lion wakes up. </li></ul><ul><li>It knows it must outrun the gazelle or starve. </li></ul><ul><li>It doesn’t matter if you’re a gazelle or lion. </li></ul><ul><li>When the sun comes up, you better start running! </li></ul>
    3. 3. Building a Global Reach to Run a Global Race <ul><li>The Intermodal Global Supply Chain </li></ul><ul><ul><li>1970 – 1 million containers </li></ul></ul><ul><ul><li>2000 – 20 million containers </li></ul></ul><ul><ul><li>2020 – 50 million containers </li></ul></ul><ul><ul><li>2050 – 100 million containers </li></ul></ul>
    4. 4. The Pace Quickens <ul><li>Changing U.S. Economy </li></ul><ul><li>1970…International trade is 7% </li></ul><ul><li>2000…International trade is 27% </li></ul><ul><li>2050…International trade up to 50% </li></ul><ul><li>Changing U.S. Life Styles </li></ul><ul><li>Local Economy of 19 th Century—93% of Work Force Employed in Agriculture </li></ul><ul><li>Global Economy of 21 st Century—3% of Work Force Employed in Agriculture </li></ul>
    5. 5. The Global Marketplace of the 21 st Century – Looking Ahead (% of World GDP) 2004 2050
    6. 6. <ul><li>Countries Ranked by Population: 2000 </li></ul><ul><li>Country Population </li></ul><ul><li>1 China 1,262,474,301 </li></ul><ul><li>2 India 1,002,708,291 </li></ul><ul><li>3 United States 282,338,631 </li></ul><ul><li>4 Indonesia 224,138,438 </li></ul><ul><li>5 Brazil 175,552,771 </li></ul><ul><li>6 Russia 146,001,176 </li></ul><ul><li>7 Pakistan 141,553,775 </li></ul><ul><li>8 Bangladesh 130,406,594 </li></ul><ul><li>9 Japan 126,699,784 </li></ul><ul><li>10 Nigeria 123,749,589 </li></ul>
    7. 7. Types of Exporters <ul><li>Direct </li></ul><ul><li>Indirect </li></ul><ul><li>Trading Company </li></ul><ul><li>Export Management company </li></ul>
    8. 8. Sheep/Goats <ul><li>If you can’t do it here- you can’t do it there. </li></ul><ul><li>What is your export credit policy? </li></ul><ul><li>What Incoterm do you quote? </li></ul><ul><li>Who is your freight forwarder? </li></ul><ul><li>Letter of Credit? </li></ul>
    9. 9. <ul><li>Do you have a passport? </li></ul><ul><li>Business Plan? </li></ul><ul><li>Pricing </li></ul><ul><li>Banker </li></ul><ul><li>What country? </li></ul><ul><li>What is your HS number? </li></ul><ul><li>Credit Insurance </li></ul>
    10. 10. DOMESTIC RISK <ul><li>BANKRUPT </li></ul><ul><li>DOES NOT WANT TO PAY </li></ul><ul><li>CAN NOT PAY </li></ul><ul><li>PRODUCT DISPUTE </li></ul><ul><li>WENT OUT OF BUSINESS </li></ul>
    11. 11. International Trade Exporter (Seller) Importer (Buyer) I want to sell. I want to buy. Country Border
    12. 12. International Trade Some Things are Different <ul><li>Language </li></ul><ul><li>Currency </li></ul><ul><li>Banking </li></ul><ul><li>Credit Terms & Risk </li></ul><ul><li>Transportation / Packaging </li></ul><ul><li>Insurance - Shipping - War </li></ul><ul><li>Government Requirements - Each Country </li></ul>
    13. 16. International Trade Some Things are Different <ul><li>Language </li></ul><ul><li>Currency </li></ul><ul><li>Banking </li></ul><ul><li>Credit Terms & Risk </li></ul><ul><li>Transportation / Packaging </li></ul><ul><li>Insurance - Shipping - War </li></ul><ul><li>Government Requirements - Each Country </li></ul>
    14. 17. FOREIGN RISK <ul><li>THE MONEY IS NO GOOD </li></ul><ul><li>THERE WAS A COUP </li></ul><ul><li>A BRIBE IS NEEDED FOR CUSTOMS </li></ul><ul><li>DOCUMENTS ARE NOT CLEAN </li></ul><ul><li>FOREIGN BANK HOLDS MONEY </li></ul>
    15. 18. COUNTRY RISK <ul><li>The first consideration will ALWAYS be country risk . </li></ul>
    16. 19. COUNTRY RISK <ul><li>If the deal is in a country that is too risky, the customer can never be good. </li></ul>
    17. 20. Political Risk <ul><li>Transfer risk- shortage of foreign exchange </li></ul><ul><li>Political risk- events that prevent payment </li></ul><ul><ul><li>moratorium on external debt </li></ul></ul><ul><ul><li>legal discharge of debt </li></ul></ul><ul><ul><li>war </li></ul></ul><ul><ul><li>cancellation of import license </li></ul></ul>
    18. 21. Customer Risk <ul><li>Is the customer about to go bust? </li></ul><ul><li>Can the customer pay on our credit terms? </li></ul><ul><li>Is our goods “special”? </li></ul><ul><li>Is this the first sale? </li></ul><ul><li>Is the order more that the last order? </li></ul><ul><li>Do we have a credit application? </li></ul>
    19. 22. CONTROLS <ul><li>BANK </li></ul><ul><li>CREDIT REPORTING AGENCIES </li></ul><ul><li>INSURANCE </li></ul><ul><li>RESEARCH </li></ul><ul><li>LETTER OF CREDIT </li></ul>
    20. 23. CONTROLS <ul><li>CASH IN ADVANCE </li></ul><ul><li>FREIGHT FORWARDER </li></ul><ul><li>GOOD BUSINESS CONTROLS </li></ul>
    21. 24. What is the HS number? <ul><li>It ’ s like a Social Security Number, uniquely explains your product. Helps others who are not familiar with your product. </li></ul><ul><li>HS is a Product Classification. </li></ul><ul><li>A Harmonized System is used because Customs officials worldwide don ’ t speak the same language. </li></ul><ul><li>With everyone using the same “ songbook, ” we can watch the flow of goods in and out of countries. </li></ul>
    22. 25. Classifying your Product <ul><li>Classify your good on WHAT IT IS, not on its end use, nor its destination (like Mexico or Malaysia.) </li></ul><ul><li>Example: A bolt by itself may be a part of a machine, but it is first and foremost a bolt, and it should be classified as such. </li></ul><ul><li>Example: Grass seed and fertilizer mix. Classify the mixture as being primarily grass seed, if it is. </li></ul>
    23. 26. H armonized System <ul><li>The World HS number is 6 digits long </li></ul><ul><li>US schedule B number is 10 digits long </li></ul><ul><li>The whole world only recognizes the first 6 digits (everybody has the same songbook) </li></ul><ul><li>THE MORE NUMBERS, </li></ul><ul><li>THE MORE DESCRIPTIVE </li></ul>
    24. 27. Where to find the HS code: <ul><li>The Harmonized Tariff Schedule of the US is online, but can be purchased at the government bookstore </li></ul><ul><li>The U.S. Department of Commerce Schedule B Classification of Exports </li></ul><ul><li>U.S. Census Bureau: </li></ul><ul><li>Durable Goods (Chapters 1-71): (301) 763-3259 </li></ul><ul><li>Non-Durable Goods (Chapters 72-97): (301) 763-3484 </li></ul><ul><li>Don't know: (301) 763-3047 </li></ul><ul><li>Census On-line: www.census.gov/foreign-trade </li></ul><ul><li>- choose Schedule B Search Engine from tool bar </li></ul><ul><li>- or select Search and type in a key word(s) in capital letters </li></ul><ul><li>Remember : the US-specific number Schedule B is 10 digits long; the first 6 digits is a world recognized HS number </li></ul>
    25. 31. Containers and Cases General Rules of Interpretation <ul><li>If a container is suitable for repetitive use, it must be classified on its own. </li></ul><ul><li>Example: If you are exporting propane in a tank to Canada, you actually have to classify the propane in its own classification and the tank in its classification, because the tank itself is reusable in Canada . </li></ul>
    26. 32. Containers and Cases General Rules of Interpretation <ul><li>Full cartons of eggs are classified under eggs, 040700. Without the eggs, the carton is made of paperboard, 482370. </li></ul><ul><li>A can of Coke falls under beverage, 220210. </li></ul><ul><li>A violin case without the violin is HS 4202xx, but if shipped with the violin inside, it is HS 920210, a stringed musical instrument. </li></ul>
    27. 33. The Role of the Ocean Transportation Intermediary (OTI) The freight forwarder
    28. 34. The Ocean Transportation Intermediary coordinates the various parties involved in the cargo movement and the services provided are based on the needs of the individual shipper.
    29. 35. OTI <ul><li>OTI’s combine the former operations of International Freight Forwarders (IFF) and Non Vessel Operating Common Carriers (NVOCC) </li></ul><ul><li>They are regulated by the Federal Maritime Commission (FMC) </li></ul>
    30. 36. OTI’s Involvement <ul><li>Provide Information </li></ul><ul><li>Prepare Documentation </li></ul><ul><li>Move the Shipment </li></ul>
    31. 37. Provide Information <ul><li>Available Steamship Service </li></ul><ul><li>Port Capabilities </li></ul><ul><li>Packing Requirements </li></ul><ul><li>Containerization Options </li></ul><ul><li>Freight Charges: </li></ul><ul><ul><li>Handling Fees </li></ul></ul><ul><ul><li>Port Fees, etc. </li></ul></ul>
    32. 38. Prepare Documentation <ul><li>Export Clearance </li></ul><ul><li>Carriage </li></ul><ul><li>Insurance </li></ul><ul><li>Destination Clearance </li></ul><ul><li>Banking </li></ul>
    33. 39. Move the Shipment <ul><li>Secure (book) space on the carrier </li></ul><ul><li>Arrange for container to be placed for loading </li></ul><ul><li>Arrange for any required inspections, fumigations, etc. </li></ul><ul><li>Secure the on-board carrier bill of lading </li></ul>
    34. 40. OTI’s Receive Compensation From… <ul><li>Shipper </li></ul><ul><ul><li>Documentation and Forwarding Fees </li></ul></ul><ul><li>Ocean Carrier </li></ul><ul><ul><li>Brokerage (commission) </li></ul></ul><ul><li>Inland Carrier </li></ul><ul><ul><li>Property Brokerage </li></ul></ul><ul><li>Insurance Provider </li></ul><ul><ul><li>Markup of premium </li></ul></ul>
    35. 41. <ul><li>Freight Insurance Why insure ? </li></ul><ul><li>Carrier’s limit of liability (COGSA & Warsaw Convention) </li></ul><ul><li>Filing Claims is problematic and complicated </li></ul><ul><ul><li>Insurance pays the claim and then files with the Carrier </li></ul></ul><ul><ul><li>You may have to file suit against the Carrier to get his attention </li></ul></ul><ul><ul><li>Carrier will try to keep you talking until claim is “Time Barred”. </li></ul></ul><ul><ul><li>Irritation </li></ul></ul><ul><li>Use “declared value” to increase carrier liability ? Expensive & Insurance is cheaper and easier to use….. </li></ul><ul><li>Usually required with Letters of Credit </li></ul><ul><li>Cost is usually less than 2% of value of shipment……..(1.25% is average) </li></ul>
    36. 42. CARGO INSURANCE <ul><li>International transportation is risky! </li></ul><ul><li>$30 - $50 billion in worldwide losses </li></ul><ul><li>Ocean carriers only cover up to $500 per package, Airlines $20/kilo. </li></ul><ul><li>General average can put a lien on your cargo! </li></ul><ul><li>Buying insurance is a simple, straight-forward process, about $0.40/$100 of value. </li></ul>
    37. 43. I don’t need no stinking marine insurance
    38. 49. Basic collection terms or Accounts Receivable methods <ul><li>Cash in Advance </li></ul><ul><li>Open Account </li></ul><ul><li>Documentary Collection </li></ul><ul><li>Letter of Credit </li></ul>
    39. 50. Open Account (Seller) Merchandise AT _ SIGHT _____________ ABC CO. XYZ CO. ABC CO. AMOUNT APRIL 24, 1996 Importer (Buyer) Agreement (1) B/L (3) Merchandise (2) (5) (6) Documents (4)
    40. 51. Cash Against Documents <ul><li>Advantages to Exporter </li></ul><ul><ul><li>Low cost ($ 75.00) </li></ul></ul><ul><ul><li>Banks acting as collection agents </li></ul></ul><ul><ul><li>Relatively quick payment </li></ul></ul><ul><ul><li>Exporter controls goods </li></ul></ul><ul><ul><li>Credit insurance available </li></ul></ul><ul><li>Disadvantages to Exporter </li></ul><ul><ul><li>Importer can refuse documents/payment </li></ul></ul><ul><ul><li>No title document on air shipments </li></ul></ul><ul><ul><li>No guarantee of payment unless insured </li></ul></ul>
    41. 52. Documentary Collection Export Foreign Collecting Bank U.S. Bank (Centura) AT _ SIGHT _____________ ABC CO. XYZ CO. ABC CO. AMOUNT APRIL 24, 1996 Importer (Buyer) (Seller) B/L (3) Merchandise (2) (8) (6) (7) (5)
    42. 53. Commercial Letter of Credit THE PURPOSE OF A LETTER OF CREDIT IS TO ALLOW STRANGERS TO DO BUSINESS.
    43. 54. Letter of Credit Exporter Importer (Buyer) (Seller) Agreement (1) B/L (6) Merchandise Merchandise (5) (13) (10) (2) (9) Foreign Issuing Bank (12) (4) Docs/Draft (8) (3) Letter of Credit (11) Apply for LC (7) LC/ Docs Draft LC Advised U.S. Bank AT _ SIGHT _____________ ABC CO. XYZ CO. ABC CO. AMOUNT APRIL 24, 1996
    44. 55. Does a Letter of Credit Guarantee Payment to the Exporter? <ul><li>L/C’s are CONDITIONAL </li></ul><ul><li>Almost 80% of L/C’s have discrepancies </li></ul><ul><li>ONE discrepancy can void the L/C </li></ul><ul><li>Exporters lack control </li></ul><ul><li>Protect banks, not exporters </li></ul>
    45. 58. INCO Terms 2000 International Commercial Terms http://www.iccwbo.org/index_incoterms.asp www.iccbooks.com
    46. 59. Incoterms Incoterms are used worldwide between a buyer and seller making all parties in the transaction aware of each persons responsibility
    47. 60. EXWORKS
    48. 61. COST INSURANCE AND FREIGHT
    49. 62. FOB – Free On Board <ul><li>Exporter pays crating, containerization, transportation, loading, and port charges. Goods cleared for export by seller. </li></ul>
    50. 63. Freight does not need liberating! <ul><li>There are more terms than </li></ul><ul><li>FREE ON BOARD </li></ul>
    51. 64. EXW …Ex Works <ul><li>Seller prepares goods and places them on the loading dock. </li></ul>
    52. 65. DAF – Delivered At Frontier Seller delivers freight, cleared for export to named port of import. (DAF Buffalo, NY)
    53. 66. Export Credit Insurance for Managing risk, Improving Financing, and Enabling Trade
    54. 67. Insurance <ul><li>Risk protection : Exporter can offer Open Account terms with a payment guarantee against non-payment due to commercial and political risks </li></ul><ul><li>Marketing Tool : Offer competitive credit terms directly to foreign buyers to meet/beat the competition and increase sales ! </li></ul><ul><li>Financing Aid : Assign policy proceeds (claim payments) to a lender as additional collateral </li></ul>
    55. 68. Export Credit Insurance for Managing risk, Improve Financing, and Enabling Trade Kathy Edwards Global Business Solutions Corp.
    56. 69. What is Credit Insurance? <ul><li>Risk mitigation insures accounts receivable against non-payment </li></ul><ul><li>Simplified source of payment </li></ul><ul><li>Collateral </li></ul><ul><li>Sleep Insurance </li></ul>
    57. 70. What it is Not <ul><li>A means to make a bad credit good </li></ul><ul><li>Primary source of repayment </li></ul><ul><li>Factoring </li></ul>
    58. 71. Types of Coverage <ul><li>Commercial Risks </li></ul><ul><ul><li>Insolvency of debtor </li></ul></ul><ul><ul><li>Death </li></ul></ul><ul><ul><li>Default of payment </li></ul></ul><ul><li>Political Risk Transfer risk </li></ul><ul><ul><li>Government Moratorium preventing release of funds </li></ul></ul><ul><ul><li>war/revolution </li></ul></ul><ul><ul><li>currency inconvertibility </li></ul></ul><ul><ul><li>loss of import/export license (Contract Frustration) </li></ul></ul>
    59. 72. What is NOT covered?? <ul><li>NOT COVERED </li></ul><ul><ul><li>Product disputes </li></ul></ul><ul><ul><li>Sales to buyers not approved </li></ul></ul>
    60. 73.   Quotes from Insurers $27,000 $29,400 $30,000 $33,000 Estimated Premium on sales of $6 Mil .45% .49% .50% .55% Premium Rate $100,000 $0 $150,000 $20,000 Discretionary Credit Limit -DCL $40,000 $0 $50,000 $0 Annual Deductible 95% 90% 90% 90% Indemnity $1.5 mil $3 mil $2 mil $1 mil Policy Limit 
    61. 74. Underwriting Philosophies <ul><li>Underwriting the Insured </li></ul><ul><ul><li>Length of time in business </li></ul></ul><ul><ul><li>Financial information </li></ul></ul><ul><ul><li>Credit approval experience </li></ul></ul><ul><ul><li>Losses </li></ul></ul><ul><li>Underwriting Buyers </li></ul><ul><ul><li>Trade References </li></ul></ul><ul><ul><li>Credit reports </li></ul></ul><ul><ul><li>Financial information </li></ul></ul>
    62. 75. Underwriting the Insured <ul><li>Policyholder’s ability to assess and control risk </li></ul><ul><li>Analysis of debtor risk and complete credit files </li></ul><ul><li>Discretionary credit limits </li></ul><ul><li>Deductibles </li></ul>
    63. 76. Underwriting Buyers <ul><li>Financial stability of debtor </li></ul><ul><li>Analysis on book of receivables (Spread of Risk) </li></ul><ul><li>Low levels of discretion for policyholder </li></ul><ul><li>Insurer’s expertise in the global marketplace </li></ul>
    64. 77. Advantages of Credit Insurance <ul><li>Protection Against Bad Debt Loss </li></ul><ul><li>Increased Sales </li></ul><ul><li>Better Borrowing Position with Insured Receivables </li></ul><ul><li>Credit Information Resource </li></ul><ul><li>Collection Services </li></ul>
    65. 78. Credit Insurance as a Sales Aid <ul><li>Open account sales </li></ul><ul><li>Better credit terms </li></ul><ul><li>Develop new markets </li></ul><ul><li>Less “Creative” sales terms from sales staff </li></ul>
    66. 79. Increased Sales Volume - existing customer <ul><li>Without credit insurance: With credit insurance: </li></ul><ul><li>Credit limit: $ 50,000 $100,000 </li></ul><ul><li>6 turns per year $300,000 $600,000 </li></ul><ul><li>Margin on sale 10% 10% </li></ul><ul><li>Risk potential $ 50,000 $10,000 </li></ul><ul><li>Insurance Cost $0 $3,000 (0.5% of sales) </li></ul><ul><li>Gross Income $30,000 $60,000 </li></ul><ul><li>Net “income” $57,000 </li></ul><ul><li>Differential income $27,000 </li></ul>
    67. 80. Increased Sales Volume - new customer <ul><li>Coverage: $50,000 </li></ul><ul><li>Terms: 60 days open account </li></ul><ul><li>Annual sales: $300,000 </li></ul><ul><li>Margins: 10% ($30,000) </li></ul><ul><li>Insurance cost: $1,500 (0.5% of sales) </li></ul><ul><li>Risk sharing (Deductible): $5,000 </li></ul><ul><li>Minimum Differential Income $23,500 </li></ul>
    68. 81. Policy Assignment <ul><li>Benefits of policy can be assigned to a bank or lending institution </li></ul><ul><li>Immediate availability of funds </li></ul><ul><li>Pass cost of funds to importer </li></ul><ul><li>Claims will be paid directly to the lender </li></ul>
    69. 82. Replace Letters of Credit <ul><li>Letters of Credit </li></ul><ul><ul><li>L/C’s do NOT guarantee payment </li></ul></ul><ul><ul><li>L/C’s require expertise </li></ul></ul><ul><ul><li>L/C may cost the sale if a competitor offers open account terms </li></ul></ul><ul><ul><li>L/C’s tie up buyers’ funds or credit facilities </li></ul></ul><ul><ul><li>Insurance eliminates high local interest costs </li></ul></ul><ul><ul><li>Insurance eliminate bank fees, amendment fees, and discrepancy fees </li></ul></ul><ul><ul><li>Insurance builds customer loyalty </li></ul></ul><ul><li>Documentary Collections </li></ul><ul><ul><li>Cover risk with credit insurance </li></ul></ul>
    70. 83. Public Underwriters <ul><li>Export-Import Bank of the United States </li></ul><ul><ul><li>Defined programs and costs </li></ul></ul><ul><ul><li>Subject to US government policies </li></ul></ul><ul><ul><li>Small business policies </li></ul></ul><ul><ul><li>Short term, medium term, long term </li></ul></ul><ul><ul><li>Single buyer or multi-buyer </li></ul></ul><ul><ul><li>Pay as you go to improve cash flow </li></ul></ul>
    71. 84. Types of Credit Insurance <ul><li>Government Insured </li></ul><ul><ul><li>Backed by the full faith and credit of the U.S. Government </li></ul></ul><ul><ul><li>If the importer defaults, it is the U.S. Government who collects, not the exporter </li></ul></ul><ul><ul><li>Underwriters approve your buyers in advance so your buyers and their credit limits are set </li></ul></ul><ul><ul><li>Very attractive for bank lending </li></ul></ul><ul><ul><li>Pay for insurance as you use it – not in advance </li></ul></ul><ul><ul><li>Terms available up to 360 days </li></ul></ul>
    72. 85. Private Insurers <ul><li>Insure domestic as well as foreign receivables </li></ul><ul><li>No U.S. content requirement </li></ul><ul><li>No requirement for exporter to provide credit reports or trade references </li></ul><ul><li>Can insure shipments dispatched from other countries </li></ul><ul><li>Premiums are paid upfront with minimum premium of $ 5000 </li></ul>
    73. 86. Private Insurance Market Export & Domestic Coverage <ul><li>AIG </li></ul><ul><li>Coface (f/k/a CNA) </li></ul><ul><li>Euler Hermes ACI (f/k/a Euler ACI) </li></ul><ul><li>Altradius Trade Credit Insurance (f/k/a Gerling NCM Credit Insurance) </li></ul><ul><li>FCIA </li></ul>
    74. 87. Kathy Edwards Global Business Solutions 800-499-6065

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