Date post: | 01-Jan-2016 |
Category: |
Documents |
Upload: | ophelia-osborne |
View: | 216 times |
Download: | 0 times |
2
The Exporter’s Objective
Take control of the export process to:
Reduce/mitigate risks Reduce costs Accelerate payment Increase export sales
3
Buyer’s & Seller’s Objective
Both have a vested interest in closing the transaction, but...
there is an inherent conflict in objectives.
4
Buyer wants to delay payment as long as possible. Until… Receipt and processing of goods Sale of goods
Buyer’s Objective
5
Seller wants payment as soon as possible. At…
Contract signing or at time of shipment
Seller’s Objective
6
Documentation is the engine in global trade. It facilitates:
The movement of freight; transfer of title; processing of payment; and customs clearance.
Export Documentation
7
Role of the Freight Forwarder
Exporter’s agent in moving shipment to buyer’s destinationshould be familiar with:
import rules & regulations of foreign countries; U.S. Government export regulations and trade documents.
8
Before trying to handle all the documentation, the exporter should consider using a freight forwarder, a specialist in documentation.
Required documents will depend upon both U.S. Government requirements and those of importer’s country.
Shipping Documentation
9
Commercial invoice Packing list Ocean Bill of Lading Certificate of origin Insurance certificate Inspection certificate Consular invoice
Common Shipping Documents
10
Most commonly used pricing terms that deal with the relation between seller and buyer under the sales contract, especially the seller’s delivery obligation
Deal with a number of obligations imposed upon the parties and with the distribution of risk between them
Critical to the success of the transaction
Incoterms are published by the International Chamber of Commerce
When using Incoterms, refer to them as Incoterms 2010 (Incoterms 2010 as of 1/1/2011)
Incoterms
12
Payment Methods
Open Account
Documentary Collections
LettersOf
Credit
Cash In Advance
Exporter/Seller Most RiskLeast Risk
Importer/Buyer Least RiskMost Risk
14
Will definitely limit market penetration But … it eliminates any credit & country risk Can be very expensive to buyer leading to potential
loss of customer by requiring prepayment for goods May require exporter to provide a performance bond
Cash in Advance
16
A letter of credit is a financial instrument
It evidences a Bank’s commitment to pay money to a specified
party provided certain conditions are satisfied
What is a Letter of Credit?
17
Transfers credit risk from the buyer to the buyer’s bank
A letter of credit is a written undertaking issued by a bank to pay, in favor of a third party (beneficiary), on behalf of the bank’s customer (applicant).
Letters of credit are documentary in nature. The bank’s promise to pay is contingent solely upon presentation of compliant documents, as specified in the credit terms.
Letter of Credit – Definition
18
Secure communications via:
S.W.I.F.T. (Society for Worldwide Interbank Financial Telecommunication)
Membership limited to financial institutions
Standardized formats with character limitations
Authentication keys exchanged between member banks for secure transmissions
Mitigating Risk of Fraud
19
Letters of credit are separate transactions from the sales contract or agreement on which they may be based
Banks are not responsible for the accuracy, content or the validity of the documents
Both issuing and advising banks deal in documents and not the goods or services to which the documents relate
Precepts of Letters of Credit
20
Applicant (Buyer) Issuing bank (Buyer’s bank) Beneficiary (Seller) Advising bank (Seller’s bank)
Parties Involved in a Letter of Credit
21
Commercial
Irrevocable
Confirmed
Transferable
Standby Used in lieu of bank guarantees Financial standbys Performance
Types of Letters of Credit
22
“At sight” terms Payment due at presentation of conforming documents at the
issuing and/or confirming bank’s counter
Usance terms Draft presented for payment at “x” days from Bill of Lading date
(or other clearly specified time period)
Payment Terms
23
Letter of Credit Issuance Process – Step 1
Buyer applies for letter of credit at his bank
Bank makes credit decision to issue letter of credit in same manner as approving a loan
Bank issues letter of credit based on approved application
Buyer
Letter of Credit
Application
Buyer’s Bank
Purchase Order
24
Letter of Credit Issuance Process – Step 2
Issuing bank forwards letter of credit to correspondent bank located in seller’s country
Advising bank authenticates letter of credit, forwards to seller
Buyer’s Bank
Letter of Credit
Seller’s Bank
Letter of Credit
Seller
25
Letter of Credit Payment Process – Step 1
Seller ships merchandise to buyer Seller prepares specified shipping documents to submit to
bank for payment
Seller’sBank
Documents Seller
Buyer Goods Seller
26
Letter of Credit Payment Process – Step 2
Seller presents documents to the advising/processing bank
Bank examines documents carefully to determine compliance with letter of credit terms
If documents comply, advising/processing bank informs issuing bank of presentation, obtains reimbursement per credit terms, pays seller
Buyer’s Bank Notify
Seller’s Bank Documents
Seller
28
Discrepancies occur when there is non-compliance with the terms of the letter of credit and/or when the documents are inconsistent
with each another.
Discrepancies
29
Expensive and are typically for exporter’s account Can delay payment: when documents must be presented on
approval basis, buyer may delay the payment approval Can void the protection of the letter of credit; risk of non-payment
as buyer may elect not to approve payment altogether (e.g., late shipment may not allow the buyer to resell goods)
If the buyer is having financial problems, the issuing bank may try to find any discrepancies to void the letter of credit
Consequences of Discrepancies
30
Seller’s invoice exceeds letter of credit amount Documents presented after letter of credit has expired Documents are not presented within the specified presentation
period Late shipment Missing documents Absence of required signatures Documents inconsistent with letter of credit or with each other
Common Discrepancies
31
Correct or present new documents
Have Advising/Processing Bank contact Issuing Bank for approval to accept discrepancies
Have Advising/Processing Bank send documents to Issuing Bank for approval
What To Do When There Are Discrepancies
32
Yes, when: Unfamiliar with credit risk of Issuing Bank or country
– If confirmed by a U.S. bank, the country/political and credit risks are transferred to U.S. bank
– Letters of credit are only as good as the banks that issue/confirm them
No, when: Letter of credit is issued by an investment grade bank Country risk is acceptable
The Letter of Credit: Confirm or Not?
34
Presentation of ‘financial’ and ‘commercial’ documents on a collection basis by the seller’s bank (i.e. the Remitting Bank) to the bank (i.e. the Collecting Bank) nominated to make presentation to the buyer as per the collection instructions.
The seller draws the ‘financial’ document on the buyer, which stipulates the tenor of the underlying commercial transaction.
Documents are typically released against:
– Payment (D/P, Documents against Payment)
– Acceptance (D/A, Documents against Acceptance)
Definition
35
Documents are presented on a sight basis and are released to the buyer when payment has been made.
Payment must be made in ‘good funds’, which can take the form of ‘available funds’ in their account or a FedWire transfer.
D/P – Documents Against Payment
36
Documentary Collections – D/P
Remitting Bank
Collection Letter,
Draft, Title Documents
Collecting Bank
Drawee/Buyer
Drawer/Seller
Title Documents
Goods
37
Documents are presented on a time basis and are released to the buyer when the buyer has accepted the ‘financial’ document
for payment at a future date.
This act of acceptance by the buyer represents their promise to pay as per the tenor of the transaction.
D/A - Documents Against Acceptance
38
Documentary Collection Time Draft – D/A
Remitting Bank
Collection Letter,
Draft, Title Documents
Collecting Bank
Title Documents
Drawer/Seller
Drawee/Buyer
Goods
Accepted Draft
39
Documents are sent to the wrong department/branch of foreign bank & released to buyer without payment
Time drafts are subject to buyer’s credit risk
Documentary Collections Risks
40
Because the importer is not obliged to take up the documents, Buyer can:
Stall (until shipment arrives) Try to negotiate a lower price Refuse the shipment (timing, credit, character or country risks)
Documentary Collections Risks
41
Banks have no liability to pay or accept the drawers/sellers draft Banks act only as collecting agents
Documentary Collection Summary
43
Common in both domestic & international commerce
Seller ships the goods to the buyer and separately mails the title documents and invoice calling for payment within a stipulated period of time
Open Account
44
Advantage to buyer who is able to receive goods, sell them and possibly collect A/R prior to paying seller
Risks to seller:
– buyer credit risk– buyer country risks
(e.g., commercial/exchange, controls/FX, volatility/turmoil)
Open Account
45
45
Export Credit Insurance
Protects the exporter from– commercial non-payment risks (buyer insolvency,
bankruptcy or protracted commercial default)– political risk that results in non-payment (unrest, currency
inconvertibility, withdrawal of import license) Allows exporters to sell on open account (the riskiest payment
method) Increases exporter competitive edge Does not protect against quality issues and shortages
47
Exporters Focus on your documents. Keep them simple, relevant and
free of discrepancies. Address the country and credit risks involved
– Are they relevant?
– Are you comfortable with the risks?
– If not, can they be mitigated or eliminated?
Practical Advice (continued)
48
Remember: Time = Money
Finally, consult with your banker — your partner and ally in the trade transaction.
Practical Advice (continued)
49
Joe Pearson
AVP, International Business Development Officer
BB&T International Services
803-251-1607
www.BBT.com
BB&T Contact Information
BB&T, Member FDIC.