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International TradeThe Export Process
Banking and Finance Information
for Exporters
16th April 2008
Presented by Ray Buxton
Senior Manager International Trade, Bendigo Bank Limited
Tel: 03 8414 7755
Mob: 0409 406 009
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Exporting - Risk ManagementMethods of Payment.
Financing.
FX Risk Management.
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Major Export Risks
Buyer risk-methods of payment/debtor insurance
Bank & Country risk-confirmation
Foreign Currency risk-hedging strategies
Transit risk-Marine insurance
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Aim is to be paid.
Timely manner.
The amount of trust between buyer and
seller, determines the method of payment.
Do your homework, credit checks etc.(know
your buyer)
Agreeing to payment terms is part of the
sales process.
Methods of Payment
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The Three Main Methods of payment(1) Open account.
(2) Letter of Credit.
(3) Documentary Collections.
Talk to your banker about the most appropriate
method.
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Open AccountPayment risk is dependant on who pays when.
As an exporter if payment is received up front,
prior to shipment, payment risk has been
mitigated.
Great for exporter, poor for importer.
May make your product offering less
attractive in comparison to other payment terms.
.
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Open Accountcontd
In reverse, if goods are shipped on the basis
of payment against receipt of goods at the
port of despatch, then obviously the
exporter maintains all payment risk.
In either case insist on payment via
telegraphic transfer direct to your bank
account.
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Documentary Letters of Credit
Guarantee issued by the importers bank
authorising the payment of money to the
exporter, against delivery by the exporter ofspecific documents.
Mitigates risk of non payment.
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Document and payment flow under an
Export Letter of Credit1
Exporter contract specifiespayment using a
documentary letter of credit
(such as an irrevocable letterof credit)
Exporter
5Exporter ships
goods Importer4
Exporters
bank advises
and/or
confirms thedocumentary
letter ofcredit
6Exporter sends
documents to
its bank
8bAmount due is
paid (or bank
may extend
credit)
2Importer
applies to a
local bank for
a documentaryletter of credit
10Exporter
receivespayment
8aBank sends
documents toimporter
9
Importers
bank transmitsfunds due to
exporter7
Documents
sent for review
Exporters
Bank
3Importers bank informsexporters bank when a
documentary letter of
credit has been issued
Importers
Bank
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Whats in a typical Letter of
Credit
Exporters details, currency, amount.
Expiry date, latest shipment date.
Shipping details, Insurance details.
Incoterms, e.g FOB, CIF, C&F
Brief description of goods. Terms of payment, sight, 30 days sight,etc.
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Common Documents Required
Invoice.
Packing List.
Bills of Lading.
Airway Bills.
Certificate of origin. Phytosanitary certificate.
Insurance certificate.
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How can Bendigo Bank assist?
Check to see if the L.C is workable.
Will you be able to comply with it?
Check the documents in readiness for dispatch.
Negotiate documents, lodge claim with the
reimbursing bank.
Collect your funds. Assist in mitigation of your FX risk.
Pre / Post-shipment finance.
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Documentary Collection
Commonly known as DP or DA.
A compromise between open account
trading and documentary letters of credit.
Payment not guaranteed.
Documentation: same as Letter of Credit
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Document and payment flow under an Export
Documentary Collection
1Exporter ships goods
Exporter
(Title not transferred until step 6)
Importer
2Exporter
submits billof exchange,
invoice,
packing list,and bill of
lading
8Payment
6
Importersbank releasesbill of lading,
transferringtitle of goods
to importer
5Payment
4
Importers
banknotifiesimporter
that thedocuments
have beenreceived
7
Payment
Exporters
bank
3
Exporters bankforwards
documents to
importers bank
Importers
bank
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Financing Trade Transactions
Pre - shipment finance.-to provide finance for the purchase of raw materials/finished goods to
fulfil an export order.
Post - shipment finance.-to provide finance for the period from shipment to receipt of funds
from overseas buyer
Finance available in all major currencies for a period no longer than
180 days. Under Documentary Credit with/without recourse (confirmed letter of
credit).
Documentary Collection with recourse.
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FX Risk Management
Forward Exchange Contracts.-an agreement between two parties to exchange on a specific future
date a fixed amount of one currency for an amount of another currency
at a foreign exchange rate agreed on the day the agreement was entered
into.
FX deposits / FX loans.-term deposits and term loans denominated in a foreign currency.
Foreign Currency Accounts-at call bank account denominated in a foreign currency.
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Questions?