bachir el nakib comparison between international payments

Comparison between International Payments and Documentary Trade Finance Compliance Risk Date: 31 August 2016 By: Bachir El Nakib Senior Consultant Compliance Alert (SARL), Lebanon, Qatar

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Comparison betw

een International Payments &

Trade Finance

10/7/2016 Comparison International Payments Vs Trade Finance Risk

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International Trade Products

Products and Services

Trade Services Commercial Letters of

Credit - Import & Export Standby Letters of Credit Documentary Collections Export Credit Insurance International

Correspondent Banking

Trade Finance Working Capital Loans

for exports Foreign Receivable

Financing Foreign Buyer Financing Overseas Investment

Financing

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Risk Comparison INTERNATIONAL METHODS OF PAYMENT

Exporter Risk

High

Importer Risk

Low

Trade Terms

Open Account

Documentary Collection(Time)

Documentary Collection (Sight)

Letters of Credit (Time)

Letters of Credit (Sight)

Cash in Advance

INTERNATIONAL METHODS OF PAYMENT

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International Methods of Payment

Getting Paid and Managing Risk

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Time of Payment: SIGHT at time of presentation of the draft Time of Payment: TIME at a future date. Goods available to Buyer: after payment if ALL Ocean

Bills of Lading are included with the documents and after the cargo has arrived. Risk to Seller: possible non-payment of the draft. Risk to Buyer: has assurance of shipment, but Seller

may not ship goods as ordered. Must pay to get title to goods. Not recommended for sales on extended terms

Documentary Collections Draft or Documents Against Payment Or Acceptance

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Documentary Collections

Benefits More secure than Open Account Goods available to Buyer: after payment if ALL Ocean

Bills of Lading are included with the documents and after the cargo has arrived. Risk to Seller: possible non-payment of the draft. Risk to Buyer: has assurance of shipment, but Seller

may not ship goods as ordered. Must pay to get title to goods. Don’t encumber Buyer’s line of credit Inexpensive

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A payment instrument issued by a bank on behalf of its customer. The issuing bank substitutes its own credit standing for that of its

customer. The issuing bank undertakes to pay for the goods or services provided by

the beneficiary of the LC; the beneficiary looks to the bank for payment, instead of the buyer (applicant of the LC). The LC assures the beneficiary (exporter) of payment when the terms of

the credit are met. The exporter is not obligated to perform if the terms of the LC are not

acceptable. Commercial letter of credit can be paid “at sight” or at period in future Time Letter of Credit can be discounted if seller doesn’t want to wait until

LC maturity. Simple form of trade finance.

What is a Letter of Credit?

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Letters of Credit

Letters of Credit Benefits • More secure than Open Account • Foreign Bank promises to pay exporter if documents are in

compliance with letter of credit • Goods available to Buyer: after payment if all Ocean Bills of Lading

are included with the documents and after the cargo has arrived. • Risk to Seller: LC void if seller docs are not in compliance, i.e. have

discrepancies • Risk to Buyer: has assurance of shipment, but Seller may not ship

goods as ordered. Must pay to get title to goods. • Versatile– can build in terms for buyer and still have assurance of

payment from overseas bank

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International Trade Finance

TRADE FINANCE TOOLS

These traditional payment methods are fine, but what if your customer wants extended terms of payment or your competitors are offering better terms? You need financing to put the order together? Trade Finance may be the solution to your customer’s needs and the way to make exports a

manageable part of your growth strategy. SBA Export Express

SBA Export Working Capital Program

EXIM Bank Working Capital Program

Insured Foreign Receivables Financing

Both SBA and EXIM assists US exporters to obtain loans to produce goods or services for

export. They guarantee repayment to the lender, making it possible for banks to extend financing to the exporter. They do not compete with commercial lenders, but assumes the risks they cannot accept.

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SBA’s Export Express Working Capital Guarantee Program The program supports single transactions or multiple sales under a revolving line

Maximum loan amount limited to $500,000

Guarantees 90 percent of a commercial bank loan up to $350,000 and 75

percent from $350,000-$500,000 Program minimizes government mandated forms. Streamlines processing and

costs of smaller SBA loans for exporters VERSATILE -- Can be used for working capital, issue standby letters of credit for

advance payment guarantees, participation in foreign trade shows, or translation of product literature for use in foreign markets

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SBA’s Export Working Capital Guarantee Program The program supports single transactions or multiple sales under a

revolving line Guarantees 90 percent of a commercial bank loan up to $5,000,000

Can be used to purchase goods and services or pay for labor &

materials to put together an export order– Pre Export Financing Can be used to support standby letters of credit for performance bonds

or advance payment guarantee At the minimum, loan must be collateralized by export- related AR and

inventory No US content requirement or military sales restrictions

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FEES and RATES Guarantee Fee:

Maturities of 12 months or less = 1/4 percent

Maturities greater than 12 months = 2-3.75% depending on loan size

Interest Rates/Lender Fees are Negotiable

ELIGIBILITY

A business must meet SBA’s industry size standards and have been in business for

at least 12 continuous months SunTrust Bank is a delegated lender for SBA’s Export Working Capital Guarantee

Program One of few banks in country to be awarded this designation

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Export Import Bank of the US Export Working Capital Guarantee Program • The program covers 90% of the loan’s principal and accrued interest

• STB minimum loan request is negotiable – there is no maximum amount

• At the minimum, loan must be collateralized by export-related AR and inventory

• Goods must have at least 50% US cost content to guarantee the entire transaction

• Loans Can Be either Transaction Specific or Revolving

• High Advance Rates on Inventory and Receivables, including work in Process . • Some restrictions to the program (military exports and some countries are

excluded)

• Financing Provided for Short, Medium, and Long Term

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Export Credit Insurance & Insured Foreign Receivables Financing Insurance Available through EXIM Bank and Private Sector Insurers

Commercial risk insurance (buyer bankruptcy and insolvency)

Political risk (war, inconvertibility of currency)

Short Term & Medium Term Insurance Policies, Multi Buyer or Single Buyer

Policies Enables US exporters to extend “open account” terms to international buyers (protect US exporters against foreign buyer default) Insured export receivables looked upon favorably by banks. Exporters may be

able to borrow against insured foreign A/R. Good option for service companies who have little inventory for collateral

bachir el nakib comparison between international payments

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