© 2008 BOK Financial Corporation. Member FDIC. Equal Opportunity Lender. Services provided by: Bank...

© 2008 BOK Financial Corporation. Member FDIC. Equal Opportunity Lender.Services provided by: Bank of Albuquerque, N.A., Bank of Arizona, N.A., Bank of Arkansas, N.A., Bank of Kansas City, N.A., Bank of Oklahoma, N.A., Bank of Texas, N.A., Colorado State Bank and Trust, N.A.

MANAGING PAYMENT RISKAND

FINANCING EXPORTS

AFP 6-11-2014

Fernando Almeida


Why is International Trade Important to AZ?

Supports more than 700,000 jobs

Ranked 24th in the US in goods exported in 2012

Customers in 208 countries buy Arizona-grown and manufactured goods and services

90 percent of AZ exporters are Small or Medium sized companies

Foreign-owned companies invest in Arizona and employ more than 73,000 Arizonans


Why is International Trade Important to AZ?

Top Export Markets:

Mexico $ 6.5 BL

Canada $ 3.1 BL

Japan $ 1.8 BL

China$1.7 BL

U. K. $ 1.7 BL


RISKS FOR THE SELLER / EXPORTER Commercial Risk

Bankruptcy

Political Risk

War, revolution, confiscation

Foreign Exchange Currency devaluation

Exchange controls

Export Compliance Policies BIS; ITAR; OFAC


METHODS OF PAYMENT

1. Cash in Advance

2. Letter of Credit

3. Documentary Collection

4. Open Account


PAYMENT IN ADVANCE

Wire transfer (bank to bank)

Payment by check

Collection delay – defeats the intention of receiving money before shipping goods.

Credit card [for low dollar value]

Fear of fraud

Downside - Losing sales to competitors who may offer

flexible payment terms


Commercial Letter of Credit

1. Promise to pay the beneficiary

2. Issued by a bank for account of its customer

3. To pay named beneficiary for:

• Stated amount and

• Within stated period

4. Presentation of specified documents in STRICT compliance with the terms of the letter of credit

5. Payment at sight or at a future time


TYPES OF LETTERS OF CREDIT

Documentary / Commercial

Standby

Bid and Performance Bonds

Advance Payment

Warranty


RISKS ASSOCIATED WITH LETTERS OF CREDIT

Financial strength of the Issuing Bank

Country risk

- Consider Confirmation

Documentary risk – Discrepancies

Fraudulent L/C’s – advised directly to the beneficiary without the intermediary bank


DOCUMENTARY COLLECTIONS

A. Documents Against Cash Goods are released to the buyer after payment is made.

This is only applicable on ocean shipment.

Under air shipment, airway bill is not needed to claim the goods. The exporter has a higher risk of not getting paid.

B. Documents Against Acceptance Time draft

Extending credit to the buyers

Payment is due at a specific time after the buyer accepts the time draft.


Risks Associated with Documentary Collections:

Merchandise refusal by buyer

Non payment (on time draft)

DOCUMENTARY COLLECTIONS, cont’d.


OPEN ACCOUNT

Most Risk – products are shipped first , payment received later.

Accounts Receivable Insurance to mitigate risk


Export Financing Solutions


Financial Challenges in International Sales

Exporters face three major challenges:

Obtaining working capital financing for export orders (P/O financing)

Extending credit terms to foreign buyers

Financing capital goods

Why? . . .

Sources of repayment are outside the U.S.


EXPORT-IMPORT BANK OF THE U.S.

Ex-Im Bank is an independent agency of the United States.

Established in 1934

To date, supported more than $474 BL of U.S. exports

H Q in Washington, DC

5 Regional Offices

Mission: Support the financing of U.S. exports in order to sustain jobs.

Self-sustaining agency

Does not compete with the private sector


EX-IM BANK PROGRAMS

Working Capital Guarantees (exporter financing)

Global Credit Express

Foreign Accounts Receivable Insurance

Medium & Long Term Loan Guarantees (buyer financing)


WORKING CAPITAL GUARANTEE

Program Highlights:

Pre-Export Financing

Meet Manufacturing Cost

Labor, material, parts, overhead

Bid/Performance/Advance Payment Bond


WORKING CAPITAL GUARANTEE

1. Provides a 90% guarantee of repayment (Principal and Interest) on loans made to exporters

2. Minimum US content of >50%

3. Advance Rate of 75% on export inventory and 90% against export accounts receivables

4. Ex-Im Bank won’t support exports of military/defense products and services.

5. Export must take place from the US

6. Not for start-ups


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WCGP Benefits - Expansion Of Borrowing Base

Expansion of Borrowing Base: Asset Based Facility WCGP

Collateral Amount Advance Collateral Advance Collateral

Exportable Inventory

Raw Materials $ 200,000 20% $ 40,000 75% $ 150,000

WIP $ 200,000 0% $ 0.00 75% $ 150,000

Finished Goods $ 600,000 50% $300,000 75% $ 450,000

Subtotal $1,000,000 $340,000 $ 750,000

Foreign Accounts Receivable (A/R)

Open Account $ 800,000 0% $ 0.00 90% $ 720,000

Letters of Credit $ 200,000 90% $180,000 90% $ 180,000

Subtotal $1,000,000 $180,000 $ 900,000

Total Borrowing Base$520,000 $1,650,000


Global Credit Express

1. Pilot Loan Program

2. Provides working capital to fund export activity.

3. Maximum loan is $500,000

4. Streamline processing and quick turn-around time

5. Requires no borrowing base or monthly reporting

6. In business for 3 years and one year of exporting experience


EXPORT CREDIT INSURANCE

Post-Export

Insuring foreign receivables

A.EX-IM BANK

Multi-Buyer or Single Buyer Policy

Covers political and commercial risk for up to 95% of the invoice amount.

Covers bankruptcy and protracted defaults, war, revolution, revocation of import license.

No minimum premium, “pay-as-you-ship”


EXPORT CREDIT INSURANCE

Requirements:

Minimum > 50% U.S content

Must be shipped from U.S.

Defense products are excluded

Country Limitation Schedule

Small Business Multi-Buyer Premium Rates:

1-60 days - 0.55%

61-120 days - 0.90%


EXPORT CREDIT INSURANCE, cont’d.

Other Insurers

Attradius

FCIA Management

Coface

Euler-Hermes


EX-IM Bank Medium Term Financing

100% coverage on loans to foreign buyers

Capital equipment and related products

15% down payment required

Repayment terms based on contract price and export items

Medium Term: 5 to 7 years

Renewable Energy & Water Treatment Equipment: Up to 15 years


Fernando AlmeidaSenior Vice PresidentInternational Trade & TreasuryBank of Arizona16767 N. Perimeter Dr. Suite 200Scottsdale, AZ 85260

Phone: 602-808-5364

Email: [email protected]

mailto:[email protected]

© 2008 BOK Financial Corporation. Member FDIC. Equal Opportunity Lender. Services provided by: Bank...

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