Many Ways to Extend Credit to Foreign Buyers by Bradleystephens


Summer 2007

Many Ways to Extend Credit to Foreign Buyers
In global trade, the extension of credit by a seller to a foreign buyer is fairly common-
place. Consequently, foreign buyers often press U.S. exporters for longer payment
periods. Any seller who is reluctant to extend credit may lose sales to competitors
who are more willing to offer financing solutions.

A liberal approach to financing may indeed enhance an exporter’s competitiveness.
However, U.S. exporters must weigh carefully the credit or financing options they extend
to foreign customers, and lean on the right mix of resources to help mitigate any country
and/or political risks, as well as any other risks of non-payment.

                                                        “We don’t ever want our exporting
                                                        clients to lose a sale because
                                                        their foreign buyer wasn’t confi-
                                                                                              Targeting profitable growth

                                                        dent it could finance a purchase,”
                                                                                              when going global

                                                        says Dave Nuske, Vice President
                                                        of Global Trade Services for
                                                        KeyBank. “Rather, we want our
                                                        U.S. clients to know help is avail-
                                                        able if they leverage Key’s export
                                                        financing products and services
                                                        or those provided through our
                                                        partner relationships.”

                                                        Longer payment terms
                                                        Traditionally, international trans-
                                                        actions have longer payment
                                                        terms than their domestic coun-
                                                                                              Subscribe to

                                                        terparts because goods simply
                                                                                              International Insights or

                                                        take more time to move from
                                                                                              other Key publications at

                                                        Point A to Point B.

“While transportation methods may be improving, foreign buyers will always press for
extended terms,” Nuske says. “Normal international trade transactions can take up to
                                                                                              International Insights

180 days and have more liberal credit terms.”
                                                                                              For global trade tips & trends, visit

That said, are U.S. businesses compelled to make payment terms even more attractive

in order to acquire or maintain foreign business? Nuske says U.S. exporters, at a mini-
mum, must match the terms offered by their competitors to protect their market share
and have the chance to increase their sales.“With the limited availability of working capi-
tal to buyers in foreign countries and their associated high costs, U.S. exporters have to
be creative and supply lower-cost financing options,” Nuske says.

                             Key can help
                             U.S. exporters can take advantage of several risk mitigation programs to extend credit
                             to foreign buyers with greater confidence. Key is a quality provider in helping clients in
                             this way.
U.S. exporters must match
                             “Our highly experienced team knows how to use these various products and programs
                             expeditiously and effectively to help clients close more international transactions,”
the terms offered by their   Nuske says.

                             Among Key’s export financing options and services are:

                             • Advising letters of credit (L/Cs) to exporters and examining the related documents.
competitors to protect
                             The foreign buyer’s bank substitutes its own creditworthiness for that of the foreign
their market share.          buyer, thereby providing U.S. clients with a reasonable assurance of prompt payment.

                             • Confirming L/Cs issued by the buyer’s bank to further mitigate a client’s risk exposure.
                             Key endorses the creditworthiness of the foreign bank and undertakes to pay its
                             client/exporter upon presentation of documents in compliance with the L/C. (For
                             exporters who do not require confirmed L/Cs, Key offers document review services and
                             facilitates payments under unconfirmed L/Cs.)

                                                          • Offering short- or medium-term export financing supported
                                                          by private and public sector credit insurance for transactions
                                                          extending beyond 180 days. Credit insurance is becoming
                                                          more viable as additional underwriters enter this market,
                                                          Nuske says.

                                                          • Assessing trade partners’ creditworthiness by performing
                                                          credit checks based on trade information gleaned from
                                                          Key’s correspondent banking relationships. The bank also
                                                          can access international credit ratings services.

                                                          Ex-Im Bank: leveling the playing field
                                                          Additionally, clients can leverage Key’s relationship with the
                                                          Export-Import Bank of the United States (Ex-Im Bank). Ex-
                                                          Im Bank is the official export credit agency of the United
                                                          States; it assumes credit and country risks that the private
                                                          sector is unable or unwilling to accept.

                                                          Ex-Im Bank also matches the financing that other govern-
                                                          ments provide to their exporters, thereby leveling the global
                                                          commerce playing field for U.S. exporters. Furthermore, it
                                                          provides working capital guarantees (pre-export financing),
                                                          export credit insurance and 100% loan guarantees.

                                                          Extending credit to foreign buyers is a win-win situation for
                                                          both sides of a transaction, as the foreign buyers benefit
                                                          from a “one-stop shopping” experience.

                             “Key can provide all the necessary terms and conditions to clients who can include these
                             details as part of their sales proposal,” Nuske says. “Foreign buyers know the full cost to
                             purchase products and the cost to finance them. The end result for our U.S. exporting
                             clients is a more friendly trade relationship and ultimately, we hope, increased sales.” s

 2                                                                                                                   ¯
That’s the Goal When Going Global
Profitable growth is the key consideration in corporate globalization efforts, according to
an AberdeenGroup 2007 benchmark report, “The Role of ERP in Globalization: A low-
cost approach to reaching new markets.”

The report examines the role of ERP (enterprise resource planning) in globalization and
is based on survey responses from manufacturing, supply chain, logistics and opera-
tions executives. About three-quarters of the responses came from companies exceed-
ing $50 million in revenue.

Globalization pressures
The majority of companies studied (79%) view global mar-
kets as a growth opportunity, but of those companies, half
also are feeling pressure to reduce costs. Similarly, of those
companies surveyed that seek to reduce costs either directly
or by providing the necessary flexibility to ship from more
cost-effective locations, 74% also seek growth opportunities.

“One would expect globalization efforts to be largely driven
either by the desire to exploit new markets or the need to
lower manufacturing costs. Which is the dominant business
driver? The answer is both,” says Cindy Jutras, Vice
President and Group Director for Aberdeen, a Boston-based
provider of research focused on the global technology-driven
value chain.

In their desire for profitable growth, companies that auto-
mate and streamline workflows across multiple sites —
including suppliers, partners and manufacturing sites —
achieved 66% more improvement in reducing total time from
order to delivery. Furthermore, those companies that coordi-
nate and collaborate between multiple sites — operating as
a vertically integrated organization — achieved more than a
10% gain in global market share.

Despite these findings, few companies take advantage of the
technology available today to support and sustain such collaborative efforts. “In many
cases, we found adoption of such technology relatively low,” Jutras says. “What’s changing
this situation, however, is that ERP providers are building more superior work flows and      Companies that coordinate
automation into their systems.”

Indeed, this trend is prompting more ERP adoptions and/or encouraging companies
using older ERP systems (i.e., those two or three releases behind current models) to
                                                                                              and collaborate between

update their technology and enjoy new, built-in efficiency features.

Core ERP systems must, at a minimum, be able to handle currency exchange, multi-site
                                                                                              multiple sites achieved more
and multi-company transfers of inventory, consolidation, localization and translation.
Companies that fail to implement newer ERP systems will find a direct correlation to the
difficulties they face trying to reduce order-to-delivery processing times.
                                                                                              than a 10% gain in global

“Enterprises can’t focus on gaining a competitive advantage if they struggle to integrate
their own international operations,” Jutras says. “This step must be achieved first for the   market share.

                                                                                        ¯                                 3
company to achieve interoperability on a global scale. Businesses must first think glob-
ally, but then act and comply locally.”

Best-in-class goals
According to the survey data, companies that get it
right have some common characteristics, including:

• Workflows are automated and streamlined
across multiple sites in support of collaborative
processes, including suppliers, partners and
manufacturing sites.

• Multiple sites operate as a vertically integrated
manufacturing and delivery operation.

• Data and metrics are shared between partners,
manufacturing sites and selected suppliers on a
real-time or on-demand basis.

• ERP is implemented in all major operating sites
worldwide, conforming to corporate standards.

• Reporting capabilities are fully utilized, along
with technologies such as event management and
advanced metrics.

• Governance, risk and compliance are automated and well managed.                             The globalization
Companies that currently don’t exhibit these best-in-class characteristics can begin by
taking some initial steps toward achieving profitable growth. The best place to start is by
documenting their business processes and workflows.                                           of business isn't

“You must first understand how each part of the business flows into the next and then
dissect these interrelationships,” Jutras says. “Trying to automate something you don’t
fully understand or that isn’t well documented is a fruitless task.”
                                                                                              slowing down.

Once this journey has begun, companies should focus on streamlining and automating
processes and workflows internally, as well as with external partners, and establishing
common metrics and reporting standards across all operating sites.

The globalization of business isn’t slowing down. In fact, 83% of respondents are
                                                                                              International Insights
expanding their global operations. Jutras advises that, as this occurs, any attempts to
                                                                                              is published by KeyBank as a
standardize and streamline, despite the escalating complexities and pressures in inter-
                                                                                              service to clients. To learn more

national markets, are encouraged in the quest for profitable growth. s
                                                                                              about our international products
                                                                                              and services, visit us at

For more information on how KeyBank can help your company with trade endeavors,
contact Michael Bellardine, Director/SVP, Global Trade Services, at 216-689-4975.

This report is designed to provide general information only. It is distributed with the
understanding that the author and publisher are not engaged in rendering legal advice.
If legal advice or other expert assistance is required, the services of a competent pro-
fessional person should be sought. The accuracy or completeness of this information is
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not guaranteed, nor does KeyBank make any warranties regarding the results obtained
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