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Stevenson - Springfield Import Presentation by xnd20863

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Deferred-payment-import pdf

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									                       Importers
        Facilitating the International Purchase




    Craig E. Stevenson
    Senior Vice President
    International
1
            Outline for Today
    Payment risks in international trade
      Commercial Risk (Credit Risk)
      Political Risk (Country Risk)
    Payment methods
      Cash in Advance
      Open Account
      Documentary Collection
      Documentary Letter of Credit

2
       International Transactions
    Every international transaction is both an
    import and an export, depending on the
    perspective of the person viewing the
    transaction.
    Buyer = Importer
    Seller = Exporter
    For the sake of this presentation, I ll focus
    on the Importer, or Buyer

3
        Risks to Buyer (Importer)
    Commercial Risk
      Payment issues
      Issuer obligations to their bank
      Documentation issues
      International regulations
    Political Risk
      Currency devaluation
      Economic boycott
      Governmental restrictions

4
          Country Risk Factors
    Currency Stability
      Depends on what currency you have to pay
    Banking Sector
      Risks for banks/conversely, bank risk
      How to offset risk
    Governmental Stability
      If it s an import, what is the problem?


5
            Credit Risk Factors
    KYC (Know your Customer)
      OFAC considerations
    Seller s (importer s) credit responsibilities
    for Letters of credit
    Domestic/foreign bank credit risk




6
        Methods of Payment

    4 methods
     Cash In Advance
     Open Account
     Documentary Collection
     Letter of Credit

7
    Cash In Advance




8
             Cash in Advance
    Funds are transferred to the seller before
    shipment takes place
    Most secure form of payment for the seller
    Buyer must trust that the seller will make
    the shipment for the items purchased
    Delivery risk


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                Cash in Advance
     Risks to seller
       None
     Risks to buyer (importer)
       Ties up capital prior to receipt of goods
       No assurance of receipt of goods
       No monitoring of quality of product
          Legal action in foreign country=cost and hassle



10
       Cash In Advance Examples
     Wire transfer
       USD to the seller s (exporter s) account
       FX conversion risks
     Check (Draft)
       Drawn in USD (on U.S. or a Foreign Bank)
       Drawn in FX Currency
     Credit Card Payment

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     Open Account




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                 Open Account
     Buyer pays for goods at a specified date after
     shipment is made
     As a buyer, the best form of payment
     Seller must trust the buyer will honor the payment
     term and make the payment as agreed
     Usually not acceptable to the seller, unless the
     buyer (importer) has worked with the seller and
     has established trust


13
                Open Account
     Risks to Seller
       Releases title to goods without payment
       Capital tied up until payment received
       Depends on the creditworthiness of the buyer
       Collecting payment in a foreign country; FX
       Risk
     Risks to Buyer
       None


14
     Documentary Collections




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         Documentary Collection
     A bank facilitated transaction involving the
     exchange of commercial documentation in return
     for payment
       Most commonly the documents are tied to shipment of
       goods
       Can be sight or deferred payment terms
       Governed by ICC publication no. 522, Uniform Rules
       for Collections (URC 522)
       Banks act as facilitators of the collection process


16
         Documentary Collection
     Definitions
       Drawer Seller
       Drawee Buyer
       Documents Against Payment (D/P)
         Documents are received, accepted by the buyer and
         payment is made immediately
       Documents Against Acceptance (D/A)
         Documents are received, accepted by buyer and
         buyer agrees to make payment at an agreed future
         date (time draft)


17
         Documentary Collection
     Definitions
       Clean Collection
         Use a draft only, no additional documentation


       Documentary Collection
         Draft and commercial documents
            Commercial invoice
            Packing list
            Transport document


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            Seller                 Buyer


                     Documentary
                      Collection
                       Process


                                   Buyer s Bank
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     Seller s Bank
          When do I use Documentary
                Collections?
     Yes
      Established account
      Stock order
     No
      New account
      Custom order
      Small order


20
     Letters of Credit




21
                 Letters of Credit
     2 types
       Documentary
          Most commonly used in international trade
          Payment occurs when compliant documents are presented
          This instrument supports a commercial transaction and is
          meant to be drawn on when export/import shipments take place
       Standby
          Commonly used domestically as well as internationally
          This instrument supports a commercial transaction, but is only
          drawn on if a default occurs in the underlying transaction



22
     Documentary Letter of Credit
     An irrevocable extension of credit to the seller by
     a bank on the behalf of a buyer
       In international trade, involves the passing of
       commercial documentation in return for payment from
       the issuing bank
       Documents must strictly comply with the requirements
       in the letter of credit or the bank will not warrantee
       payment
       Governed by Uniform Customs and Practice for
       Documentary Credits, ICC Publication; current version
       is UCP 600

23
     Documentary Letter of Credit
     For the buyer (importer)
       Provides the seller with an independent credit
       backing with a clear cut promise to pay
       Substitutes buyer s credit with that of a bank
       Payment assured if the terms of the L/C are met
       Protection from order cancellation




24
       Parties to a Letter of Credit
     Applicant
     Beneficiary
     Issuing Bank
     Advising Bank
     Confirming Bank
     Negotiating Bank
     Reimbursing Bank

25
                   Definitions
     Irrevocable
       A letter of credit which cannot be rescinded,
       recalled or cancelled, without the consent of the
       beneficiary
       All letters of credit are irrevocable unless
       otherwise stated as revocable
         Revocable credits are extremely uncommon




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                    Definitions
     Confirmation
       As it pertains to a seller, a larger, more credit
       worthy bank adds their obligation to pay on the
       letter of credit
       Acts as additional insurance for the seller
       This addition to the letter of credit can expedite
       the payment to the seller
       Only valid if the documents presented comply
       with the letter of credit

27
                     Definitions
     Banker s Acceptance
       Banker s acceptances are time drafts drawn on and
       accepted by a bank, with payment at a fixed or future
       date. The accepting bank conveys its unconditional
       promise to pay the face amount of the draft to the
        holder in due course.
       A bank can discount the receivable to the exporter for a
       nominal financing fee
       This can be a win/win for both importer and exporter
       the seller (exporter) is paid quickly and the buyer
       (importer) pays at a defined time in the future

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       What s in a letter of credit?
     Unique Number
     Irrevocable
     Expiration Date and Place
     Party Information
     Amount and Currency
     Payment Term (Sight or Deferred)
     Shipping Parameters
     Document Requirements
     Document Presentation Period
     Banking Instructions
     Subject to UCP

29
     What should NOT be in a Letter of
                 Credit?
     Contradictory information
     Anti-boycott language
     What to watch for
       Make sure terms are in accordance with contract
       If they are not, the buyer will ask for an amendment
     The simpler a letter of credit is written, the higher
     the probability that the process will be a smooth
     one

30
     The Golden Rules of International
                 Trade
     Do unto others so they won t do it unto you
       Negotiated protection
     With trade finance products, it s the quality
     of the paperwork, NOT the quality of the
     product.



31
          Documentation Examples*
       Draft
       Commercial Invoice
       Packing List
       Transport Document
       Certificate of Origin
     * Other documents may be necessary based on the
       goods and their destination.

32
                Documentation
     Drafts
       Sight Draft
         Immediate payment upon presentation of the draft
          At Sight
       Time Draft
         A draft for a deferred payment, promising to pay at
         a future date
          60 days from the bill of lading date


33
                 Documentation
     Commercial Invoice
       The single most scrutinized document in a letter of
       credit transaction
       A well prepared proforma invoice can pay dividends in
       a letter of credit transaction
       Your banker and forwarder should help you ensure
       your documents are in compliance with the letter of
       credit
       A draft of the LC should be sent to the buyer before
       issuance to assure that it will be accepted.

34
                 Documentation
     Bill of Lading
       Document issued by freight forwarder or by the vessel
       operator
       Represents an ocean shipment as the main mode of
       shipment
       Document typically issued in a full set comprising of 3
       originals
       In some cases the bill of lading can be negotiable,
       meaning whoever holds an original document has right
       to the cargo

35
              Getting started
     The buyer will apply for the letter of credit
     providing the seller s letter of credit
     instructions and proforma invoice.
     The buyer s bank prepares the letter of
     credit and forwards the operative instrument
     to the advising bank in the seller s country,
     typically the seller s bank


36
      Seller                                            Buyer

                          LC Issuance
           Letter of
           Credit
                            Process                     Letter of
                                                         Credit
           Advising/                                   Application
           Confirmation




                                                       Issuing Bank
                           Letter of Credit Issuance
     Advising Bank              SWIFT/Courier
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                   Issuing Bank
     Acts at the request of the buyer
     Selects the advising bank
     Examines the documents to honor their
     undertaking or to reject documents
     If documents conform, make timely payment or
     contact the applicant for waiver if discrepancies
     are present in the documents
     Notifies the seller s bank of discrepancies or of the
     forthcoming payment

38
               Advising Bank
     Checks the authenticity of the letter of
     credit for the seller
     Advises the letter of credit to the seller,
     along with their indication of confirmation
     or lack thereof
     Advises subsequent amendments (if any)



39
      Beneficiary                 Applicant

                     LC Payment
                       Process




                                  Issuing Bank
     Advising Bank
40
     How long before the seller is paid?
     Confirmed - based on the bank s
     confirmation policy.
     Unconfirmed payment directly from
     issuing bank
       10 to 14 business days
     Unconfirmed      payment from reimbursing
     bank
       1 to 5 business days

41
                  Amendments
     Add cost and are time consuming
       The seller must instruct the buyer to arrange to
       have the letter of credit amended
       Amendments are advised in the same manner as
       the letter of credit
       When the buyer receives the amendment, they
       should notify the bank of their acceptance or
       rejection of the amended terms


42
                Discrepancies
     Common discrepancies
       No original document present
       Inconsistencies between documents
       Missing documents
       Late shipment
       Late presentation



43
                 Discrepancies
     How to avoid discrepancies
       Send a copy of the LC before it is issued for the
       seller to review
       Keep it as simple as possible.
       Read, and re-read LC draft before issuance




44
     Documentary Letter of Credit
     Note to Buyers (Importers)
       The LC can be rejected if the terms are not
       according to the contract
       Be prepared to become LC documentation
       specialist
       Don t be afraid to use the experts: your banker
       and your freight forward



45
                   When do I
     In some cases, you may have no choice!
       In some countries, letters of credit are required
       to export products out of the country.
          To obtain an export license
          To offer pre-export financing to the seller
     Letters of Credit can be used to serve as the
     initial advance on a longer term financing
     deal

46
          4 Method of Payment Recap
     Higher Risk to Buyer (Importer)
                    Cash in Advance
               Documentary Letter of Credit
                 Documentary Collection
                     Open Account

                            Higher Risk to Seller (Exporter)


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     Questions?




48
          Contact Information
     Craig E. Stevenson
     Commerce Bank, N.A.
     International Department
     1000 Walnut Street, BB4-5
     Kansas City, MO 64106
     816-234-2608
     Craig.Stevenson@CommerceBank.com

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