International Trade The 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 Management

Methods of Payment. Financing. FX Risk Management.

Major Export Risks

Buyer risk
-methods of payment/debtor insurance

Bank & Country risk

-confirmation

Foreign Currency risk

-hedging strategies

Transit risk
-Marine insurance

Methods of Payment
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.
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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.

Open Account

Payment 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 Account contd

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.

Documentary Letters of Credit

Guarantee issued by the importers bank authorising the payment of money to the exporter, against delivery by the exporter of specific documents. Mitigates risk of non payment.

Document and payment flow under an Export Letter of Credit

1 Exporter contract specifies payment using a documentary letter of credit (such as an irrevocable letter of credit) 5 Exporter ships goods Importer 8b 2 Amount due is Importer paid (or bank applies to a may extend local bank for credit) a documentary letter of credit Exporter 4 Exporters bank advises and/or confirms the documentary letter of credit 6 Exporter sends documents to its bank

10 Exporter receives payment 9 Importers bank transmits funds due to exporter 7 Documents sent for review Exporters Bank 3 Importers bank informs exporters bank when a documentary letter of credit has been issued

8a Bank sends documents to importer

Importers Bank

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

1 Exporter ships goods (Title not transferred until step 6) Exporter Importer

2 Exporter submits bill of exchange, invoice, packing list, and bill of lading

8 Payment

6 Importers bank releases bill of lading, transferring title of goods to importer

5 Payment

4 Importers bank notifies importer that the documents have been received

7 Payment

Exporters bank

3 Exporters bank forwards 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?

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