export finance: the tools and techniques for financing your
TRANSCRIPT
Export Finance: The Tools and Techniques
for Financing Your Foreign Sales Silicon Valley Bank
November 9, 2011
Speakers
• Carla Winfield, CGBP, Sr. Global Trade Finance Advisor,
Silicon Valley Bank
• Matt Wysong, CICP, Global Trade Finance Advisor,
Silicon Valley Bank
Overview
• International Credit Products and Services
• Method of Payment: Risk Assessment
• Alternative Financing Solutions
• International Trade Documentation
• Summary
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Method of Payment: Risk Assessment
Relies completely
on buyer to pay as
previously agreed.
No Risk.
Open
Account
Relies on buyer to pay
draft on presentation
or upon maturity.
Relies on exporter
to ship goods as
described in documents.
Documentary
Collections
Risk of his own non-
performance in
adhering to all the
requirements in the LC.
Relies on seller to ship
goods as described
in the documents.
Letter of Credit
No risk. Relies completely
on exporter to ship
goods as ordered.
Cash in
Advance
High Risk
Low Risk High Risk
Low Risk
Seller
Exporter
Buyer
Importer
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Alternative Financing Solutions
What is L/C Discounting?
• Bank purchases the draft under an L/C from the client at discount of the
face value on a non-recourse basis, then SVB collects the proceeds of the
L/C at maturity.
• Utilize commercial letters of credit to obtain extended payment terms from
suppliers
• Reduce country and commercial risk
• Discounting allows access to cash tied up in letters of credit that have yet to
pay.
• Source of cash beyond traditional lines of credit or equity
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Draft Finance — Example
Exporter
Exporter Bank
(SVB)
Importer
Importer Bank
Step 1:
Exporter sends documents
to Exporter Bank
Step 1:
Exporter ships goods to
Importer
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Draft Finance — Example
Exporter
Exporter Bank
(SVB)
Importer
Importer Bank
Step 2:
Exporter Bank sends
documents to Importer Bank
Step 3:
Importer Bank accepts documents and
notifies Exporter Bank
8
Draft Finance — Example
Exporter
Exporter Bank
(SVB)
Importer
Importer Bank
Step 4:
Exporter Bank credits Exporter invoice
amount less fees and interest
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Letters of Credit Discounting - Calculation
Discounting of $10,000,000 L/C for 180 days
Formula: Amount of L/C X Discount Rate X No. of Days / 360
$10,000,000 X 4.11% (0.61% [6Mo Libor] + 3.5%) X 180 / 360 =
$205,500.00
Net proceeds = $9,794,500
Pricing Considerations::
• Credit worthiness of issuing bank of the L/C
• Country risk
• Tenor of draft
• Party responsible for discount fee
Alternative Financing Solutions
What is Forfaiting?
• It’s an international trade finance practice, where SVB
purchases, at a discount, larger dollar amount, longer-
term receivables from exporters. It could be a one-off
deal or a series of on-going transactions.
• Forfaiting is a non-recourse transaction
• Ideally, amount is $500,000 or more and the term is 6
months or longer, up to 5-8 years.
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Credit Insurance
• Export credit insurance (ECI) protects an exporter of products
and/or services against the risk of non-payment by a foreign
buyer.
• The policy generally covers commercial risks—insolvency of
the buyer, bankruptcy or protracted defaults (slow payment),
and certain political risks—war, terrorism, riots, and revolution,
as well as currency inconvertibility, expropriation, and changes
in import or export regulations.
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Exporter
Exporter Bank
(SVB)
Importer
Importer Bank
Exporter Exporter
Importer Bank
Exporter
Exporter Bank
(SVB)
Importer
Importer Bank
International Credit Products and Services Description
U.S. Export-Import Bank Programs • Working Capital Guarantee (―WCG‖)
− Short-term (less than 360 days) foreign accounts receivable and inventory
financing
− Advance rates of up to 90% (AR) and 75% (Inventory) respectively on product
sales with minimum 51% US content
− Billed from the U.S.
− LCs issued under the Ex-Im loan only require 25% collateral coverage
• Use of Disbursements
– To purchase finished products for export
– To pay for raw materials, labor, and overhead
– To cover the costs of producing goods and/or providing services for export
– To cover standby letters of credit serving as bid bonds, performance bonds, or
payment guarantees
– To finance foreign receivables
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Exporter
Exporter Bank
(SVB)
Importer
Importer Bank
Exporter Exporter
Importer Bank
Exporter
Exporter Bank
(SVB)
Importer
Importer Bank
Working Capital Impact of Guarantee
Your Working Capital Facility
without Ex-Im Bank
Your Working Capital Facility
with Ex-Im Bank
Collateral
(Inventory) Amount Advance Rate Borrowing Base Advance Rate Borrowing Base
Export Inventory
Raw Materials $200,000 20% $40,000 75% $150,000
WIP $200,000 0% $0 75% $150,000
Finished Goods $600,000 50% $300,000 75% $450,000
Export/Foreign Accounts Receivable
Open Account $400,000 0% $0 90% $360,000
L/C Backed A/R $600,000 70% $420,000 90% $540,000
Total Borrowing Base $760,000 $1,650,000
Essential Export Documents
Document: Issued by:
Commercial invoice
Packing list
Shipper’s export declaration
All generally issued by seller
and accompany shipment
Bill of Lading or Air Waybill Freight company
Certificate of Origin Seller but not always required
Insurance certificate Various parties
Draft Seller but not always required
Miscellaneous Export Documents:
U.S. export licenses Seller but not always required
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Commercial Invoice
• Listing, describing:
– Merchandise shipped
– Price
– Terms of shipment
• Issued by seller
• Main Document for entry/exit (duties)
Transport Document
• Can be:
− Marine, rail, or truck bill of lading
− Air waybill
− Combined transport document
• Provides evidence that merchandise was placed on board a carrier
or vessel
• Can serve as title to merchandise
• Usually signed by transport company
No. 12345 November 30, 2011
At 60 Days from Sight OF THIS SOLE BILL OF EXCHANGE PAY TO THE
ORDER OF XYZ COMPANY
THE SUM OF $100,000.00 ------------------- U.S. DOLLARS
One Hundred Thousand and 00/100 United States Dollars
TO: BANK OF CHINA XYZ COMPANY
BEIJING, CHINA
Drawn under LC # 34698 issued by Bank of China AUTHORIZED SIGNATURE
The Draft
•Also know as ―Bill of Exchange‖
• A draft is a demand for payment
• The drawer (seller) makes a written demand for payment on the drawee,
instructing the drawee to pay a specified amount of money to the payee
(the seller)
•Most Letters of Credit require a draft to be presented in order for payment
to be made.
Acceptance and Deferred Payment
• Acceptance:
– A time draft, or a bill of exchange, on which the drawee has written the
word "Accepted" and affixed a signature. It is an unconditional obligation of
the drawee to pay it at maturity.
• Banker's Acceptance: A draft drawn on and accepted by a bank (drawee)
• Trade Acceptance: A draft drawn on and accepted by a buyer (drawee)
• Deferred Payment:
− Paid at some future date without requirement of bill of exchange or draft
(stamp duty in certain countries)
No. 12345 November 30, 2012
At 60 Days after Sight OF THIS SOLE BILL OF EXCHANGE PAY TO THE
ORDER OF XYZ COMPANY
THE SUM OF $100,000.00 ------------------- U.S. DOLLARS
One Hundred Thousand and 00/100 United States Dollars
TO: ABC Company XYZ COMPANY
BEIJING, CHINA
AUTHORIZED SIGNATURE
Trade Acceptance
• A draft drawn on and accepted by a buyer (drawee)
•Type of draft presented under Documentary Collections
• Time Draft may require an enhancement to be discounted
•Forms of enhancement:
–Aval: is the preferred form of security of payment of a bill or note. For an aval to be
acceptable, the avalizing bank must be internationally recognized and credit worthy.
The aval may be placed on the face of the note.
–Letter of Guarantee or Standby Letter of Credit: are issued instead of an aval,
particularly in some countries that may not recognize the aval as legally binding.
..
Benefits of International Trade Documentation
• Letter of Credit
• The Bill of Exchange/Draft is a built in financing tool that is drawn on
the issuing bank.
• Forfaiting Agreement
• The Bills of Exchange/Draft are issued for each installment of the
supplier’s credit to document the existence of a legal claim of the
exporter on the importer.
The Bill of Exchange/Draft are unconditional and irrevocable once
accepted. The documents are financeable. It separates the
performance risk from the underlying trade transaction.
Summary
• Don’t say no to an order just because the buyer is asking for
extended terms or is in an emerging market
• Understand the risk factors when entering into a new market and the
tools to mitigate risk to increase your competitive edge, to optimize
the profitability of your international transactions to better manage
your cash flows
• Do consult with your Product Advisor early in the process to
structure a financeable transaction
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Carla Winfield
Carla Winfield is the senior international trade advisor for Silicon
Valley Bank in its Eastern Region. She is responsible for helping
clients mitigate their risk as they expand their business globally.
Winfield has over 20 years experience in international banking
including trade services, trade finance, export compliance and
global cash management. She was awarded the Certified Global
Business Professional (CGBP) designation by NASBITE
International during its inaugural session in 2006 and has taught
trade finance at the Massachusetts Export Center for the NASBITE
International CGBP Certificate Preparation Course. A recognized
expert in trade, she has made presentations to The Massachusetts
Treasury Management Association, Massachusetts Export Center,
national associations of exporters and importers and many bank
presentations on the subject of trade finance, export compliance
and global cash management. Winfield has also been published in
The Journal of New England Technology.
Her board experience, practical knowledge and technical expertise
allow her to develop innovative solutions for companies involved in
international trade banking.
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Senior Global Trade Finance Advisor
Silicon Valley Bank
617.630.4154
Matt Wysong
Matt Wysong is a Global Trade and Foreign Exchange Advisor for
Silicon Valley Bank. He is responsible for advising clients on
international expansion, foreign accounts receivable financing,
foreign exchange hedging and international risk mitigation.
Prior to joining Silicon Valley Bank in 2008, Mr. Wysong was a
Relationship Manger for Wells Fargo focusing on analyzing,
negotiating and managing complex credit transactions for
commercial clients in the Rocky Mountain Region. He started his
career in industry as an account manager at Matchlogic, an e-
Customer Relationship Management Solutions (eCRM) company.
Mr. Wysong holds both a BS and MBA from the University of
Colorado at Boulder, possesses a Series 6 license from FINRA, is a
Certified International Credit Professional from the FCIB, and has
completed the Export-Import Bank Delegated Authority Underwriting
Program.
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Global Trade Finance Advisor
Silicon Valley Bank
303.410.3431
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Disclosures
This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.