AIM Seminar 2010AIM Seminar 2010

How to Get Paid For and How to Get Paid For and Finance Your Export SalesFinance Your Export Sales

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SunTrust InternationalSunTrust International

Marsha SompayracMarsha Sompayrac

(804) 782-5558(804) 782-5558Marsha.sompayrac@suntrust.com

Hai-nah Ellison(Hai-nah Ellison(

(804) 782 7476(804) 782 7476Hai-nah.ellison@suntrust.com

Richmond, Virginia Richmond, Virginia

3International Trade Banking

INTERNATIONALINTERNATIONAL METHODS OF PAYMENTMETHODS OF PAYMENT

Exporter Risk

High

Importer Risk

Low

Trade Terms

Open Account

Documentary Collection(Time)

Documentary Collection (Sight)

Letters of Credit (Time)

Letters of Credit (Sight)

Payment in Advance

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Open account... are you really sure?Open account... are you really sure?(You ship the goods, they sell them (You ship the goods, they sell them and then pay you...maybe)and then pay you...maybe)

How can we be How can we be sure he’ll pay?!sure he’ll pay?!

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Cash in Advance?Cash in Advance?(They send you the money then you ship (They send you the money then you ship the goods!)the goods!)

Be careful! Don’t ship Be careful! Don’t ship before you are sure you are before you are sure you are in receipt of collected fundsin receipt of collected funds• wire transfer: make sure they wire transfer: make sure they

have complete instructions & have complete instructions & verify receiptverify receipt

• check - determine that check check - determine that check has been paid by drawee has been paid by drawee bankbank

• foreign check - may take up foreign check - may take up to 3 weeks to clearto 3 weeks to clear

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Trade Services Trade Services (Traditional Bank Products)(Traditional Bank Products)

A.A. Letter of Credit (sight)Letter of Credit (sight)

The buyer’s bank promises to pay the seller if the seller The buyer’s bank promises to pay the seller if the seller presents documents that comply with the conditions listed in presents documents that comply with the conditions listed in the letter of credit. Payment will be at sight (immediate) the letter of credit. Payment will be at sight (immediate) upon presentation of conforming documents.upon presentation of conforming documents.

B.B. Letter of Credit (time)Letter of Credit (time)

The same as above except that payment will be at a The same as above except that payment will be at a designated time after presentation of compliant documents. designated time after presentation of compliant documents. Example: 30 days after bill of lading date. Provides terms for Example: 30 days after bill of lading date. Provides terms for buyer but seller must wait for payment. buyer but seller must wait for payment.

C.C. LC Discount & Acceptance (time)LC Discount & Acceptance (time)

A simple form of trade finance, which gives the buyer time to A simple form of trade finance, which gives the buyer time to pay but your company receives cash following shipment. pay but your company receives cash following shipment. Build in the cost!! Build in the cost!!

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Trade Services Trade Services (Traditional Bank Products) (Traditional Bank Products) (continued)(continued)

D.D. Collections (sight)Collections (sight)

Similar documents as in letter of credit but there is Similar documents as in letter of credit but there is neither bank examination nor promise of payment by neither bank examination nor promise of payment by bank. Should be used with strong or long established bank. Should be used with strong or long established buyer as it carries risk of non-payment by the buyer as it carries risk of non-payment by the buyer. .buyer. .

E.E. Collections (time)Collections (time)

Similar to sight, but gives buyer time to pay. Like Similar to sight, but gives buyer time to pay. Like open account but carries a “protest” mechanism.open account but carries a “protest” mechanism.

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Commercial Letter of Commercial Letter of CreditCredit

arrangement by a bank to settle arrangement by a bank to settle international commercial international commercial transactiontransaction

provides a measure of security for provides a measure of security for parties involvedparties involved

creates contractual framework for creates contractual framework for trade transaction paymenttrade transaction payment

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Letters of CreditLetters of Credit

L/Cs are a payment mechanism, L/Cs are a payment mechanism, not a quality not a quality assurance deviceassurance device. To assure quality, product . To assure quality, product inspection must be made. (e.g.: SGS or other inspection must be made. (e.g.: SGS or other method)method)

Bank guarantee of payment. If the documents Bank guarantee of payment. If the documents outlined in the Letter of Credit are in complete outlined in the Letter of Credit are in complete compliance with the terms and conditions of the compliance with the terms and conditions of the letter of credit, payment will be made.letter of credit, payment will be made.

Documents are checked for “discrepancies”, or Documents are checked for “discrepancies”, or differences between what is required and what is differences between what is required and what is submitted. Discrepancies will usually delay submitted. Discrepancies will usually delay payment.payment.

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Payment under L/C is Payment under L/C is effectedeffected

against receipt of documents against receipt of documents only...not against shipment or only...not against shipment or examination of merchandiseexamination of merchandise

if documents comply with credit if documents comply with credit termsterms

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ConfirmedConfirmedLetter of CreditLetter of Credit

A confirmed letter of credit carries the A confirmed letter of credit carries the obligation of both the issuing bank and the obligation of both the issuing bank and the confirming bank to pay the exporter if the confirming bank to pay the exporter if the terms and conditions of the credit are met.terms and conditions of the credit are met.• Foreign country risk is eliminated, as the risk Foreign country risk is eliminated, as the risk

moves to the US bank.moves to the US bank.• Cash flow may improve, as payments are from Cash flow may improve, as payments are from

a US vs. Overseas bank.a US vs. Overseas bank.• Additional expense, as another bank Additional expense, as another bank

(confirming) is now involved in the transaction.(confirming) is now involved in the transaction.

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If you want your L/C confirmed...If you want your L/C confirmed...

consult with SunTrust Bank consult with SunTrust Bank whether or not L/C can be whether or not L/C can be confirmed, if issuedconfirmed, if issued

request confirmation when setting request confirmation when setting up sales contract with buyerup sales contract with buyer

determine up front who will pay determine up front who will pay confirmation commissionconfirmation commission

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Letters Of Credit Letters Of Credit StandbyStandby

BidBonds

Guarantees

PerformanceBonds

Advance OrDown Payment

Guarantee

StandbyLetters

Of Credit

14International Trade Banking

Documentary CollectionsDocumentary Collections

International Method of PaymentInternational Method of Payment No Credit Approval RequiredNo Credit Approval Required Collection processing handled in AtlantaCollection processing handled in Atlanta SunTrust acts as collecting bank for SunTrust acts as collecting bank for

payment against shipping documents payment against shipping documents pertaining to international transactionpertaining to international transaction

Not recommended for sales on Not recommended for sales on extended termsextended terms

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One of the most common questions for people interested in international One of the most common questions for people interested in international trade is “What is the best method of payment for international shipments?” trade is “What is the best method of payment for international shipments?”

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One of the most common questions for people interested in international trade One of the most common questions for people interested in international trade is “What is the best method of payment for international shipments?” is “What is the best method of payment for international shipments?” (continued) (continued)

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These methods are fine – but what if your customer These methods are fine – but what if your customer wants extended terms of payment or your competitors wants extended terms of payment or your competitors are offering better terms? Trade Finance may be the are offering better terms? Trade Finance may be the solution to your customer’s needs and the way to make solution to your customer’s needs and the way to make exports a manageable part of your growth strategy. exports a manageable part of your growth strategy.

Trade FinanceTrade Finance

Who Can Receive Financing? Who Can Receive Financing?

** Seller (Exporter)** Seller (Exporter)

** Buyer (Importer) ** Buyer (Importer)

** Buyer’s Bank (If buyer’s credit is poor) ** Buyer’s Bank (If buyer’s credit is poor)

** Foreign Country or Agency ** Foreign Country or Agency

18International Trade Banking

Trade Finance ToolsTrade Finance Tools

Export-Import Bank of the U.S.

• Pre Export Working Capital Program Pre Export Working Capital Program • Insurance and Guarantees for short, Insurance and Guarantees for short,

medium and long term financingmedium and long term financing

• Private Insurance covering commercial and political risk

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EXIM Bank Programs EXIM Bank Programs

1.1. EXIM Bank ProgramsEXIM Bank ProgramsUS Government Agency that supports US exporters US Government Agency that supports US exporters whose products contain at least 50 percent US whose products contain at least 50 percent US content. EX-IM Bank does not compete with content. EX-IM Bank does not compete with commercial lenders, but assumes the risks they commercial lenders, but assumes the risks they cannot accept. cannot accept.

Short term, medium term, and long term financing Short term, medium term, and long term financing programs programs

Coverage in over 150 countries Coverage in over 150 countries

Some restrictions to the program (military exports and Some restrictions to the program (military exports and some countries are excluded) some countries are excluded)

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EXIM Working Capital EXIM Working Capital Gntee Gntee

..

Pre-Export Financing Pre-Export Financing

**Assists US exporters to obtain loans to produce goods **Assists US exporters to obtain loans to produce goods or services for export. Exim guarantee repayment to or services for export. Exim guarantee repayment to the lender, making it possible for banks to extend the lender, making it possible for banks to extend financing to the exporter. financing to the exporter.

** Loans Can Be either Transaction Specific or Revolving** Loans Can Be either Transaction Specific or Revolving

** High Advance Rates on Inventory and Receivables, ** High Advance Rates on Inventory and Receivables, includingincluding

Work in Process Work in Process

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EXIM Medium Term EXIM Medium Term Program Program

b.b. Guarantee or Insurance Guarantee or Insurance

Post Export Financing – “Foreign Buyer Financing” Post Export Financing – “Foreign Buyer Financing”

**1-5 year repayment, exceptionally 7 years and <$10 **1-5 year repayment, exceptionally 7 years and <$10 million million

** 15 percent down payment, 85 percent financed ** 15 percent down payment, 85 percent financed amount amount

**** Guarantees can be used for both products andGuarantees can be used for both products andservicesservices

**** Fixed Rate or Floating Rate Financing Available Fixed Rate or Floating Rate Financing Available

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EXIM Long Term Program EXIM Long Term Program

Long Term Guarantee/LoanLong Term Guarantee/Loan Amounts over $10 million and > 7 yearsAmounts over $10 million and > 7 years 15 percent down payment, 85 percent 15 percent down payment, 85 percent

financed amount financed amount Buyer financing of very large items Buyer financing of very large items

(aircraft) and project finance (aircraft) and project finance EXIM will consider making loan directly EXIM will consider making loan directly

to the foreign buyer. No US commercial to the foreign buyer. No US commercial bank exposure.bank exposure.

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Export Credit Insurance Export Credit Insurance

Available through EXIM Bank Available through EXIM Bank andand Private Sector Private Sector InsurersInsurers

**Enables US exporters to extend “open account” **Enables US exporters to extend “open account” credit terms to international buyers.. Insured export credit terms to international buyers.. Insured export receivables looked upon favorably by banksreceivables looked upon favorably by banks. .

**Provides policies that protect US exporters against **Provides policies that protect US exporters against foreign buyer default foreign buyer default

Commercial risk insurance (buyer bankruptcy and Commercial risk insurance (buyer bankruptcy and insolvency) insolvency)

Political risk (war, inconvertibility of currency)Political risk (war, inconvertibility of currency)

** Short Term and Medium Term Insurance ** Short Term and Medium Term Insurance Policies Policies

** Multi Buyer or Single Buyer Policies** Multi Buyer or Single Buyer Policies

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Avoid Quoting Price without knowing the Avoid Quoting Price without knowing the financing detailsfinancing details! !

Train your sales team to build your portion of Train your sales team to build your portion of financing costs into the sale. This minimizes financing costs into the sale. This minimizes eroded margin and is exactly what your foreign eroded margin and is exactly what your foreign competition is doingcompetition is doing

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International Banking at International Banking at SunTrustSunTrust

Offering a full range of international financial solutions to

meet our clients’ needs including:

International Methods of Payment and Currency Risk Management to facilitate trade and mitigate financial risks

Financing vehicles for importers and exporters Established global network of correspondent banks Focus on high quality service and finding

customized solutionsInternational Trade Banking