Wisconsin International Trade Conference

Transcription

1 Wisconsin International Trade Conference Trade Finance & Banking Overview May 2014 Bruce Glaub, Vice President

2 Global Locations BMO Financial Group has over 900 offices in Canada and 600 in the U.S. 1

3 Traditional Trade Finance Products Commercial Letter of Credit Irrevocable vs. Revocable Confirmed Irrevocable Documentary Collections Standby Letter of Credit and Bank Guarantees Trade Credit Insurance Private Sector Export-Import Bank of the United States 2

4 What Are Your Risks? Commercial Documentary Country Credit Worthiness Capacity of Buyer & Limitation of their Network Order Cancellation Licenses & Documentation Required for Exporting & Importing Economic Stability Political Stability Legal Structure of Buyer s Country 3

5 Trade Services Product Risk Ladder Least Advantageous Seller s Perspective Buyer s Perspective Most Advantageous Open Account Documentary Collections Documents Against Acceptance Documents Against Payment Letters of Credit Term LC Sight LC Unconfirmed Confirmed Payment in Advance Most Advantageous Least Advantageous 4

6 Payment in Advance Importer pays seller prior to exporter shipping the merchandise Importer relies completely on exporter to ship the goods as ordered Exporter has no risk of non-payment Wire Transfer 2 day value for good funds 5

7 Commercial Letter of Credit Definition A written undertaking given by a bank (issuing bank), to the seller (beneficiary), at the request of and in accordance with instructions of the buyer (applicant), to effect payment up to a stated sum of money, within a prescribed time limit and against stipulated documents Import LC: A payment promise given to an exporter by a bank (issuing bank) on behalf of an importer (applicant) Export LC: BMO could confirm and/or discount the LC, provided a credit line for the foreign bank who issued the LC is in place. Purpose Payment vehicle for a commercial transaction Intended to be drawn on When to use Used primarily in international trade transactions, for deals between a buyer in one country and a supplier in another. 6

8 Commercial Letter of Credit (cont d) Principal Parties Applicant/Importer/Buyer Issuing Bank Advising/Confirming/Negotiating Bank Beneficiary/Exporter/Seller 7

9 Commercial L/C Flowchart Parties and Steps in Issuance / Advice of a L/C Exporter / Seller / Beneficiary 1. Contract Importer / Buyer / Applicant 4. Advice 2. Credit Application Correspondent Bank of Issuing Bank / Advising Bank Exporter 3. Request to advise and/or confirm Importer s Bank Issuing / Opening Bank 8

10 Commercial L/C Flowchart (cont d) Steps in Settling a Commercial L/C by Payment Exporter 5. Goods Importer 6. Documents 7. Money Advising / Intermediary Bank 9. Money 8. Documents 10. Money & Documents Importer s / Issuing Bank 9

11 Confirmed Letters of Credit Commits confirming bank to honor beneficiary s drawings same as issuing bank Seller may request if they have doubts as to political or economic conditions in issuing bank s country or the issuing bank s credit worthiness. Confirming bank assumes risk of issuing bank Confirming bank becomes source of payment for exporter Not protection from non-compliant documentation 10

12 Exporter Importer Advantages to the Exporter Not reliant on the Buyer s solvency or willingness to pay Gives all the requirements for payment Advantages to the Importer Exporter not paid until correct documents presented Leverage for improved pricing and/or payment terms Convenience of receiving payment at the exporters Bank Possibility of pre-shipment finance and/or discounting of accepted drafts/deferred payment credits Disadvantages to the Exporter Documentation must be prepared in conformity with the terms of the Documentary Credit Foreign bank risk (if unconfirmed) Disadvantages to the Importer Requires line of credit Reduces, but does not eliminate the risk that goods will not be shipped as ordered Cost 11

13 Country Examples Sub-Saharan Africa Indonesia Russia & Ukraine Poland & Czech Republic 12

14 Open Account Exporter ships goods and bills the customer for payment at some specified time in the future Importer receives the goods and may be able to examine them prior to payment Exporter has risk of non-payment Payment by Wire Transfer Insurance combined on occasion with Open Account 13

15 Export-Import Bank of the United States Ex-Im Bank is the official export credit agency of the United States. Ex-Im Bank s mission is to assist in financing the export of U.S. goods and services to international markets. They are a profitable agency that can also fill the gap between what the industry needs and what commercial banks are willing to loan. Ex-Im Bank sometimes refers to themselves as the lender of last resort. How Ex-Im Bank can help our clients: Insurance Ex-Im s export credit insurance policy, which can cover both commercial and political risk, can enable exporters to sell on open account with more comfort. Additionally, insured foreign receivables may be used to increase an exporter s borrowing base with a lender. Working Capital Guarantee Program BMO Harris Bank is a Delegated Authority lender for the Working Capital Guarantee Program, allowing us to approve transactions without Ex-Im Bank s pre-approval, saving valuable time in the process. Medium Term Financing BMO Harris Bank affiliate, Northstar Trade Finance is a Delegated Authority lender, allowing them to approve transaction without Ex- Im s pre-approval, subject to certain criteria, saving valuable time in the process. 14

16 Export-Import Bank of the United States (cont d) Working Capital Guarantee Program Potential Clients: Companies that need pre-export working capital financing in order to fulfill export contracts Companies with excluded foreign A/R & work in progress Companies with a financing need of at least USD1MM Working Capital Guarantee Program Program Requirements: Positive tangible net worth At least one year of operating history Goods must have at least 50% U.S. content and be manufactured and shipped from the U.S. Military or defense products generally not eligible Ex-Im Bank Medium Term Financing Potential Clients: Companies that export capital goods Companies whose foreign buyers need medium terms financing to pay for capital goods purchases Ex-Im Bank Medium Term Financing Program Requirements: Foreign buyer must qualify for financing based on their financials Financing term: up to 5 years for capital equipment; longer for transportation equipment and large scale projects 15