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Chip Thomas The American Export Training Institute A Division of Export Risk Management, Inc.

York College Small Business Development Center International Trade Initiative Global Edge Workshop “FINANCING INTERNATIONAL GROWTH PART 2” WEBINAR Thursday, January 12 th 2012. Chip Thomas The American Export Training Institute A Division of Export Risk Management, Inc.

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Chip Thomas The American Export Training Institute A Division of Export Risk Management, Inc.

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  1. York College Small Business Development Center International Trade Initiative Global Edge Workshop “FINANCING INTERNATIONAL GROWTH PART 2” WEBINAR Thursday, January 12th 2012 Chip Thomas The American Export Training Institute A Division of Export Risk Management, Inc. Funded in part through a Cooperative Agreement with the Small Business Administration (SBA). All SBA-funded programs are extended to the public on a nondiscriminatory basis. Reasonable accommodations for persons with disabilities will be made if requested at least two weeks in advance.

  2. US Foreign TradeBillions of US Dollars

  3. Payment/Financing Scenarios • Pre-Shipment Needs • Working Capital • Production • Packaging • Shipment • Post-Shipment • Payment • Financing • Risk Protection

  4. Sources for Payment/Financing • Pre-Shipment • Buyer Credit/Financing • Banks/Credit Unions • Finance Companies • Government Agencies (EXIM, SBA…) • Post-Shipment • Banks • Finance Companies • Government Agencies (EXIM, SBA…)

  5. If you were an international seller of merchandise, when would you want payment?

  6. Payment Methods • Cash in Advance • Letter of Credit • Documentary Collection • Open Account

  7. Choice of Methods • Buyer - Seller Relationship • Buyer’s/Seller’s Credit Standing • Country Conditions • Other: • Logistics • Competition • “Gut Feeling”

  8. Payment Terms • Sight - immediate payment; location specific • Usance/Time - future payment • Deferred Payment - future payment

  9. Incoterms 2010 • Rules for Any Mode or Modes of Transport EXW = Ex Works FCA = Free Carrier CPT = Carriage Paid To CIP = Carriage and Insurance Paid To DAT = Delivered At Terminal DAP = Delivered At Place DDP = Delivered Duty Paid • Rules for Sea and Inland Waterway Transport FAS = Free Along side Ship FOB = Free On Board CFR = Cost and Freight CIF = Cost Insurance and Freight

  10. Financing Options for US Exporters • Banks: • Letters of Credit • Documentary Collections • Other Private Sources: • Credit Insurance • Accounts Receivable Financing • Factoring • Forfaiting • Government: • EXIMBANK and SBA • OPIC • CCC • TDA • USAID

  11. Letters of Credit • Two Types • Documentary/Commercial • Active Payment Instrument • Active Financing Tool • Standby • Passive Payment Instrument • Passive Financing Tool • Performance • Financial • Trade-Related

  12. 20 Characteristics of a Commercial LC 1. Irrevocable 2. Issue Date and Expiry Date/Expiry Location 3. Issuing Bank/Advising Bank 4. Importer/Exporter 5. Value/Currency 6. Description of Goods/Services 7. Required Documents 8. Payment Terms 9. INCOTERMS 10. Port-to-Port Information (Dispatch to Destination) 11. UCP 600 12. LC Fees - who pays? 13. Latest Ship Date 14. Presentation Date 15. Partial Shipments (allowed, not allowed) 16. Transshipments (allowed, not allowed) 17. Paying Bank 18. Drawee Bank 19. Reimbursing Bank 20. Confirming Bank

  13. Documentary Collections • Disguised Open Account Transactions • Less secure than Letters of Credit • More secure than Open Account • Benefits: • Don’t encumber buyer’s line of credit • Very inexpensive • Effective if properly structured • Use of correct INCOTERMS 2010 • Role of banks and freight forwarders

  14. Eximbank Programs • Pre-shipment: • Working Capital Guarantee • Post-shipment: • Short-Term: • Small Business Insurance Policies • Single-sale and Portfolio Policies • Bank Insurance Policies • Medium Term: • Single Shipment Policies • Repetitive Shipment Policies • Guarantees • Loans • Project Finance

  15. Working Capital Guarantee • Needed for: • Pre-shipment financing • To be used when: • There is a lack of collateral to acquire bank financing • Lender is unwilling to increase line of credit • Company needs working capital to finance exports • Banks will not lend against foreign accounts receivable • Exporter wants to improve cash flow • Benefits: • Helps pay for raw materials • Increases borrowing base • Is relatively inexpensive • Provides local bank with a 90% guarantee • Quick approval

  16. For More Information • Chip Thomas General Manager American Export Training Institute (AETI) 419 Leslie Lane West Chester, PA 19382-7776 Tel: 610-563-6335 • Email: aeti@aol.com cthomaspa@gmail.com

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