how to grow international sales by offering credit terms but minimizing risks warren bares j. maxime...
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How To Grow International Salesby Offering Credit Terms but Minimizing Risks
Warren BaresJ. Maxime Roy, Inc.Ex-Im Bank Registered Broker
Export credit insurance can help your company:
Increase foreign sales
Finance foreign sales
Increasing Foreign Sales
Become more competitive by offering credit terms
Your customer would prefer to use your money rather than theirs
Interest rates are high in many countries
Prime Lending Rates Around the World
Colombia 13% Mexico 7% Peru 21% India 12% Russia 15% Nigeria 18%
USA 3.25%
Cash-In-Advance
Less risk to the seller More risk to the buyer - risk of seller not
shipping or performing per agreement Buyer will either have to use their own cash
or bank line of credit May cause seller to lose business to
competitors who offer open account
Letter of Credit Buyer’s bank issues letter of credit Seller is protected – can rely on bank to pay upon
presentation of documents Buyer is protected – bank will only pay once seller
has performed according to the conditions in the letter of credit
Disadvantages Costs
Issuing Bank charges – 1% to 2% of the Letter of Credit Confirming Bank charges –
Ties up capital of buyer Complexity
Documentary Collection Seller’s bank transfers documents to buyer’s bank Sight Draft Documents Against Payment - Buyer’s
bank releases documents to buyer upon payment Documents Against Acceptance – Buyer goes into
their bank and signs draft promising to pay in certain number of days (30, 60, 90 days) and receives documents to clear goods
Disadvantage to seller – not a guarantee of payment by the buyer’s bank. Bank pays upon receipt of payment from the buyer. Risk to Seller.
Open Account Low risk to buyer Higher risk to seller Risk of default due to commercial and political risks
Seller Considerations: Reduces cash flow while waiting on payment Makes seller more competitive – will increase sales
Buyer Considerations: Their interest rates are high – they want your
credit
How can the seller offer credit terms without taking on the risk?
Export Credit Insurance
Credit insurance company assumes the risk
Risks covered by Export Credit Insurance
Commercial Risks - insolvency, bankruptcy, and protracted default
Political Risks - war, revolution, civil unrest, expropriation, currency transfer risk, and cancellation of export or import licenses.
Political Risks - updated North Korea – Unpredictable leadership /
possible war with South Korea Cyprus – financial crisis Iran – nuclear ambitions / tension with Israel Arab Spring – In February of 2011 Egypt’s
President, Hosni Mubarak resigned Syria
Bank Financing of Foreign Accounts Receivable
Most lenders will not allow foreign accounts receivable as collateral in a borrowing base calculation.
However, foreign accounts receivable that are credit-insured are eligible for inclusion in the borrowing base.
Improve cash flow and liquidity by borrowing against insured foreign accounts receivable.
Credit Insurance - Coverage and Cost
Policies available to insure one buyer or multiple buyers.
Policies tailored to “Small Business” and policies for larger companies
Coverage is 90-100% of the invoice amount, after deductible
Some policies have no deductible Rates depend primarily on payment terms &
country of the buyer(s) Pre-paid and pay-as-you-go policies
Ex-Im Bank Small Business Multi-Buyer Policy
Exporter must qualify as “Small Business” by SBA Size Standards
Must have less than $7.5MM in foreign credit sales on average over the prior 3 years
Must be in business for at least one year Must have a positive net worth
Policy Parameters Small Business Multi-buyer Policy
Express Policy
Indemnity Private buyers – 95%Sovereign Buyers – 100%
Private buyers – 95%Sovereign Buyers – 100%
Deductible None None
Rate schedule 0-60 days open account – 0.55%61-120 days open acct. - 0.90% •Rates applied to amount of invoice •Rates do not vary by country
0-60 days open account – 0.65%61-120 days open acct. - 1.06% •Rates applied to amount of invoice •Rates do not vary by country
Minimum Premium None None
Advance Premium None None
Premium Payment •Calculate and pay premium on ALL foreign credit sales for the month•Premium due by the end of the month following the month of shipment
•Calculate and pay premium on all insured shipments for the month•Premium due by the end of the month following the month of shipment
Buyer Underwriting Credit information required to underwrite buyer limits •Details on next two slides
Credit information required to underwrite buyer limits•Details on next two slides
Claim Filing Window 3-8 months after the due date 3-8 months after the due date
Key Features •Meant to insure all foreign credit sales•Unlimited number of buyers
•Does not require policyholder to insure all foreign buyers•Limited to 20 buyers
CREDIT AND FINANCIAL INFORMATION REQUIREMENTS for Special Buyer Credit Limit Applications
Up to $100,000: Either credit agency report, one trade Reference, or ledger history
$100,001 to $300,000: credit agency report and either a trade reference, ledger history, or buyer’s financial statements for last 2 fiscal years
$300,001 to $1million: Credit agency report and 2 trade references and the Buyer’s audited or signed unaudited financial statements for the last 2 fiscal years with notes
Over $1 million:
• Credit Agency Report and
• 2 Trade References and
• a Bank Reference and
• Buyer’s audited financial statements for the last 3 fiscal years
Ex-Im Bank U.S. Content Requirements
Short -Term Insurance
Goods and services insured must be shipped from the United States
Eligible goods and services are those produced or originated entirely in the U.S.; or those containing U.S. and foreign-originated components
Each item must be at least 51% U.S. content on a cost-basis.
Credit Insurers
Export-Import Bank of the United States (Ex-Im Bank) Official Export Credit Agency of the U.S. Carries the “Full Faith and Credit” of the U.S.
Government
Private Credit Insurance Companies / S&P Ratings: Atradius (A-) Coface North America (A-)
Private Credit Insurance Companies
Chartis (A+) Euler Hermes ACI (AA-) Great American Insurance / FCIA (A) HCC Insurance Holdings (AA) QBE Insurance Corp. (A+) Zurich Emerging Markets (AA-) Lloyds of London
Ex-Im Bank or Private Insurance?
Ex-Im Bank “Full Faith and Credit” of the U.S. Government Offers lower cost insurance to “Small Businesses” (no
minimum premium) Open in more countries than most private insurers Not subject to insurance market cycles Unlimited capacity Exports must meet U.S. Content Requirements Does not support sales to military buyers
Private Insurers No U.S. content restrictions No restrictions on selling to foreign military May offer more competitive rates / terms for larger businesses Minimum premium of $10,000 or more
Export Credit Insurance
Safely Increase Foreign Sales
Finance Insured Foreign Accounts Receivable
Summing it up: Increasing Foreign Sales
Give your foreign customers what they want – Credit
Pass the credit risk on Ex-Im Bank or a private credit insurer
Our role as Broker
Confer with client to determine which policy type best meets their needs
Obtain quotes from Ex-Im Bank and / or private insurers Review quotes with client and bind the policy selected Ongoing work with client to help with shipment reporting,
establishment of buyer coverage limits, documentation requirements and other policy management details
Assist with claims – from filing through the point of getting paid Premium rates are the same with or without a Broker!
For further assistance…
J. Maxime Roy, Inc. Warren Bares 911 Lee Avenue, Suite 410 Lafayette, LA 70501 Office (337) 235-7548 Cell (337) 298-0664 Email: [email protected]