Global Trade FinanceProducts & Services

Export University: Export 101 – Introduction to ExportingMarch 23, 2010

EXPORT RISK MITIGATION & FINANCING

• Responding to International Sales Inquiries

• Determining Shipping Costs in Preparing quotes

• Mechanisms of Getting Paid

• Credit Insurance to Facilitate Open Account Sales

• Financing Export Transactions

DEFINING THE RISKS

• COMMERCIAL RISK

• SOVEREIGN RISK• ECONOMIC CONDITIONS• POLITICAL CONDITIONS

• MARKET CONDITIONS

RISK MITIGATION

• CASH IN ADVANCE• CONFIRMED L/C• ADVISED L/C

• DOCUMENTS AGAINST PAYMENT

• DOCUMENTS AGAINST ACCEPTANCE

• OPEN ACCOUNT

• RISK FREE• CONF. BANK RISK• OPENING BANK RISK• SOVEREIGN RISK• COMCL. & SOVN.RISK

SELLER OWNS GOODS• COMCL. & SOVN. RISK

BUYER OWNS GOODSTRADE ACCEPTANCE

• COMCL. & SOVN. RISKBUYER OWNS GOODS

CASH IN ADVANCE

•PAYMENT BY BUYER PRIOR TO GOODS BEING SHIPPED •QUESTIONS YOU SHOULD ASK???• WHAT IS CASH?• WHEN SHOULD IT BE RECEIVED?• ARE THERE ANY RISKS?

LETTERS OF CREDIT

A LETTER OF CREDIT IS AN IRREVOCABLE, CONDITIONAL UNDERTAKING BY A BANK TO EFFECT PAYMENT TO THE BENEFICIARY (SELLER) PROVIDED SPECIFIED DOCUMENTS ARE PRESENTED IN COMPLIANCE WITH ITS TERMS AND CONDITIONS.

Letter of Credit Issued

Issuing/Opening Bank Overseas Advising Bank

Documents Presented

Payment Sent

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Applicant

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Contract

Goods Shipped

Export Letter of Credit Process

DOCUMENTARY COLLECTIONS

• THE PRESENTATION OF INVOICES, SHIPPING DOCUMENTS ETC. BY THE SELLER’S BANK TO THE BUYER’S BANK WITHOUT ANY PRIOR CONDITIONAL BANK GUARANTEE OF PAYMENT.

• GOVERNED BY ICC 522

DOCUMENTARY COLLECTIONS

• DOCUMENTS AGAINST PAYMENT AKA SIGHT DRAFT, CAD OR D/P

• DOCUMENTS AGAINST ACCEPTANCE AKA TIME DRAFTS, TRADE ACCEPTANCE OR D/A

• BUYER MUST PAY FOR DOCUMENTS PRIOR TO DOCUMENTS BEING RELEASED

• BUYER ACCEPTS DRAFT PRIOR TO DOCUMENTS BEING RELEASED

Documents Presented

Presenting Bank Overseas Collecting Bank

Payment Received

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Contract

Documentary Collection ProcessTransaction between Buyer and Seller whereby documents are forwarded through banking channels for payment and/or acceptance.

OPEN ACCOUNT

• SELLER DELIVERS GOODS AND SHIPPING DOCUMENTS DIRECTLY TO BUYER WITHOUT ANY BANK INTERVENTION OR ASSURANCES OF PAYMENT

STRUCTURING THE EXPORT TRANSACTION

• KEY FACTORS COMMUNICATION NEGOTIATION KNOWLEDGE PLAN• PRO FORMA INVOICE• LETTER OF CREDIT INSTRUCTIONS

PRO FORMA INVOICEDATE: _______________________TO: _______________________________________ ___________________________________________ ___________________________________________YOUR REF. NO.: ________________ OUR REF. NO.: _______________ VALID UNTIL: _________________ 1. MERCHANDISE DESCRIPTION: ___________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ 2. GROSS WEIGHT: ________________________LBS. METRIC ______________________________KGS.3. NUMBER OF CARTON(S): ________________ DIMENSIONS: ___________________________________4. CUBIC VOLUMN: ________________________CU. FEET. METRIC ___________________CU. METERS5. QUOTATION BASIS: _____ EX WORKS ____________________; _____ FOB _____________________; _____ FCA ___________________________; _____ FAS __________________; _____ CFR ___________________________; _____ CIF ___________________; _____ OTHER ______________________________________________________.6. PORT OF SHIPMENT: _____________________ PORT OF DESTINATION: _______________________ 7. EX WORKS PRICE: $ _______________8. INLAND FREIGHT VIA ______________________________________________ FROM: _________________________ TO: _____________________________ 9. RATE PER UNIT: _________________ NO. OF UNITS: ___________________ $ _______________10. EXPORT PACKING BY: _____________________________________________ RATE PER UNIT: _________________ NO. OF UNITS: ____________________ $ _______________11. OCEAN FREIGHT VIA ______________________________________________ FROM: _________________________ TO: ______________________________ $ _______________ 12. HANDLING CHARGES: $ _______________13. CONSULAR FEES: $ _______________14. MARINE INSURANCE: $ _______________15. BANK FEES: $ _______________16. OTHER CHARGES (Specify) _______________________________________ $ _______________17. TOTAL PRICE AS PER TERMS QUOTED: $ _______________METHOD OF PAYMENT: _____________________________________________________________________ COMPANY NAME(ADDRESS)BY: ____________________________________

To be typed on your company’s letterhead

Letter of Credit InstructionsTo enable us to accept your letter of credit, below are the terms and conditions acceptable to (Insert Name of Exporter). We have made every effort in these instructions to provide you with terms that can be easily accommodated. If you or your bank are unable to issue the credit within the following guidelines, please contact (Insert Name of Exporter, contact name and phone number, email, etc.) with your suggested alterations or changes, so a timely agreement can be reached. Adhering to these instructions will minimize unnecessary costs involved in amendments, potential delays and possible non-shipment after the credit has been opened. (Insert Name of Exporter) will not proceed with shipping until a letter of credit with terms and conditions acceptable to (Insert Name of Exporter) is received.

1. Please open the letter of credit via SWIFT and have it advised directly to Regions Bank, UPNBUS44MIA (Opening letters of credit via mail may delay the order process).

2. The credit should be irrevocable and subject to “Uniforms Customs and Practice for Documentary Credits” as published and updated from time to time by the International Chamber of Commerce.

3. All letters of credit should be advised through:Regions BankInternational Operations10451 N.W. 117th Avenue, 2nd FloorMiami, Florida 33178Phone 786-845-4400ABA 063206663Swift Code: UPNBUS44MIA

4. This letter of credit shall show as the Beneficiary (Insert Name and address of Exporter as it appears on your commercial invoice) 5. The credit should be freely negotiable, allowing negotiation and payment at the counters of Regions Bank in the United States with reimbursement authorized on a U.S. bank. OR This credit should be advised to Regions Bank and state Regions is to CONFIRM OR MAY ADD THEIR CONFIRMATION. (Please contact Regions Bank regarding your interest in having Regions confirm the Letter of Credit prior to including this instruction to your buyer.)

6. The credit should allow for presentation and expiration at the counters of Regions Bank.

7. Drafts should be payable at (Enter Tenor of Draft)

8. All letters of credit should be issued and payable in U.S. dollars unless specified. Amount in US$___________(+/-% if required)

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9. The following documents will be provided for this transaction. Please avoid the requirement for any other documents without prior agreement by us: A). Commercial Invoice (Indicate number of originals and copies) _ original(s) manually signed and _ copies B). Packing List (Indicate number of originals and copies) _ original(s) and _ copies C). Insurance Policy or Certificate (Indicate number of originals and copies) _original(s) and _ copies (Indicate coverage and risks) OR Insurance to be covered by Buyer D). The transport document as follows: Full set of Clean On Board Ocean Bills of Lading (3 originals and 3 copies) made out to order and blank endorsed marked FREIGHT (Indicate COLLECT or PREPAID)____________ and NOTIFY: __________________ OR Airway Bill of Lading OR Truck Bill of Lading OR Forwarder’s Cargo Receipt Shipment as per INCOTERMS 2000: (Select One: EXW, FOB, CFR, CIF, etc) E). Other document(s): (List any other required documents such as Certificate of Origin, etc.)

10. Merchandise to be described as follows: (DESCRIPTION OF GOODS AS PER CONTRACT ____________________________________ DATED___/___/___. (+/-% amount if required) Shipment /Dispatch from: (NAME OF PORT OF SHIPMENT) Shipment to: (NAME OF PORT OF DESTINATION) Shipment not later than: (LATEST SHIPPING DATE) Partial shipments: (PERMITTED or NOT PERMITTED) Transshipments: (PERMITTED or NOT PERMITTED)

11. Documents must be presented within ___days after the date of the issuance of documents evidencing shipment or dispatch or taken in charge, but within the validity of the letter of credit. 12. Drafts and documents to be presented in beneficiary’s country at the counters of Regions Bank, Miami, Florida not later than: (EXPIRATION DATE OF LETTER OF CREDIT) 13. Charges/Fees: All bank charges OTHER THAN THOSE OF REGIONS BANK are for the account of the applicant OR All bank charges outside of the U. S are for the account of the Applicant. 14. Special conditions/Instructions: (Add any special conditions or instructions) 15. The issuing bank is to include in the letter of credit its instructions whereby Regions Bank may reimburse itself upon the issuing bank’s U.S. correspondent bank (preferably a major U.S. bank domiciled in New York.) 16. Please provide us with the name of your bank so we can verify that a SWIFT Key is in place with REGIONS BANK, which will allow the LC to be advised directly to REGIONS BANK. 17. To avoid additional costs and time delays, please email to (Insert Exporters name, individual’s name and email address) a draft copy of the SWIFT LC prior to issuance for our review.

DEVELOP A SYSTEM ON QUOTING

• ANALYZE THE RISKS AND MARKET CONDITIONS

• SELECT THE APPROPRIATE PAYMENT METHOD

• SELECT THE APPROPRIATE TERMS OF SALE - INCOTERMS 2000

• DETERMINE THE CURRENCY • SET TRANSACTION PARAMETERS

FINANCING THE EXPORT SALE

• Financing Options

– Working Capital Program

– Foreign Receivables Financing

– Foreign Buyer Programs

– Letters of Credit/Banker’s Acceptances

What is EximBank?

• EximBank is an independent agency of the United States

– Established in 1934

– Headquartered in Washington, DC

– 8 sales offices

• Mission: Support U.S. Exports to create and sustain U.S. jobs

Trade Finance Options:EximBank Programs

• Pre-export working capital (can include foreign accounts receivable financing)

• Post-export Foreign Receivable Financing

• Short-Term Buyer Credit Financing

• Medium-Term and Long-Term Financing via insurance/guarantee programs

Risk mitigation support provided by the Export Import Bank of the U.S.

Pre and Post Export Financing

• Borrower:• Domestic Exporter

• Eligibility:• 50% US content or

added value required

• Mitigation:• Covers Exporter

performance risk

• Advance Rates:• Export related A/R

advance rate up to 90%• Inventory must be pre-sold

advance rate up to 75%

• Coverage:• Covers 90% of the loan’s

principal and accrued interest

Borrower:Domestic Exporter

Eligibility:50% US content or added value required

Mitigation:Protects against foreign buyer commercial and political risks

Advance Rates:Export related A/R advance

rate up to 95%

Coverage:Covers 95% commercial and 100% political risk coverage on financed receivable

Expand international sales and market share

Expand collateral base

Allows customer to obtain supplier discounts

Improves cash flow

Mitigates foreign commercial and political risks for theExporter and/or the Bank

Working Capital Guarantee(Pre-Export Financing)

Export Credit Insurance(Post-Export Financing)

Benefits

Working Capital Guarantee Borrowing Base

• What is a BA: A time draft drawn by a company on a bank, which the bank has accepted.

• May be created under Letters of Credit or Clean• May be held or discounted• Benefits of Using BA’s

Terms for the buyer Seller paid at sight

Lower/Competitive interest rate

Market Penetration

Bankers Acceptance (BA’s)

EXAMPLE: Assume an exporter receives a letter of credit for $100,000 in his favor opened by his foreign buyer with the terms of the draft being 90 Days Sight and confirmed by his bank. When documents are presented by the exporter and found to be in order, the bank will accept the draft, which is the bank’s promise to pay at maturity. If the exporter has negotiated to have the BA discounted with all discount charges for the exporter’s account, the bank will calculate that interest charge and deduct it from the amount of the acceptance before they credit the funds to his account.

In our example assume a 90 day BA rate of 2.6%. $100,000 X .026 divided by

360 days X 90 days equals $650 for the interest charge. Thus the exporter would receive $99,350 into his account. If the interest charge was for the foreign buyer, the exporter would receive $100,000 at the time of discounting and the foreign buyer’s account would be debited for $100,650 at the maturity date.

It should be noted that the negotiation of the discount charges is not an all or nothing situation. The two parties could agree to split the cost 50/50 as both will be benefiting or by some other combination that totals 100%, such as 70/30 or 40/60. Remember, it is a negotiated part of the transaction.

Bankers Acceptance (BA’s)

Assess and address your working capital needs:

– Meet with your bank to explore your financing options

– Explore LC Tools (sight, time, transferable, BA’s)

– Explore government assistance programs

• Small Business Administration (SBA)

• Export Import Bank of the U.S. (Ex-Im Bank)

– Consider Credit Insurance/Accounts Receivable Financing

Financing Needs Summary

• REGIONS BANK

• GLOBAL TRADE FINANCE

• P. O. DRAWER 2527

• MOBILE, AL. 36622

FOR ADDITIONAL INFORMATION, CONTACT...

GLENN SIGLERPH (251) 690-1187FAX (251) 690-1554CELL (251) 348-1044glenn.sigler@regions.com