International Trade Business

1. International Trade Business Smoothing the way for your International Business Transactions

2. Settlement methods in preference order by Exporter vs. Importer Importer (Buyer)** Exporter (Seller)* Prepayment Letter of Credit Collection Open Account • Open Account • Collection • Letter of Credit • Prepayment *Also known as: Beneficiary in LC method or Drawer in Collection method **Also known as: Applicant in LC method or Drawee in Collection method

3. Risk LadderExporter vs. Importer Exporter (Seller) Importer (Buyer) Least beneficial – importer pays before shipment is made Payment is made only when complying documents evidencing shipment are presented Payment is made when documents evidencing shipment are accepted subject to importer’s willingness to accept the shipping documents Most beneficial – importer pays when shipment is received and allows importer to inspect shipment before payment. • Most beneficial – exporter receives payment before shipment is made • Payment is received when complying documents evidencing shipment are presented • Payment is received when documents evidencing shipment are accepted, but buyer may refuse shipping documents and payment • Least beneficial – exporter does not get paid until buyer receives shipment and buyer may refuse payment for various reasons. Prepayment Letter of Credit Collection Open Account

4. Letter of Credit Definition • A Commercial or Documentary Letter of Credit is a letter addressed to a Beneficiary (exporter/seller) by a Bank wherein the Bank undertakes to effect payment to the Beneficiary on behalf of a Buyer (importer/account party) for merchandise shipped or services provided. The Beneficiary is paid upon presentation of required documents in compliance with the terms of the Letter of Credit. In effect a Letter of Credit substitutes the Credit of the Bank for that of the Buyer. Commercial or Documentary Letters of Credit are subject to the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits Publication No. 600(2007 Revision).

7. COMMERCIAL LETTER OF CREDIT (L/C)FLOWCHART

8. TRANSFERABLE L/C’S • A terrific financing tool for small companies with little borrowing capability on their own. • Replaces back-to-back L/C’s. • Enables you to use the first buyer’s credit, and buy the goods WITHOUT using YOUR credit line.

9. Transferable L/C Requirements • L/C must be expressly designated as “Transferable”. • The 1st Beneficiary may request the authorized bank to make the L/C available in whole or in part to one or more 2nd Beneficiaries. • L/C can be transferred only once. • The 1st Beneficiary has a right to “substitute” his own Invoices and Drafts for those of the 2nd Beneficiary. • The L/C can be transferred only on the same terms & conditions specified in the original L/C, with the exception of: - the amount of the L/C & any unit prices stated therein. - the period for shipment & the expiry date. - the last date for presentation of documents. - the percentage of insurance cover must be increased.

10. ASSIGNMENT OF L/C PROCEEDS • A great way to assure your Open Account suppliers of payment once goods are shipped. • Beneficiary instructs Bank to pay a portion of L/C proceeds to a third party. • Helps you to obtain materials and services for assembly or production of goods.

11. Assignment of Proceeds The Beneficiary submits the Original L/C and the “Assignment of Proceeds” form to the Bank. The Bank notifies the Assignee of the assignment. • An Assignment is irrevocable • Does not give the Assignee an interest in or drawing rights under the Letter of Credit • It instructs the Bank to remit the proceeds of any drawing under the Letter of Credit to the Assignee • Proceeds are remitted “if and when” drawings are honored under the Letter of Credit

12. Question & Answer