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Mitigating Risk Inherent in International Trade

Mitigating Risk Inherent in International Trade. AMCHAM: Doing business with Colombia Wednesday 6 th April & Tuesday 12 th April, 2011. What type of issues are businesses facing in today’s environment? . Reduced demand for products and services. Accounts Receivables days on hand

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Mitigating Risk Inherent in International Trade

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  1. Mitigating Risk Inherent in International Trade AMCHAM: Doing business with Colombia Wednesday 6th April & Tuesday 12th April, 2011

  2. What type of issues are businesses facing in today’s environment?

  3. Reduced demand for products and services Accounts Receivables days on hand increasing as buyers try to stretch their credit limits Heightened risk in international trade as uncertainty of the credit risk of buyers Today’s Environment

  4. Why Trade Finance?

  5. Why Trade Finance?

  6. Risk profile of Methods of Payment HIGH LOW

  7. Documentary Collections • A method of payment used in international trade whereby the Exporter entrusts the handling of commercial and often financial documents to banks and gives the banks instructions concerning the release of these documents to the Importer. • Banks involved do not provide any guarantee of payment.

  8. Documentary Collections Documentary Collections may be carried out in two different ways: • Documents Against Payment:Documents are released to the Importer only against payment. Also known as a Sight Collection or Cash Against Documents (CAD). 2. Documents Against Acceptance:Documents are released to the Importer only against acceptance of a draft. Also known as a Term Collection. (30, 60, 90 days)

  9. Documentary Collections Exporter/ Drawer Remitting Bank Exporter submits documents such as invoice & B/L Sends documents together with collection instructions GOODS Acts in accordance with collection instructions and releases documents Importer/ Drawee Collecting/ Presenting Bank

  10. Letters of Credit Letters of Credit • Documentary • Primary Source of Payment • Meant to be drawn/exercised • Standby • Secondary source of payment (in the event of default • Not meant to be drawn/exercised

  11. Letters of Credit- Documentary • a payment undertaking given by a bank (Issuing Bank/Drawee), • on behalf of a buyer (Applicant), • to pay a seller (Beneficiary/Drawer) a given amount of money, • on presentation of specific documents representing the supply of goods, • within specific time limits, • documents must conform to terms and conditions set out in L/C (Banks obligation to ensure) • and documents must be presented at a specific place. • Banks deal only in documents and not in goods

  12. Letters of Credit • Letters of Credit may be: • Sight : If payment is to be made at the time that documents are presented and there are no discrepancies • Term: If payment is to be made at a future fixed time from shipping date/invoice date

  13. Confirmed Letters of Credit • Under a Confirmed Letter of Credit, a bank, called the Confirming Bank, adds its commitment to that of the Issuing Bank to pay the Exporter under the Letter of Credit provided all terms and conditions of the Letter of Credit are met. The Confirming Bank is usually located in the same country as the Exporter.

  14. Letters of Credit: Issuance Advise /Confirmation of the Letter of Credit. Exporter/ Beneficiary Advising/ Confirming Bank Request to advise & possibly confirm the Letter of Credit Contract Negotiations Importer applies for Letter of Credit. Importer/Applicant Issuing Bank

  15. Documents Exporter/ Beneficiary Advising/ Confirming Bank Documents GOODS Documents Importer/Applicant Issuing Bank Letters of Credit: Flow of Documents & Payments

  16. Standby Letter of Credit • Form of guarantee / secondary source of payment • Default instrument issued to cover the non-fulfillment of a customer’s obligation under an underlying contract or agreement relating to a trade related or financial transaction • Banks in the US are not empowered to issue guarantees so they developed the SBLC to get around this

  17. Bonds & Guarantees • Bid/Tender • Performance • Advance payment • Customs • Immigration

  18. Pre-Shipment Financing Advances made to a client based on export orders (raw material financing) • With recourse financing • ECA supported (without recourse) • LIBOR-based pricing for eligible borrowers

  19. Post- Shipment Financing Advances made to an exporter after the shipment has been made based on satisfactory evidence of debt (foreign open a/c receivable financing) - Buyer Credit or Supplier Credit • ECA supported • Int’l trade lines, LIBOR based pricing for eligible borrowers

  20. Why Scotiabank Trade Finance? • International Bank – global reach into target markets (lower transaction costs across network) • Network of correspondent banks • 175 years in existence, presence in 50 countries • Among Top 10 performing banks in the world- 2009 • Global Finance Magazine awarded Scotiabank “Best Trade Finance Bank –Canada” 2006, 2008, 2009, 2010

  21. Why Scotiabank Trade Finance? • Can leverage technology and expertise (Tradexpress Elite) • Can offer a full range of services/creative tailored solutions • Has access to cheaper international funding (high credit rating) • Can offer training & support to its clients

  22. For More Information: Joanna del Pino, Snr Manager, Trade Finance 625-3566 Ext 2050 joanna.delpino@scotiabank.com

  23. THANK YOU

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