How To Grow International Sales by Offering Credit Terms but Minimizing Risks Warren Bares J. Maxime Roy, Inc. Ex- Im Bank Registered Broker

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]