BizSmart Webinar How importers and exporters ensure that they get their goods or money using the banking system. Speaker: Ian Priest, Ian Priest Associates Date: Monday 19 th October Time: 4.00pm Terms of trade are vitally important – especially if you are exporting or importing. TODAY'S easy to follow webinar walks you through some of the pitfalls and the solutions to protect you and your business.

Terms of Trade. Ian Priest ACIB, MIoD

Agreeing and understanding your terms of trade are crucial to every business and even more so to exporters

The terms you agree will to a greater or lesser degree involve risk to you, or to the buyer It’s a sliding scale and you both have to agree and understand where you are on that scale

Payment up front Very safe for the exporter –The risk all sits with the buyer from an exporters point of view the perfect scenario At its simplest form- they log onto your website place an order and pay by card or pro-forma invoice

Open Account From the buyers perspective the perfect scenario they get the goods before they have to pay the risk all sits with the exporter The other end of the scale you send the goods and the buyer pays you sometime – hopefully - perhaps

Minimising the risks 1 credit checks – UKTI / Credit Reference agencies / credit insurers 2 Credit Insurance – take out bad debt cover 3 Use the banking system

Using the banking system Banks essentially evolved to support international trade Instead of the very risky practice of shipping hard cash / gold backwards and forwards banks in different countries issued letters that could be cashed with a bank in your country Banks still have a vital role in international trade

Banks deal in documents not goods It is important that exporters understand banks have no interest in the goods their only concern is the documents – and they have to be right

There are 2 equal and opposite systems documentary collections and documentary credits The risk is on a continuum from high for the exporter / low for the importer to low for exporter / high for the importer

Agree terms You have done your credit checks and are happy you want to go a head and sell goods to the importer. You need to be clear what terms are agreed Payment date – are you offering credit terms ? How have you priced – cost – cost insurance & freight? Where are you supplying the goods to – Factory gate, (FG) The docks (Free alongside) on the ship (FOB)? What documents will the buyer want – list can vary – certificates of origin / sustainable sources / health etc etc Finally what payment / method are you using All of these need to be agreed before you speak to the bank

Documentary collections You get the shipping documents (bill of lading or Airway bill) and any other documents that the buyer has asked for. You draw up a bill of exchange (can be sight or payable at a future date – a promise to pay on a date in the future) You take all these documents to the bank and give them your instructions The bank post the documents (airmail) to a bank in the buyers country When the documents arrive the buyer is contacted he goes into the bank and pays for the goods (sight bill) or accepts the bill of exchange (signs it) The bank hand over the documents The importer can now go to the docks and collect his goods Can be safe for the seller – riskier for the buyer

Documentary collections The Risks For the seller Buyer may not turn up to pay – you have shipped goods and they are stuck and probably incurring costs (demurrage) Buyer may not pay a bill of exchange on the due date – have to start legal action for payment in a foreign country Reliant on the overseas bank For the buyer The goods may not be what he was expecting or substandard – he has already paid or committed to pay

Documentary Credits Documentary credits are almost the exact opposite of documentary collections Very safe for the seller – more expensive and troublesome for the buyer

Documentary Credits Documentary credits are Opened (set up by) the buyer The buyer tells his bank what he is buying, how much he is paying (and on what dates) and what documents he needs to have to support the shipment (bills of lading, certificates etc.) The instruction can be to pay on production of the documents or at a fixed future date

Documentary Credits His bank sends the instructions to the sellers bank or a local bank The seller takes the documents to the bank The bank check the documents against the schedule and make payment according to the instructions The bank sends the documents to the issuing bank so that the buyer can collect the goods

Documentary Credits For the seller – extremely safe, If the documents are in order he gets paid. If its for a future payment he may be able to get paid early by discounting the bill. Of exchange The buyer bears the cost of setting up the credit

Documentary Credits The buyers bank will normally want cash to cover the value of the payment from day 1 even if its not payable for 90 or 120 days The buyer is taking a risk that the seller will actually ship the goods and take the documents into the bank Remember the bank is only dealing in documents the goods themselves may not be as expected

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