International Credit Management Ashok Kampani March 26th , 2015

Definition of International Credit Management Manage receivable/debt in a country other than in which supplier is domiciled.

Receivables Asset Management Security (risk) Efficiency (DSO, collection)

Credit Function Credit function normally gets noticed when things go drastically wrong (major write-off) -Credit manager did not highlight /explain the risk properly -Treasurer/CFO did not listen properly

Political/Country Risk Credit International Commercial Risk Political/Country Risk Domestic

Sovereign /Political Risk The risk of managing a debt in a country other than the one in which supplier resides. (e.g. Swiss company shipping to Turkey). The risk may entail that a foreign country may nationalize the business, imposes foreign exchange regulations, protectionist tariff, boycott, etc.

International credit Management evaluation process Political country filter Commercial filters Country filters Commercial filters Grading of countries (rating agencies, underwriter), risk appetite, market dynamics, nature of the product, etc. Financial statements analysis, credit agency ratings, risk appetite, market dynamics, etc, etc!!!

Risk mitigation and portfolio approach Risk concentration Geographical Commercial

Definition of security The receivable debt is considered secured when it is guaranteed  by a third party ( acceptable bank or  insurance as per company policy ) irrevocably, unconditionally and in case of default is payable on first demand. In case of lien on an tangible asset ( collateral)  – the debt can be considered fully secured only if the company has full legal control of physical movement /transfer of the asset and asset’s market value covers the outstanding debt. Use a section header for each of the topics, so there is a clear transition to the audience.

Why do we need security? Mitigation of risk concentration in financially/politically vulnerable geographical areas ( not customer’s willingness but ability to pay) Commercial Risk Concentration protection (one key account failure can have serious consequences) Non availability of financial disclosure Weak/leveraged debtors financial statements Transfer Risk from debtor’s balance sheet to an other entity

Receivable Coverage 1 Transactional 2 Country 3 Global

Security Nature Comments Letter of Credit Transactional/Revolving Documentary risk Bank Guarantee Relationship sensitive Bill of Exchange Transactional Time restricted Pledge on a tangible asset Cumbersome Insurance Transactional/Global Flexible? Cost? Use a section header for each of the topics, so there is a clear transition to the audience.

Non financial elements Credit /sales conflict Selling to sales management Culture awareness Local Practice awareness Reporting structure Credit policies

Security decision flow process Political Risk assessment Commercial risk assessment Transactional/Country/Global Security instrument Appropriate risk coverage at a sustainable cost

(Days Sales Outstanding) What is DSO ? (Days Sales Outstanding) Use a section header for each of the topics, so there is a clear transition to the audience.

Objective A balanced portfolio with security in proportion to risk levels, at a sustainable cost

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