MANAGING PAYMENT RISK AND FINANCING EXPORTS AFP 6-11-2014 Fernando Almeida

1. MANAGING PAYMENT RISKANDFINANCING EXPORTSAFP 6-11-2014Fernando Almeida

2. Why is International Trade Important to AZ? Supports more than 700,000 jobs Ranked 24th in the US in goods exported in 2012 Customers in 208 countries buy Arizona-grown and manufactured goods and services 90 percent of AZ exporters are Small or Medium sized companies Foreign-owned companies invest in Arizona and employ more than 73,000 Arizonans

3. Why is International Trade Important to AZ? Top Export Markets: Mexico $ 6.5 BL Canada $ 3.1 BL Japan $ 1.8 BL China $1.7 BL U. K. $ 1.7 BL

4. RISKS FOR THE SELLER / EXPORTER Commercial Risk Bankruptcy Political Risk War, revolution, confiscation Foreign Exchange Currency devaluation Exchange controls Export Compliance Policies BIS; ITAR; OFAC

5. METHODS OF PAYMENT Cash in Advance Letter of Credit Documentary Collection 4. Open Account

6. PAYMENT IN ADVANCE Wire transfer (bank to bank) Payment by check Collection delay – defeats the intention of receiving money before shipping goods. Credit card [for low dollar value] Fear of fraud Downside - Losing sales to competitors who may offer flexible payment terms

7. Commercial Letter of Credit Promise to pay the beneficiary Issued by a bank for account of its customer To pay named beneficiary for: Stated amountand Withinstated period Presentation of specified documents in STRICT compliance with the terms of the letter of credit Payment at sight or at a future time

8. TYPES OF LETTERS OF CREDIT Documentary / Commercial Standby Bid and Performance Bonds Advance Payment Warranty

9. RISKS ASSOCIATED WITH LETTERS OF CREDIT Financial strength of the Issuing Bank Country risk - Consider Confirmation Documentary risk – Discrepancies Fraudulent L/C’s – advised directly to the beneficiary without the intermediary bank

10. DOCUMENTARY COLLECTIONS Documents Against Cash Goods are released to the buyer after payment is made. This is only applicable on ocean shipment. Under air shipment, airway bill is not needed to claim the goods. The exporter has a higher risk of not getting paid. Documents Against Acceptance Time draft Extending credit to the buyers Payment is due at a specific time after the buyer accepts the time draft.

11. Risks Associated with Documentary Collections: Merchandise refusal by buyer Non payment (on time draft) DOCUMENTARY COLLECTIONS, cont’d.

12. OPEN ACCOUNT Most Risk – products are shipped first , payment received later. Accounts Receivable Insurance to mitigate risk

13. Export Financing Solutions

14. Financial Challenges in International Sales Exporters face three major challenges: Obtaining working capital financing for export orders (P/O financing) Extending credit terms to foreign buyers Financing capital goods Why? . . . Sources of repayment are outside the U.S.

15. EXPORT-IMPORT BANK OF THE U.S. Ex-Im Bank is an independent agency of the United States. Established in 1934 To date, supported more than $474 BL of U.S. exports H Q in Washington, DC 5 Regional Offices Mission: Support the financing of U.S. exports in order to sustain jobs. Self-sustaining agency Does not compete with the private sector

16. EX-IM BANK PROGRAMS Working Capital Guarantees (exporter financing) Global Credit Express Foreign Accounts Receivable Insurance Medium & Long Term Loan Guarantees (buyer financing)

17. WORKING CAPITAL GUARANTEE Program Highlights: Pre-Export Financing Meet Manufacturing Cost Labor, material, parts, overhead Bid/Performance/Advance Payment Bond

18. WORKING CAPITAL GUARANTEE 1. Provides a 90% guarantee of repayment (Principal and Interest) on loans made to exporters 2. Minimum US content of >50% 3. Advance Rate of 75% on export inventory and 90% against export accounts receivables 4. Ex-Im Bank won’t support exports of military/defense products and services. 5. Export must take place from the US 6. Not for start-ups

19. WCGP Benefits - Expansion Of Borrowing Base 19

20. Global Credit Express 1. Pilot Loan Program 2. Provides working capital to fund export activity. 3. Maximum loan is $500,000 4. Streamline processing and quick turn-around time 5. Requires no borrowing base or monthly reporting 6. In business for 3 years and one year of exporting experience

21. EXPORT CREDIT INSURANCE Post-Export Insuring foreign receivables EX-IM BANK Multi-Buyer or Single Buyer Policy Covers political and commercial risk for up to 95% of the invoice amount. Covers bankruptcy and protracted defaults, war, revolution, revocation of import license. No minimum premium, “pay-as-you-ship”

22. EXPORT CREDIT INSURANCE Requirements: Minimum > 50% U.S content Must be shipped from U.S. Defense products are excluded Country Limitation Schedule Small Business Multi-Buyer Premium Rates: 1-60 days - 0.55% 61-120 days - 0.90%

23. EXPORT CREDIT INSURANCE, cont’d. Other Insurers Attradius FCIA Management Coface Euler-Hermes

24. EX-IM Bank Medium Term Financing 100% coverage on loans to foreign buyers Capital equipment and related products 15% down payment required Repayment terms based on contract price and export items Medium Term: 5 to 7 years Renewable Energy & Water Treatment Equipment: Up to 15 years

25. Fernando Almeida Senior Vice President International Trade & Treasury Bank of Arizona 16767 N. Perimeter Dr. Suite 200 Scottsdale, AZ 85260 Phone: 602-808-5364 Email: falmeida@bokf.com