20379579 International Trade Finance Anim Ppt

5/21/2018 20379579 International Trade Finance Anim Ppt

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INTERNATIONAL

TRADE


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Andrea Mathias

Kishore Patil

Nehal Ukani

Reiner DCosta

Shruti Hosur

Shruti Shetty

Sushil Kaushik

GROUP MEMBERS


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PRESENTATION FLOW

Introduction to International Trade

Methods of Payment

Pre-Shipment Finance

Post-Shipment Finance

Letter of CreditOpen Account

Documentary CollectionsComparisons of the three

Factoring

Forfaiting


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DEFINITION

INTERNATIONAL TRADE

International trade

Flow of Productive

factorsFlow Of Commodity


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INTERNATIONAL TRADE


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INTERNATIONAL TRADE FINANCE

Trade Finance is the science that

describes the management of money,

banking, credit, investments and assetsfor international trade transactions.


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FISCAL INCENTIVES TO PROMOTE

EXPORT

Duty Drawback

Tax Concession

Market development assistance

Export promotion of capital goods scheme

Cash compensatory support

Air Freight Subsidiary


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EXIM BANK

Project Finance/Trade Finance Group

Corporate banking group

Line Of Credit Group

Small and Medium Enterprise group

Export Services Group

EXIM BANK


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METHODS FOR INTERNATIONAL TRADE

FINANCE

According to stage of financing

Pre-shipment finance

Post-shipment finance


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METHODS FOR INTERNATIONAL TRADE

FINANCE

Instruments/methods of financing

Letter of credit

Open account

Factoring

Forfaiting

Document collections


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Definition:

F inancial assistance extended to the exporter from the dateof receipt of the export order ti l l the date of shipment isknown as pre-shipment credit.

Such finance is extended to an exporter for thepurpose of procuring raw materials, processing,packing, transporting, warehousing of goodsmeant for exports.

Maximum period of 180 days

Exporter can obtain 90% of the FOB value of theorder or75% of the CIF value of the order.

PRE-SHIPMENT FINANCE


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o Purchase raw material, and other inputs

o Assemble the goods in the case ofmerchant exporters.

o Store the goods in suitable warehousestill the goods are shipped.

o Packing, marking and labeling of goods.

o Pre-shipment inspection charges.

o Purchase of heavy machinery and othercapital goods

o Consultancy services.

o Export documentation expenses.

IMPORTANCE OF PRE-SHIPMENT

FINANCE


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Packing Credit

Packing Credit in Indian Rupee

Packing Credit in Foreign Currency (PCFC)

Advance Against Hypothecation

Advance Against Pledge

Advance Against Red L/C Advance Against Back-To-Back L/C

Advance Against Exports Through Export Houses

Advance Against Duty Draw Back (DBK)

FORMS OR METHODS OF

PRE-SHIPMENT FINANCE


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Available to exporting companies as well as commercial banksfor lending to the former.

Additional window to rupee packing credit scheme available tocover both the domestic i.e. indigenous & imported inputs.

Can avail pre-shipment credit in rupees & then the postshipment credit either in rupees or in foreign currency

To avail of pre-shipment credit in foreign currencydiscounting/rediscounting of the export bills in foreign currency.

FCPC will also be available both to the supplier EOU/EPZ unit

and the receiver EOU/EPZ unit.

PACKING CREDIT IN FOREIGN

(PCFC)


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This facility is provided to an exporter who satisfies the

following criteria:

A ten digit Importer - Exporter Code ( IE Code )

number allotted by DGFT.

Exporter should not be in the caution list of RBI.

If the goods to be exported are not under OGL (Open

General License), the exporter should have the required

license /quota permit to export the goods.

REQUIREMENTS FOR GETTING

PACKING CREDIT


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Appraisal and Sanction of Limits

Disbursement of Packing Credit Advance

Follow up of Packing Credit Advance

Liquidation of Packing Credit Advance

Overdue Packing

DIFFERENT STAGES OF PACKING

CREDIT


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Government steps in by picking up a part of the interestburden

Interest subvention of 2 per cent on the pre-shipment creditfor seven employment-oriented export sector

Textiles including handlooms

Handicrafts

Carpets

Leather

Gems & JewelleryMarine products

Small & Medium exporters.

Extension beyond current deadline of September 30, 2009 to

March 31, 2010.

INTEREST SUBVENTION SCHEME


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Definition:

Post Shipment Finance is a kind of loanprovided by a financial institution to anexporter or seller against a shipment

that has already been made.

Export finance is granted from the dateof extending the credit after shipment of

the goods to the realization date of theexporter proceeds. Exporters dont waitfor the importer to deposit the funds.

POST SHIPMENT FINANCE


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FEATURES

Purpose of Finance

Basic of Finance

Types of Finance

Quantum of Finance

Period of Finance


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Export Bills Purchased / Discounted

Export Bills Negotiated

Advance Against

Export Bills Sent On Collection Basis

Export On Consignments Basis

Un-drawn Balance

Claims Of Duty Drawback

TYPES OF POST SHIPMENT

FINANCE


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CompetitivenessExporter able to offer creditterms to buyer

Energized Cash flowsProducer receives cashfrom export proceeds upfront and can continue

production activities.

Expansion Of Client BaseExporter able toexpand client base due to availability offinancing

BENEFITS TO EXPORTERS


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Physical Exports

Deemed Export

Capital Goods And Project Exports

TYPES OF EXPORT BUYERs

CREDIT


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Buyer's Credit is a special type of loan that a bank

offers to the buyers for large scale purchasing undera contract.

Once the bank approved loans to the buyer, the

seller shoulders all or part of the interests incurred

SUPPLIERs CREDIT


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Definition:

A formal document issued by a bank on behalf ofcustomer, stating the conditions under which thebank will honour the commitment of the customer

The letter of credit is also known asbankers commercial credit or

documentary letter of credit.

L/C used in domestic trade are calledinland L/Cs.

LETTER OF CREDIT


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Importer or Applicant

Issuing Bank

Beneficiary

Advising Bank

Negotiating/ The Paying Bank.

PARTIES TO A LETTER OF CREDIT


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1. ContractSeller(Beneficiary)

Buyer

Applicant

2. Documentary

credit Application

ISSUING

BANK.

3. Documentary creditAdvising Bank

4. Advice of

Documentay

credit

LETTER OF CREDIT THE

PROCESS


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Irrevocable L/C

Revocable L/C

Negotiation Credit

Confirmed orUnconfirmed credit

Revolving credits

Back To Back Credits

Red Clause L/C

Transferable Credits

Travellers L/C

Special Credits

TYPES OF LETTER OF CREDIT


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Immediate Payment

Guaranteed Payment

Performance

Safe & Secure Method

Political & Exchange Control risks

reduced.

ADVANTAGES OF LETTER OF

CREDIT


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Open Account

Definition:

Open Account is a form of trade whereby sales

are made to the buyer without entering into any

formal contract. The system works on completetrust between buyer & seller.

An open account transaction means that the

goods are shipped and delivered before

payment is due, usually in 30 to 90 days.

OPEN ACCOUNT


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Open Account

Open Account is the most advantageous optionto the importer in cash flow and cost terms.

It is consequently the highest risk option for anexporter.

Exporters may also wish to seek export working

capital financing to ensure that they have accessto financing for both the production for exportand for any credit while waiting to be paid.

OPEN ACCOUNT


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Open account terms may be offered in competitivemarkets with the use of one or more of the followingtrade finance techniques:

1. Export Working Capital Financing

2. Export Credit Insurance

3. Export Factoring

4. Forfaiting

OPEN ACCOUNT


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Pros & Cons

Pros:

Boost competitiveness in the global market.

Establish and maintain a successful trade

relationship.

Cons:

Exposed significantly to the risk of nonpayment

Additional costs associated with risk mitigation

measures.

OPEN ACCOUNT PROS & CONS


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Open Account - Process

TARGET VENDOR

BANK

OPEN ACCOUNT PROCESS


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TARGET VENDOR

BANK

Purchase order



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TARGET VENDOR

BANK

Purchase order

Goods



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TARGET VENDOR

BANK

Purchase order

Goods



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TARGET VENDOR

BANK

Purchase order

Goods



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Process Overview

Remitting Bank Collecting Bank

Importer Exporter

Entrusts

collection of

payment

Sends Documents +

Instructions for

Payment

Draft indicating D/A

or D/PPayment

Payment

Payment

DOCUMENTARY COLLECTIONS
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Documentary Collections

Importer can collect documents by followingpayment terms:

A. Document against acceptance (D/A)

Importer pays the face amount on a specifieddate in the future. Transfer of title of goods anddocuments is done on receipt of payment.

B. Document against payment (D/P)Importer pays the face amount on sight ofgoods. Transfer of title of goods anddocuments is done immediately.



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Documentary Collections

Advantages:

Documentary collections involve use of drafts which is

less expensive than letter of credit.

Disadvantages:

Although banks act as facilitators, no verification

process is present.

Limited recourse in the event of non-payment.



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Definition

Financial transaction whereby a business sells

its accounts receivable to a third party called afactor (financial institution) at a discount in

exchange for immediate money with which to

finance continued business.

Financial option for the management of

receivables

FACTORING


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Customer Client

Factor

(1) Credit Sale

of Goods

(2) Invoice

(3)

Submit

Invoice

Copy

(4)

Payment

upto 80%

initially

(6) Pays

the

balance

(5) Pays the amount

(In recourse type

customer pays

through client)

FLOW CHART OF FACTORING


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Factoring Arrangements

FACTORING

Recourse

NonRecourse

Disclosed Undisclosed

FACTORING ARRANGEMENTS


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FACTORING

TWOFACTOR

SYSTEM

DIRECTIMPORT &

EXPORT

FACTORING

BACK TOBACK

FACTORING

TYPES OF FACTORING
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Use of two factors, one in each country, dealing with the

exporter and the importer

Importer advances funds to the import factor who then transmitsthem to the export factor

System involves three agreements

exporter and the importer

export factor and the exporter

between the factorsImporter

& Import

Factor

Exporter

& Export

Factor

TWO FACTOR SYSTEM

DIRECT IMPORT & EXPORT


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Direct import factoring:Connotes thesituation where the exporter assigns debtsto a factor in the country of the debtor

Direct export factoring:Factor isappointed in the exporters own countryand deals with all the aspects of the

factoring arrangement including theprovision of financing and the assessmentof the financial position of the importer

DIRECT IMPORT & EXPORT

FACTORING


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Back to back factoring:Arrangement mostsuitable for debts owed by the exclusivedistributors of products to their suppliers

The exporter enters into a factoringagreement with the export factor whocontracts with import factor.

Difference is existence of a separate factoringagreement between the import factor and thedistributor

Right to set off credits arising from thedomestic sales of the distributor with hisdebts to the supplier

BACK TO BACK FACTORING
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Forfaiting

Definition

Forfaiting is a method of trade finance that allowsexporters to obtain cash by selling their medium term

foreign account receivables at a discount on awithout recoursebasis

It virtually eliminates the risk of nonpayment, oncethe goods have been delivered to the foreign buyer inaccordance with the terms of sale

FORFAITING


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Flow Chart - ForfaitingFLOW CHART OF FORFAITING


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Enables the exporter to offer his customers fixed rate creditfor the purchase of the goods

Forfaiting is quick and simple to arrange; the procedures arestraightforward and the documentation is of standard format

Forfaiting relieves the exporter from the risk of paymentdefault; financing is made without recourse

Credit-based exports are turned into cash deals, therebyimproving liquidity and keeping bank credit lines open

Currency risk is limited to the period from concluding thesales contract until the date of discount

100% of contract value can be financed and the origin of thegoods is irrelevant

STRENGTH OF FORFAITING


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Eliminates Risk

Enhances Competitive Advantage

Improves Cash Flow

Increases Speed and Simplicity ofTransactions

BENEFITS OF FORFAITING


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Factoring is the revolving sale of all or at least amajority of a companys receivables to a factoringcompany. The acceptable tenor of the receivables is

usually maximum 180 days. A few factoringcompanies accept also tenors of up to 360 days.

Forfaiting is the single sale/purchase of a single

transaction. The deal itself has to be documented andassigned properly. The maximum forfaitable tenordepends on the possibilities of the Forfaiters in themarket i.e. their available country and banklimits.

FACTORING VERSUS FORFAITING


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