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Trade Transaction Protection Payment Options to Consider when Exporting to Brazil
Disclaimer
Every effort has been made to ensure the accuracy of this presentation at the time of the publication, but the comments herein are necessarily of a general nature, are for information purpose only, are subject to change as regulatory requirements change, and do not constitute legal advice in any matter whatsoever.
You are urged to seek specific advice on matters of concern and not rely solely on this presentation.
Why Export?
Things to Think About
• Exporting Questionnaire — from Export.gov Does your company have adequate knowledge of export payment mechanisms, such as developing and negotiating letters of credit?
• What are all the costs associated with getting paid? And of course, what are the risks? Timing of payment — timeliness of a payment (with the more traditional trade payment options) may be much longer than what your business can handle.
• Are all terms and conditions associated with the more traditional bank-related payment methods fully understood? Experts recommend having your bank review ALL documents before any agreement is signed.
• Do you have current and valid references about the importer?
• Do you know the structure of the importer’s bank?
About Escrow.com
TRANSACTION PROTECTION FOR BUYERS AND SELLERS WORLDWIDE
• Founded in 1999 by Fidelity National Financial
• Privately owned since 2004
• Licensed and accredited throughout the US
• Provides b2b, c2b and c2c escrow functions ~50% of the transactions include an international Importer or Exporter
• Supports transactions ranging from several hundred dollars to multi-million dollars
• Processed over $1.5 billion in secured transactions
• The recommended transaction settlement service for many top names in eCommerce, including:
-Go Daddy
- NER
- AutoTrader
- eBay Motors
- Flippa.com
- Cars.com
• US Commercial Services Strategic Partner and Featured US Exporter (F.U.S.E.) in 53 Countries
Why Export to Brazil?
BRAZILIANS WANT WHAT AMERICA MAKES
• Fifth most populous nation with over 200 million inhabitants
• Gross Domestic Product (GDP) stood at US$ 2.5 trillion (R$ 5.2 trillion), placing the nation’s economy among the sixth largest in the world
Future major sporting events cast immediate and future worldwide attention on the country:
2014 – FIFA WORLD CUP
The economic potential impacts resulting from the 2014 World Cup may reach US$ 79.76 billion
2016 – SUMMER OLYMPICS
The Olympic Games in Rio are expected to generate R$ 90 billion, and up to 2016, are expected to create about 120,000 direct and indirect jobs per year
• Reduced dependence on the domestic market Source: Various - including Bloomberg, Export.gov, NY Times, etc.
Why Export to Brazil?
IN THOUSANDS (US$) 1. Canada: $292.4 2. Mexico: $216.3 3. China: $110.6 4. Japan: $70.0 5. UK: $54.8 6. Germany: $48.8
• Brazil ranks #7 among the leading US export countries - US$43.7 Billion in 2012 (up from US$42.9 in 2011)
Source: 2012 YTD reports - Export.gov, U.S. Census Bureau
“Key Points”
US OFFICE OF FINANCE — TRADE FINANCE GUIDE
• To succeed in today’s global marketplace and win sales against international trade presents a spectrum of risk, which causes uncertainty over the timing of payments between the exporter (seller) and importer (foreign buyer).
FOR EXPORTERS
Any sale is a gift until payment is received.
Therefore, exporters want to receive payment as soon as possible, preferably as soon as an order is placed or before the goods are sent to the importer.
FOR IMPORTERS
Any payment is a donation until the goods are received.
Therefore, importers want to receive the goods as soon as possible but to delay payment as long as possible, preferably until after the goods are resold to generate enough income to pay the exporter.
Source: Trade Finance Guide
INTERNATIONAL TRADE FINANCING TERMS
• Cash-In-Advance – Exporter avoids credit risk because payment is received before the ownership of the goods is transferred.
• Letters of Credit – A commitment by a bank on behalf of the buyer that payment will be made to the Exporter.
• Documentary Collections The Exporter entrusts the collection of a payment to their bank which sends documents to the importers bank, along with instructions for payment.
• Open Account A sale where the goods are shipped and delivered before payment is due, usually in 30–90 days.
Common Methods of Payments
ADVANTAGE EXPORTER
ADVANTAGE EXPORTER
ADVANTAGE IMPORTER
ADVANTAGE IMPORTER
Payment Risk (Current)
No “Level Playing Field”
For a variety of reasons, not all of the above methods of payment are available, or desirable, to either Exporters or Importers.
Source: 2012 Trade Finance Guide
LEAST SECURE
MOST SECURE
Cash in Advance
Letters of Credit Documentary Collections Open
Account
Consignment
Consignment
Open Account Documentary
Collections Letters of Credit
Cash in Advance
EXPORTER
IMPORTER
Why Escrow Services?
BECAUSE ACADEMIA SAYS SO
“The use of escrow services presents a win-win for all involved in international trade. I predict that with the upsurge in the use of such services — by both small and large firms alike — we will see a growth in importing and exporting activities around the globe as international transactions between firms are made far easier than ever before, while retaining the assurance protections necessary for global commerce to work. Today, online escrow services provide a faster, better, and cheaper alternative to the traditional use of letters of credit in securing cross-border transactions.”
David C. Wyld
Robert Maurin Professor of Management Southeastern Louisiana University
Source: “Securing the Transaction: The Advantages of Using Online Escrow Services Versus Letters of Credit in International Trade.” Bizcovering, April 30, 2012
Trade Finance Guide
NEW EDITION (2012) MENTIONS “ESCROW SERVICES” FOR THE FIRST TIME
The Trade Finance Guide is designed to help U.S. companies, especially small and medium-sized enterprises, learn the basics of trade finance so that they can turn their export opportunities into actual sales and achieve the ultimate goal of getting paid—especially on time—for those sales.
The guide, produced by the International Trade Administration, now says:
Escrow Service: A Mutually Beneficial Cash-in-Advance Method
Exporters may select escrow services as a mutually beneficial cash-in-advance option for transactions with importers who demand assurance that the goods will be sent in exchange for advance payment. Escrow in international trade is a service that allows both exporter and importer to protect a transaction by placing the funds in the hands of a trusted third party until a specified set of conditions are met.
Advantages of Escrow Services
EASY TO USE/BIG RESULTS FOR EXPORTERS
• Adding escrow services as a method-of-payment provides more potential Importers to US Exporters
• Provides alternative method of payment that requires no pre-approval and no credit aspect which means virtually no one denied service
• Eliminates “payment risk” — protects both Exporter and Importer from fraud
• Opens up new opportunities and could be used as a “sales tool” for Exporters
• No integration necessary — set up time just takes minutes
• Use your current banking relationship
• Reasonable transaction based fees that can be paid for by, or split between, the Exporter and the Importer
• Milestone and Broker escrow payment services are available
Escrow Services Solution
• Escrow services reduce the potential risk of fraud by acting as a trusted third party that collects, holds, and disburses funds according to Importer and Exporter instructions.
• Well-suited for many, if not all, international trade items
ESCROW SERVICE ECOSYSTEM
IMPORTERS ESCROW SERVICE
EXPORTERS
5. 4.
3. 2. 1.
How it Works
SAFE TRANSACTIONS IN 5 EASY STEPS
14
Importer and exporter agree to
terms
Importer Pays escrow
service
Exporter ships
merchandise
Importer accepts the merchandise
Escrow service pays the exporter
How it Works
HOW ESCROW SERVICES PROTECT IMPORTERS HOW ESCROW SERVICES PROTECT EXPORTERS
Escrow service tracks and verifies merchandise has been shipped and delivered.
The Exporter isn’t paid until the Importer accepts the merchandise, or the inspection period expires.
The Exporter is instructed to ship only after good funds have been received.
Escrow service confirms delivery of merchandise.
Escrow service monitors the agreed-upon inspection period once delivery is confirmed.
1. Importer and Exporter agree to terms 2. Importer initiates LOC application 3. If approved, Importer’s bank issues LOC to Exporter’s Bank 4. Exporter bank receives letter of credit, advises Exporter 5. Exporter ships merchandise 6. Importer receives and accepts merchandise 7. Exporter submits documents (Invoice, Bill of Lading, etc.) to Exporter bank 8. Exporter bank sends documentation to Importer bank 9. Importer bank verifies documents and sends documents to Importer for approval/verification 10. Importer bank debits account 11. Importer bank send payment to Exporter bank 12. Exporter bank pays Exporter
Example – LOC vs Escrow Services
LOC’S = COMPLICATED PROCESS NOT AVAILABLE TO ALL IMPORTERS
Source: Scotiabank
Exporter Importer
Importer Bank
Exporter Bank
1
2
3
4
Exporter Importer
Importer Bank
Exporter Bank
5 6
7
8
9, 10
11
12
Payment Risk (Current)
No “Level Playing Field”
For a variety of reasons, not all of the above methods of payment are available, or desirable, to either Exporters or Importers.
Source: 2012 Trade Finance Guide
LEAST SECURE
MOST SECURE
Cash in Advance
Letters of Credit Documentary Collections Open
Account
Consignment
Consignment
Open Account Documentary
Collections Letters of Credit
Cash in Advance
EXPORTER
IMPORTER
Payment Risk (New)
Escrow Services Even the Score for Exporters and Importers
Escrow services provides the only method of payment that offers “equality of risk.”
Source: Escrow.com
LEAST SECURE
MOST SECURE
Cash in Advance
Letters of Credit Documentary Collections Open
Account
Consignment
Consignment
Open Account Documentary
Collections Letters of Credit
Cash in Advance
EXPORTER
IMPORTER
Escrow Services
Escrow Services
Best Practices & Tips for Doing Business in Brazil
Privileged and Confidential– DO NOT COPY
Relationships Are of Greater Importance in Brazil than Most Places ETIQUETTE FOR A GOOD START.
• Schedule meeting at least 2 weeks in advance and reconfirm 2 days prior
• Modest socializing before business of meeting • Good topics: Soccer, family, children • Topics to avoid: Politics, poverty, religion, the rain forest
• Refer to self as “North American,” not simply “American”
• Acknowledge and respect all “team” members in meetings
• Common to use formal title and first name
• Interruptions should be expected and seen as a sign of enthusiasm (not rudeness)
Things to Keep in Mind
• Brazil is highly regulated with some of the most burdensome, complex taxes in the world
• Hyperinflationary heritage tends to lead to short-term thinking
• Be prepared to commit long-term resources
• Plan periodic travel to Brazil (at least annually)
• Important decisions are best handled eye-to-eye
• Good to build relationship over lunches / dinners
Samples and First Shipments
“Despachante” – Shipping Agent / “Dispatcher” of Paper • Contact your Broker/Expeditor for this service
Note: Only local legal entities can import / export
Coordinate shipments with receiving party and anticipate things will get delayed, even if following same procedures as before.
Engage Local Professional Help
Your prospective business partners will appreciate local contacts: • Accountant • Lawyer • Rep Hire consultants and contractors before committing to employees; at least for a while
Five Diverse Regions
Acre
Amazonas
Roraima Amapá
Pará
Rondônia Mato Grosso
Maranhão
Mato Grosso do Sul
Rio Grande do Sul
Rio de Janeiro
Paraná
São Paulo
Minas Gerais
Goiás
Espírito Santo
Bahia
____________________________Distrito Federal Brasília
Ceará Rio Grande do Norte
Paraíba Pemambuco
Alagoas Sergipe
Tocantins
Piauí
North
Northeast
Center West
Southeast South
Five Diverse Regions
Regions of Brazil Population GNP (R$)/ Capita Comparison to Nat'l. Avg.
Southeast 42%! 11,855! +3,555!
South 14%! 11,790! +3,490!
Center West 7%! 11,419! +3,119!
North 8%! 6,218! -2,082!
Northeast 27%! 4,643! -3657!
Thank You!
Duane Dunk
Global Go-To-Market Specialist D. Duane Dunk Consulting
Phone: 425.503.4954
Email: [email protected]
More Ways to Get to Know Brazil
• Find more export education events like this with FedEx Know and GrowSM: fedex.com/knowandgrow
• Learn more about FedEx in Brazil at smallbusiness.fedex.com/brazil
• Get advice on international shipping at the FedEx Small Business Center: smallbusiness.fedex.com/international
• To contact the U.S. Commercial Service, go to export.gov/fedex
• To learn more about FedEx and opportunities in Brazil, contact your local FedEx account executive or email FedEx Brazil at [email protected] (include city and ZIP in subject)
