Trade Finance products and solutions for exporters Birgit Hint Head of TF Baltics / Nordea Bank November 19th, 2014
TF solutions and products… ….BEAR THE PURPOSE TO MANAGE AND MITIGATE THE RISKS RELATED TO INTERNATIONAL TRADING l Payment terms: DOCUMENTARY CREDIT and COLLECTION l Type of collateral: BANK GUARANTEE l Financing: Discounting under D/C’s, Forfaiting (avalized drafts)
Payment terms in international trade Low risk High risk Prepayment Confirmed D/C Unconfirmed D/C EXPORTER IMPORTER Guarantee (standby) Credit insurance Collection Open account High risk Low risk
Documentary Credit
Documentary Credit as a payment term • The D/C is a irrevocable payment obligation What is a Documentary • The D/C is regulated according to UCP 600 + ISBP Credit (D/C)? • The D/C channel payments between the buyer and the seller • Issuing bank is obliged to pay if Credit complying documents Who is obliged are presented to pay under a D/C? • If the D/C is confirmed, confirming bank also has an obligation to pay • Sight D/C: Upon presentation of Credit complying documents When will payment be • Deferred payment D/C: At maturity effected? A D/C by its nature is a separate transaction from the sale or other contract on which it may be based. D/C’s deals only with documents and not with goods, services or performance to which the documents may relate.
Discounting of confirmed and deferred payment D/C Requires deferred Would like to get paid right payment at 90 after shipping days from the the goods date of shipment 20.12.14 SELLER BUYER Seller 15.11.14 15.02.15 18.11.14 CONFIRMING* 17.11.14 DEFERRED PAYMENT D/C SELLER’S BANK BUYER’S BANK 15.02.15 *Pre-condition: readiness for risk taking on the Buyer’s bank
Nordea Country risk review Faroe Islands Liechen Guernsey stein Malta Bermuda Bahamas Bahrain Taiwan Quatar Macau Hongkong Cayman Islands Aruba Trinidad and Tobago Brunei Maldives Singapore Mauritius Country Rating 1+/1/1-/0/ 6+ 6 / 6- 5+ / 5 / 5- 4+ / 4 / 4- 3+/3/3- 2+/2/2- No rating The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea as of the date of this document and are subject to change without notice. This notice is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient.
Bank Guarantee
Bank guarantees A bank guarantee is a binding commitment undertaken by the • A commitment bank on behalf of the client (the applicant) in order to secure the by a bank client's contractual obligations towards its business partner (the beneficiary) up to the amount fixed in the bank guarantee, provided a complying demand is presented. A bank guarantee is a type of collateral that can be used in • managing various kinds of risk. Guarantees are classified by the kind of risk they cover: Payment guarantee (100%) • Advance payment guarantee (100%) • Bid Bond, Tender guarantee (2-10%) • Performance guarantee (5-15%) • Warranty guarantee (5-10%) • Customs guarantee • For issuing a bank guarantee credit decision is needed.
Example of advance payment and DC discounting First you and your trading partner agree on the terms of the contract (1). In this example the agreement stipulates payment of 25% before delivery (2) against an advance payment guarantee issued by the exporter’s bank (3). The remaining 75% is agreed to be paid under a documentary credit (4) payable 180 days after shipment. When the documentary credit is issued the exporter can make the shipment (5) and thereafter present the documents under the documentary credit to the bank and receive payment (6). The exporter’s bank is now financing/discounting the 180-day credit period under the documentary credit (7) until the importer pays at maturity (8).
Thank you! Birgit Hint birgit.hint@nordea.com Tel. 6 283 422
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