TRADE FINANCE
PRESENTATION TO PT. MULTISTRADA ARAH SARANA
TRADE PRODUCT GROUPCORPORATE BANKING
Click to edit Master title style
RISKS IN INTERNATIONAL TRADE
RISKS
Country RiskBuyer’s Risk
Force Major
Foreign Exchange Risk
Commercial Risk
Seller’s Risk
Risk Issues in International Trade
Reliable information concerning the company’s track record?
Insolvency of your trading partner?
Default or termination on your contract?
Volatile foreign currency?
Stable political climate? War? Revolution?
Positive economic environment?
Solid legal infrastructure?
Exotic countries – OFAC List?
Distance?
Credit worthiness of Buyer?
Disputes?
Restrictions imposed by governments?
Late arrival of the goods?
Damaged goods?
Goods not as per contract requirement?
Risk Mitigation
Risks Issues in International Trade
Click to edit Master title style
CREDIT RISK ANALYSIS
Customer’s Perspective
Managing Liquidity – Cash Flow
Lower Cost of Financing
Lower Risks :• Counter Parties• Foreign Exchange• Countries – OFAC List
Best Service
Credit Risk Analysis in International Trade
Credit Risk Analysis in International Trade
Credit Risks
Lower Counter Party / Foreign Exchange / Country Risks
Higher Revenue / Higher Return
Lower Capital
• Bank’s Perspective
Relevant questions to the Customer about their Supplier► Who are the suppliers and how many suppliers are there?► What are the goods and amounts involved? ► What method of payment applies to the contract between the supplier and
our customer?► Does the supplier extend credit terms to our customer?► Who pays for freight and insurance?► If a supplier ships under DC, what is the time period between
establishment of DC and receipt of documents (goods) by the DC issuing bank (DC lead time)?
► What is the validity of the DC? ► Does the customer require a term DC?► Are a full set of negotiable title documents consigned to the Bank
available?► Is merchanting trade involved?
Credit Risk Analysis in International Trade
Relevant questions to the Customer about their Buyer► Who are the buyers and how many buyers are there?► What are the goods and amounts involved? ► What method of payment applies to the contract between the buyer
and our customer?► Does our customer extend credit terms to the buyer?► If our customer sells under documentary collection, where are the
buyers located and how soon can the documents be delivered to the buyer via the Collecting bank?
► We need to determine the document transit time (the interval between our purchase of an export collection bill and the customer’s receipt of funds under D/P or D/A.
► If our customer sells under DC, who are the issuing banks and does our customer require DC confirmation and/or discounting?
► Can we consider GBIL for DC issuing banks (DC confirmation and discounting)?
Credit Risk Analysis in International Trade
Credit Risk Analysis in International Trade
Provide financial support
Apply international codes of practice
Conduct delivery channel for payment
methods
Maintain control over the goods on behalf of the exporter
• 1
• 3
• 2• 4How Bank help in
dealing with the RISKS ?
Click to edit Master title style
COMMERCIAL CONTRACT
Commercial Contract
What is Commercial Contract?A formal written agreement between a seller and buyer for the sale of goods, real property or services
Commercial Contract• Provisions of Commercial Contract
• Minimum Provision:• Name and address of Buyer and Seller• Description of goods• Shipping and delivery instruction and
documentation• Payment terms• Insurance coverage
• Additional Provisions:• Method of packaging and marking• Inspection and test by the Buyer• Warranties of the Seller• Banking guarantee• Remedies in case of default• Dispute settlement• Choice of Law• Insurance fee
Commercial ContractItems of Commercial Contract?· Description of Goods · Quantity· Price terms· Delivery time / Shipment date· Terms of payment· Validity time· Destination· Packing and Marking· Shipment terms : partial,
transhipment, vessel age· Shipping documents : Bill of Lading,
Airway Bill
· Inspection Clause· Force Majeure· After sales service
Commercial Contract
• Agreement • Obligatoir • Penalty
Principles of Commercial Contract
Click to edit Master title style
PAYMENT METHOD IN INTERNATIONAL TRADE
Payment Methods
Clean Payment Documentary Collection
Documentary Credit
Payment Methods in
International Trade
Sight and Usance Revocable and Irrevocable Negotiable and Non
Negotiable Confirmed and Not Confirmed
Open Account Advance Payment
Clean Collection and CAD Sight Draft and Time Draft D/P and D/A
RISK LADDER
LEAST RISK TO IMPORTER
HIGHEST RISK TO
IMPORTER
HIGHEST RISK TO EXPORTER
Clean Payment - Open Account
Documentary Collections
Documents Against Acceptance
Documents Against Payment
Documentary Credit / Letter of Credit
Unconfirmed
Confirmed
Clean Payment – Advance Payment
Payment Methods
LEAST RISK TO EXPORTER
Clean Payment
• Based on trust between Buyer and Seller.
• The Exporter sends the goods and trusts the Importer to pay
once the goods have been received, or, • The Importer trusts the Exporter to send the goods after
payment is effected.• All shipping documents, including title documents, are
handled directly by the trading parties. • Role of banks is limited to clearing funds as required.
ADVANCE PAYMENTThe Importer sends payment directly to the Exporter and trusts for the Exporter to send the goods and documents.
Exporter
Importer
• 1• GOODS
• 2• PAYMEN
T
Clean Payment
Exporter
Importer
• 2• GOODS
• 1• PAYMEN
T
OPEN ACCOUNTThe Exporter ships the goods and the documents directly to the Importer and trusts for the Importer to send payment
ADVANCE PAYMENT
Buyer provide credit to Seller.
Most advantageous to Seller.
Protection is short for Buyer when order of goods cannot be realized by Seller while Buyer has already provide the fund for such purpose.
Usually carried out only for trade transaction with the following condition:
• Trade value is not of great amount.
• Buyer has really trust Seller.
• Such goods are really required and there is no other choice
Clean PaymentOPEN ACCOUNT
Seller gives credit to Buyer.
Disadvantage to Seller.
Protection is short for Seller when Buyer freely take goods after their arrival at the port of destination.
This payment method occurs because:
• Seller has been really sure that Buyer will realize payment at the time already set.
• Seller is sure that there is no blocking payment policy from government of Buyer’s country.
• Seller has sufficient liquidity to give credit to Buyer
Documentary Collection
An arrangement whereby the exporter shipped the goods to importer, and exporter sends the shipping documents and drafts to his bank for further send to importer’s bank to collect payment and/or acceptance from the importer on his behalf.
COLLECTION CYCLE
1.Sales Contract
• 2
Goods3
Invoice +
Transport Document
• 5
• 6
8
Acceptance
&
Payment
Acceptance
&
Payment
Invoice + Transport Document
Invoice +
Transport Document
Acceptance & Payment
4
7
Documentary Collection
COLLECTING / PRESENTING BANK
REMITTING BANK
EXPORTER / DRAWER IMPORTER / DRAWEE
Documentary Collection Types of Documentary Collection:
In term of documents submission :• Clean Collection only Draft as document collected.• Cash Against Document (CAD) the shipping document collected by
Buyer’s Bank will be released to Buyer only after payment.
In term of payment period (tenor) :• Sight Draft if payment is made at sight.• Time Draft if payment is made on a certain date, or in a period of several
days after a certain date.
In term of payment certainty :• Documents against Payment (D/P) submission of documents by Bank
to Buyer after payment is made.• Documents against Acceptance (D/A) submission of documents by
Bank to Buyer after acceptance.
BUYER
More profitable
• Lower transaction cost because purchase of goods is not accompanied by DC Issuing.
Documentary CollectionSELLER
More risk :
• Documentary Risk Buyer refuse to take goods since documents submitted to Bank are not complete.
• Commercial Risk Buyer refuse to take goods due to declines of selling price of the goods.
• Political Risk Buyer’s import license is suddenly revoked by local government.
• Transfer Risk Transfer restriction of Buyer’s country due to lack of foreign exchange
Documentary Credit (DC)
• Usually called as Letter of Credit (L/C)• A Bank’s written guarantee issued on behalf of the Buyer to pay the Seller a given sum of money provided that documents presented comply with terms and conditions of the Documentary Credit
Documentary Credit (DC)Principles Issued by Bank
8 Every DC issued by Bank at the request of Buyer (as DC Applicant) must bear burdens and risks arising from consequences of such DC opening.
Containing Payment Undertaking8 DC constituting a payment undertaking from Issuing Bank to Seller (as DC
Beneficiary) so that Seller is no longer necessary to worry about credibility of Buyer (as DC Applicant) because Issuing Bank has undertaken it.
Conditional Undertaking8 DC issued by Bank is a conditional undertaking means that payment will be
made as long as Seller (as DC Beneficiary) has presented documents that comply with terms and conditions stipulated in the DC.
Involved Certain Parties8 DC issued by Bank shows involved parties such as Buyer (as DC Applicant),
Issuing Bank, Paying Bank and Confirming (if any) and Seller (as DC Beneficiary).
Time Factor8 DC has also time factor such as expiry date, latest shipment date and latest
presentation.
Documentary Credit (DC)Conditional Payment Undertaking The use DC as payment is a agreed for payment implementation for
delivery of documents transferring proprietary rights to or supervision over any goods. In other words, the payment can only be made if documents delivered are really in accordance with DC terms and conditions. It should be realized by all parties concerned.
As consequences of the documentary undertaking of the DC, DC issuing bank can not refuse payment if goods are not according to documents.
Advantages of DC As instrument in goods purchase transaction especially import goods.
As financing basis of DC Issuing Bank to finance importer.
Constituting a safer method for the parties involved in trade transaction concerning uniformity in interpreting terms in its implementation.
DC CYCLE
1. CommercialContract
5
Goods shipped6ADocument
8
9
Payment (Sight)
or
Acceptance
(Usance)
Document
Document
Payment (Sight) or Acceptance (Usance)
6B
7A
Documentary Credit (DC)
ISSUING BANKADVISING BANK /NEGOTIATING BANK
EXPORTER / BENEFICIARY IMPORTER / APPLICANT
DC
Application
2
3Issue DC
4
Advise the DC
Payment (Sight)
or
Acceptance
(Usance)
7B
Documentary Credit (DC)Parties Involved in DC Buyer, called as Applicant or Account Party
8 Party who requesting its Bank to issue DC and to whom the Issuing Bank will finally charge its account.
Seller, called as Beneficiary8 Party who receiving payment undertaking from the Issuing Bank and to whom
the DC is designated / issued.
Issuing Bank8 Bank who carries out DC issuing at the request of Buyer containing payment
undertaking to Seller.
Advising Bank8 Bank who is requested by the Issuing Bank to advise / forward DC to Seller (as
DC Beneficiary).
Negotiating Bank8 Bank who is carrying out taking over or negotiation or purchase of documents
submitted by Seller (as DC Beneficiary) based on the DC.
Documentary Credit (DC)Parties Involved in DC Paying Bank
8 Bank who is designated by the Issuing Bank to make payment to Seller (as DC Beneficiary).
Accepting Bank8 Bank who is carrying out acceptance on Time Draft drawn based on the DC by
Seller (as DC Beneficiary).
Confirming Bank8 Bank who confirms or do secures the DC issued by another bank.
Documentary Credit (DC)General Types of DC
Based on Tenor of Payment► SIGHT DC a payment undertaking issued by Issuing Bank on compliance
presentation whether or not accompanied by Draft taken over from Beneficiary.► USANCE DC a payment undertaking issued by Issuing Bank for delivery of
documents together with Draft on a certain maturity date after there has been acceptance from Issuing Bank.
Based on Obligatoir Principle► REVOCABLE DC can be unilaterally amended / cancelled by Issuing Bank
without prior notice to Beneficiary.► IRREVOCABLE DC a definite undertaking from Issuing Bank for delivery of
documents according to the terms and conditions in the DC. • UCP DC 2007 Revision ICC Publication No. 600 (UCP 600) accepts only
Irrevocable Documentary Credit
Documentary Credit (DC)General Types of DC
Based on Terms of Payment► PAYMENT DC payment made by Issuing Bank designated in the DC. ► NEGOTIATION DC payment made by Issuing Bank, or Confirming Bank (if any),
for taking over of documents, both sight and usance tenor.► RESTRICTED DC payment or negotiation is only applicable at a designated bank
nominated in the DC.
Based on another Bank’s undertaking► CONFIRMED DC an additional payment undertaking to the DC made by Other
Bank by taking responsibility for and bound to the payment, acceptance and negotiation.
► UNCONFIRMED DC a payment undertaking from Issuing Bank only.
Documentary Credit (DC)Special Types of DC
Standby DC8 DC that provide payment undertaking against Beneficiary Attestation rather than
documentary evidence .8 Issued to guarantee performance of the transaction, goods and services, between
Applicant and Beneficiary. 8 Payment under Standby DC will be made when Applicant cannot perform the
transaction (default) and it is attested by Beneficiary when claim payment to Standby DC Issuing Bank.
8 Same purposes with Bank Guarantee issuing.
Documentary Credit (DC)International Commercial Terms (Incoterms)
Incoterms are the international rules for the interpretation of trade terms. It is a term of the contract of sale and represents contemporary commercial practice.
Incoterms tell the Seller and Buyer what to do with respect to :► carriage of the goods from the Seller to Buyer.► export and import clearance ► explains the division of costs and risks between Seller and Buyer.
Incoterms clearly defines the respective obligations of the Sellers and Buyers to give notice, provide documents, provide information including security-related information, procure insurance, and pack the good properly and clear them for export and import and carry out all formalities for the export and import of the goods.
SELLER BUYER
SELLER'S COSTS & RISKS
SELLER'S COSTS & RISKS
SELLER'S COSTS & RISKS
FOB
CFR
CIF
BUYER'S COSTS & RISKS
• BUYER'S COSTS & RISKS
BUYER'S COSTS & RISKS
• BUYER'S COSTS & RISKS
FREIGHT (SELLER)
BUYER'S RISKS
FREIGHT & INSURANCE (SELLER)
BUYER'S RISKS
ON BOARD
Documentary Credit (DC)
Most Frequent Incoterms applied for Documentary Credit
Documentary Credit (DC)
SKBDN (Surat Kredit Berdokumen Dalam Negeri)
Local LC issued by domestic banks to cover intra nation trade.
Subject to Bank Indonesia Regulation / Peraturan Bank
Indonesia (PBI) Nomor 5/6/PBI/2003.
The PBI is binding to all parties involved in Local LC / SKBDN
transaction.
Peraturan Bank Indonesia (PBI) No. 5/6/PBI/2003 for SKBDN
SKBDN hanya berlaku untuk transaksi perdagangan barang. Perpindahan barang dilakukan di dalam negeri atau perpindahan barang dari
dalam negeri ke luar negeri sepanjang SKBDN diterbitkan atas dasar master L/C dan non L/C untuk tujuan ekspor.
Bisa dibuka dalam valuta asing, sepanjang SKBDN terkait dengan perdagangan internasional.
SKBDN tidak dapat dijadikan master L/C untuk membuka L/C ke luar negeri. Bank Pembuka memiliki waktu minimal 7 (tujuh) hari kerja perbankan setelah
tanggal penerimaan dokumen untuk melakukan pemeriksaan dan menentukan pengambilalihan atau penolakan dokumen.
Bank Pembuka dapat menerima penyerahan dokumen yang melewati batas waktu berakhirnya SKBDN.
Prinsip Independensi. Prinsip Keterikatan pada dokumen
Documentary Credit (DC)
Thank You
Top Related