The document compares the risks for exporters and importers between international payments and documentary trade finance. International payments like open accounts, collections, and letters of credit each allocate risk differently between exporters and importers. Trade finance tools from organizations like the SBA and Export-Import Bank can help exporters obtain financing to fulfill export orders or insure against risks like buyer default. Various trade finance products provide options to support international trade on different payment terms.

1.
Comparison between International Payments and
Documentary Trade Finance Compliance Risk
Date: 31 August 2016
By: Bachir El Nakib
Senior Consultant
Compliance Alert (SARL), Lebanon, Qatar
1
Comparison between International Payments &
Trade Finance
10/7/2016
Comparison International
Payments Vs Trade Finance Risk

2. 2
International Trade Products
Products and Services
Trade Services
Commercial Letters of
Credit - Import & Export
Standby Letters of Credit
Documentary Collections
Export Credit Insurance
International
Correspondent Banking
Trade Finance
Working Capital Loans
for exports
Foreign Receivable
Financing
Foreign Buyer Financing
Overseas Investment
Financing

3. 3
Risk Comparison
INTERNATIONAL
METHODS OF PAYMENT
Exporter Risk
High
Importer Risk
Low
Trade Terms
Open Account
Documentary Collection(Time)
Documentary Collection (Sight)
Letters of Credit (Time)
Letters of Credit (Sight)
Cash in Advance
INTERNATIONAL
METHODS OF PAYMENT

4. 4
International Methods of Payment
Getting Paid and Managing Risk

5. 5
International Methods of Payment
 Time of Payment: SIGHT at time of presentation of
the draft
 Time of Payment: TIME at a future date.
 Goods available to Buyer: after payment if ALL Ocean
Bills of Lading are included with the documents and
after the cargo has arrived.
 Risk to Seller: possible non-payment of the draft.
 Risk to Buyer: has assurance of shipment, but Seller
may not ship goods as ordered. Must pay to get title to
goods.
 Not recommended for sales on extended terms
Documentary Collections
Draft or Documents Against Payment Or Acceptance

6. 6
International Methods of Payment
Documentary Collections
Benefits
More secure than Open Account
Goods available to Buyer: after payment if ALL Ocean
Bills of Lading are included with the documents and
after the cargo has arrived.
Risk to Seller: possible non-payment of the draft.
Risk to Buyer: has assurance of shipment, but Seller
may not ship goods as ordered. Must pay to get title to
goods.
Don’t encumber Buyer’s line of credit
Inexpensive

7. 7
International Methods of Payment
 A payment instrument issued by a bank on behalf of its customer.
 The issuing bank substitutes its own credit standing for that of its
customer.
 The issuing bank undertakes to pay for the goods or services provided by
the beneficiary of the LC; the beneficiary looks to the bank for payment,
instead of the buyer (applicant of the LC).
 The LC assures the beneficiary (exporter) of payment when the terms of
the credit are met.
 The exporter is not obligated to perform if the terms of the LC are not
acceptable.
 Commercial letter of credit can be paid “at sight” or at period in future
 Time Letter of Credit can be discounted if seller doesn’t want to wait until
LC maturity. Simple form of trade finance.
What is a Letter of Credit?

8. 8
Letters of Credit
Letters of Credit
Benefits
• More secure than Open Account
• Foreign Bank promises to pay exporter if documents are in
compliance with letter of credit
• Goods available to Buyer: after payment if all Ocean Bills of Lading
are included with the documents and after the cargo has arrived.
• Risk to Seller: LC void if seller docs are not in compliance, i.e. have
discrepancies
• Risk to Buyer: has assurance of shipment, but Seller may not ship
goods as ordered. Must pay to get title to goods.
• Versatile– can build in terms for buyer and still have assurance of
payment from overseas bank

9. 9
International Trade Finance
TRADE FINANCE TOOLS
These traditional payment methods are fine, but what if your customer wants extended
terms of payment or your competitors are offering better terms? You need financing to put
the order together?
Trade Finance may be the solution to your customer’s needs and the way to make exports a
manageable part of your growth strategy.
SBA Export Express
SBA Export Working Capital Program
EXIM Bank Working Capital Program
Insured Foreign Receivables Financing
Both SBA and EXIM assists US exporters to obtain loans to produce goods or services for
export. They guarantee repayment to the lender, making it possible for banks to extend
financing to the exporter. They do not compete with commercial lenders, but assumes the
risks they cannot accept.

10. 10
International Trade Finance
 SBA’s Export Express Working Capital Guarantee Program
 The program supports single transactions or multiple sales under a revolving line
 Maximum loan amount limited to $500,000
 Guarantees 90 percent of a commercial bank loan up to $350,000 and 75
percent from $350,000-$500,000
 Program minimizes government mandated forms. Streamlines processing and
costs of smaller SBA loans for exporters
 VERSATILE -- Can be used for working capital, issue standby letters of credit for
advance payment guarantees, participation in foreign trade shows, or translation
of product literature for use in foreign markets

11. 11
International Trade Finance
 SBA’s Export Working Capital Guarantee Program
 The program supports single transactions or multiple sales under a
revolving line
 Guarantees 90 percent of a commercial bank loan up to $5,000,000
 Can be used to purchase goods and services or pay for labor &
materials to put together an export order– Pre Export Financing
 Can be used to support standby letters of credit for performance bonds
or advance payment guarantee
 At the minimum, loan must be collateralized by export- related AR and
inventory
 No US content requirement or military sales restrictions

12. 12
International Trade Finance
 FEES and RATES
 Guarantee Fee:
 Maturities of 12 months or less = 1/4 percent
 Maturities greater than 12 months = 2-3.75% depending on loan size
 Interest Rates/Lender Fees are Negotiable
 ELIGIBILITY
 A business must meet SBA’s industry size standards and have been in business for
at least 12 continuous months
 SunTrust Bank is a delegated lender for SBA’s Export Working Capital Guarantee
Program
 One of few banks in country to be awarded this designation

13. 13
International Trade Finance
 Export Import Bank of the US Export Working Capital Guarantee Program
• The program covers 90% of the loan’s principal and accrued interest
• STB minimum loan request is negotiable – there is no maximum amount
• At the minimum, loan must be collateralized by export-related AR and inventory
• Goods must have at least 50% US cost content to guarantee the entire transaction
• Loans Can Be either Transaction Specific or Revolving
• High Advance Rates on Inventory and Receivables, including work in Process
.
• Some restrictions to the program (military exports and some countries are
excluded)
• Financing Provided for Short, Medium, and Long Term

14. 14
International Trade Finance
 Export Credit Insurance & Insured Foreign Receivables Financing
 Insurance Available through EXIM Bank and Private Sector Insurers
 Commercial risk insurance (buyer bankruptcy and insolvency)
 Political risk (war, inconvertibility of currency)
 Short Term & Medium Term Insurance Policies, Multi Buyer or Single Buyer
Policies
 Enables US exporters to extend “open account” terms to international buyers
(protect US exporters against foreign buyer default)
 Insured export receivables looked upon favorably by banks. Exporters may be
able to borrow against insured foreign A/R.
 Good option for service companies who have little inventory for collateral