EXPORT TRANSACTIONS GUIDE
Procedures to Consider
Getting Started - Preparing Your Quote
Methods of Payment
Export Procedures to Consider
As a U.S. exporter selling abroad, you should consider several factors before arriving at the terms of sale:
- Credit risk - the financial position of the importer and its ability to pay for the goods purchased from the exporter.
- Country risk - the political condition of the importer's country and the availability of hard currency to pay for foreign obligations.
In reviewing these factors, the exporter has two primary interests: timely receipt of payment, and protection from loss. At the same time, however, the terms of the agreement must be competitive with those offered by foreign competition and by other U.S. exporters. There are several methods of financing exports available to sellers, depending upon the degree of risk they are willing to assume.
Getting Started - Preparing Your Export Quote
When your trading partner is in another country, setting up the transaction in advance is crucial. Distant geography, foreign customs, regulations, and special documentation may complicate the transaction. You must also consider that key participants in the transaction may include not only you and your buyer, but one or more banks, an international freight carrier and a freight forwarder, and/or customers house broker.
An international transaction usually begins with you (the exporter) having to supply an export quote to the potential buyer. The export quote accomplishes two basic goals:
(1) It states the selling price of your product
(2) It states the conditions under which you are willing to make a sale
METHODS OF PAYMENT
Every method of payment available to you has varying degrees of risk, but you can be confident with Wachovia's collection of products that securely supports each transaction option.
Letters of Credit
A Letter of Credit (L/C) is an instrument issued by a bank for an individual or corporation that transfers the financial responsibility for payment of goods from the customer to the bank. This facilitates trade and mitigates risk for exporters, importers, and among any unfamiliar business partners. The L/C, short of cash-in-advance, affords the seller the highest degree of protection from loss. It also provides for prompt payment to the exporter/seller.
As one of the leading trade banks in the world, Wachovia is the fourth largest processor of commercial letters of credit in the United States, and the first bank to enable our customers to initiate letter of credit transactions over the Internet.
For customers with letter of credit accounts, MIS & Images is a window into Wachovia's global processing infrastructure. MIS & Images delivers all of the information needed about L/C activity, all on-time and in real-time.
Documentary Collections
An exporter may agree to payment on a documentary collection basis when the protection of a letter of credit is not required. Documentary collection is less costly than a letter of credit, but it is riskier because the exporter draws a draft on the importer, with instructions to pay either on presentation (documents against payment), or at an agreed future date (documents against acceptance).
There is no guarantee that the importer will "sight" or accept the draft. The importer's financial position may change before the draft is presented for payment or before it matures. Or the importing country may make policy changes affecting the importer's ability to pay. The exporter is at risk until payment is received.
Export Services allows you to access the status of foreign receivables and collections. Exporters can also view export letters of credit as well as initiate documentary or letter of credit transactions. Additionally, the MIS & Images module allows you to quickly receive notification of a change in the status of any open collection item.
Bankers Acceptance and Discounting
A Banker's Acceptance (BA) is a method of financing Wachovia may provide to its customers to support their short-term (six months or less) trade transactions. A Banker's Acceptance is a time draft drawn on, and accepted by, a bank. The bank, as drawee of the draft, indicates its acceptance of the obligation by stamping the word "accepted" on the face of the draft, dating and signing it. By accepting the draft, the bank signifies its commitment to pay the stated amount of the draft on a specified future date. The company for whom the draft is accepted (drawer) may have the draft held until maturity to collect the full amount, or may discount the acceptance and collect immediate payment, less applicable discount rate.
Document Preparation
Correct Document Preparation is crucial when using a letter of credit as a method of payment in order to avoid a discrepancy and have a compliant presentation. Usually the Exporter/Beneficiary requests a letter of credit as the payment method since they want to shift the payment risk from the Importer/Applicant to a bank (Issuing Bank of Confirming Bank). The L/C is a conditional payment and the Exporter must meet the conditions (document requirements, dates, etc) specified in the letter of credit in order to receive payment from the Issuing Bank or the Confirming Bank.
If the presentation is not compliant, the Issuing Bank/Confirming Bank is not obligated to pay and the risk reverts to that of the Importer of the letter of credit to accept the discrepancy. In addition, the discrepancy adds fees to the transaction especially if the letter of credit was confirmed, adds more time to process the transaction, and delays the payment. If this type of situation persists, the exporter should focus attention on the type of discrepancy and determine its cause, e.g, is its due to problems with the preparation of documents or the conditions within the letter of credit, and then decide how to correct it. One option the Exporter might consider is using another trade payment method such as the collection where there is no examination of documents. However, using a collection, there is a tradeoff since the exporter has the risk of the importer, but the fees are lower.
Another option for the eExporter to consider that will address the discrepancy issue is our document preparation tool called Shipment Portal. The exporter can use Shipment Portal Online to create compliant documents to avoid the discrepancy. The Exporter downloads the advised letter of credit into Shipment Portal Online and the data / text from the swift fields in the letter of credit get mapped into a master template within platform. The master template can then be used to create a compliant document set and avoid the Discrepancy.
We can help you handle everything.
No matter which payment option you choose, our suite of Internet tools can help you manage and track all of your import and export activities. Learn more about TradeXchange, our suite of internet reporting and initiation services.
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