Save Time with a Discount Invoice for Export Solutions

Discount invoice for Export

hello students welcome to the lecture on discounting and rediscounting of export bills and after this lecture we will be able to learn the following objectives understand the role of International Chamber of Commerce in times of turbulences explain methods of payment in international trade define concept of export finance discuss stages in export finance describe a quick guide to an overseas investment insurance policy define rediscounting of export bills a broad scheme EBR let's start with a brief introduction to discounting and reduce countering of export bills after shipment of goods the exporter may submit the export bill to its bank for reduced for discounting purchase this bill discounting facility may be a sub limit to packing credit or may be a separate limit depends on the bank's sanctioning authority in will discounting banks by the export bills that is Bill of exchange promissory note before it becomes due for payment the transaction is practically an advance against the security of the bill and the discount represents the interest on the advance from the date of purchase of the bill till it is due for payment normally the export order which is already getting credit under packing credit limit will not be covered under bills discounting also the client requests for real discounting the amount will be adjusted first against the packing credit limit out siding against said bill and the balance amount Israel released to the to the client in one sense it looks to be an unsecured limit as few banks gives will discounting facility over and the regular limits sanctioned as per CMA data submitted with a bank the bank normally does not ask for any collateral when it but in such case the discounting facility is given bill wise that is a limit is not functioned and it is the pure discretion of the bank whether to allow discounting of a particular bill or not here it is important that the client must have good credit history as well as the relation with the bank should be good in this case the bank has charged on the current assets of the organization it depends basically on requirement of the exporter relation with the bank track record good repayment history and good market reputation let us now study the role of international chamber of commerce in times of turbulences the International Chamber of Commerce ICC was founded in 1919 to promote trade and investment worldwide it operates in 130 countries and has 92 offices on all continents it has three main activities rules setting dispute resolution under ICC arbitration rules and policy advocacy policy advocacy takes place in the context of 14 Commission's ranging from the banking Commission to the anti-corruption intellectual property and energy Commission's the ICC banking commission was created 80 years ago and has become the number one forum in trade finance it has today more than 600 institutional members in 85 countries the banking commission is known for producing rules governing business in the banking sector some 95% of documentary credits a worldwide are treated under ICC rules most experts agreed that business has been picking up since the last quarter of 2009 there was currently a broad return to normalcy with respect to liquidity risk assessment and pricing of trade finance the recovery was driven mainly by increased trade within North America Europe Asia and between Asia and the rest of the world however exporters especially in emerging markets were with costly credit indeed differences in pricing of trade still prevail today the ICC experts believed that low-income countries would continue to suffer in the future from the lack of access to trade finance at affordable cost particularly import finance it was important for ICC to keep playing a key role in bridging the information gap on trade finance when the crisis broke up in 2007 the the ICC was asked by the WTO expert group on trade finance to develop global service among its members that would provide an accurate picture of market trends in the absence of a comprehensive set of available statistics hence the ICC banking commission had been able to produce three service in the past three years based on the replies by more than 120 banks this always provided not only information on the global trends of trade financed by instruments and by regions but also on more detailed variables as the terms of settlement for international trade flows and the historical breakdown of Swift messaging the service benefited from the support of ICC members and a long list of partners such as the World Bank the International Financial Corporation IFC the European Bank of Reconstruction and Development EBRD the Asian Development Bank ADB the Asian Development Bank ADB the inter-american Development Bank L ADB Swift and the Berne Union the association of export credit agencies ICC surveys have been particularly useful to policymakers in developing their understanding of the problems affecting trade finance during the recent crisis the Basel 3rd framework certainly aims at creating a stable and sustainable global financial system but trade finance seems to have been caught in the net of re-regulation one of the main features every regulation is the imposition of a leverage ratio on off-balance-sheet commitments which includes letters of credit and similar trade finance instruments if implemented the leverage ratio would have a detrimental impact on global trade in particular on poor countries trade while the objective of the new 100 percent leverage ratio proposal was to develop as simple non risk-based measure intended to work as a backstop against excessive risk-taking for trade finance instruments which were never leveraged this meant that banks would need to fully capitalize a short-term exposures at 100% of their face value again 20% previously the International Chamber of Commerce the world business organization is the global leader in the development and promotion of rules for international trade finance the ICC in partnership with coastline solutions have been delivering online training and information services in trade finance worldwide for the past 10 years the training covers all traditional trade products documentary collections letters of credit standby credits and demand guarantees the trade finance training suite covers the full range of skill levels from beginners to advanced the online training is written by the world's leading experts can be taken anytime and from anywhere with internet access comes complete with LMS to manage allocation reporting of trainee progress is very cost effective each trainee received access to the training for one year and is posted on ICC certificate on completion these trade finance training services are used by banks traders law firms logistics companies and colleges all over the ICC intended to continue to work in order to reflect the true nature of trade finance the ICC argued that the new proposed Basel 3rd rules could have unintended consequences on this kind of finance some impact studies had already shown ICC members that the proposed framework if approved drafted would reduce trade finance lending by as much as six percent a year that is INR 13,500 billion in international trade banks would be used to move away from trade finance because of the higher cost of capital in particular small and medium-sized banks the withdrawal of such banks from the market would disapprove creately impact small and medium-sized enterprises relied on which intermediaries for financing their trade the bigger banks might simply find trade finance less attractive compared to riskier but more remunerate of products now moving onto the next topic we will study the methods of payment in international trade to succeed in today's global marketplace exporters must offer their customers attractive sales terms supported by the appropriate payment method to win sales against foreign competitors as getting paid in full and all time is the primary goal for each export sale and appropriate payment method must be chosen carefully to minimize the payment risk while also accommodating the needs of the buyer as shown there are four primary methods of payment for international transactions during or before contract negotiations it is advisable to consider which method in the figure 3.1 is mutually desirable for customer key points international trade presents a spectrum of risk causing uncertainty over the timing of payments between the export and importer foreign buyer to exporters any sale as a gift until payment is received therefore the exporter wants payment as soon as possible preferably as soon as an order is placed or before the goods are sent to the importer to importers any payment is a donation until the goods are received letters of credit letters of credit are among the most secure instruments available to international traders and LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter provided that it turns and conditions have been met as verified through the presentation of oil required documents the buyer pays its bank to render this service and LC is useful useful when reliable credit information about a foreign buyer is difficult to obtain but are satisfied with the creditworthiness of buyers foreign bank when LC also protects the buyer since no payment obligation arises until the goods have been shipped or delivered as promised documentary collections a documentary collection is a transaction whereby the exporter entrusts the collection of a payment to the remedy bank exporters bank which sends documents to a collecting bank importers bank along with instructions for payment funds are received from the importer and remitted to the exporter through the banks involved in the collection in exchange for those documents documentary collections involve the use of draft that requires the importer to be the face amount either on-site document against payment DP or on a specified date in the future document against acceptance da the draft lists instructions that specify the documents required for the transfer of title to the goods open account and open account transaction means that the goods are shipped and delivered before payment is do usually in 30 to 90 days obviously this is the most advantageous of to the importer in cashflow and costumes but it is consequently the highest risk option for an exporter not due to the intense competition for export markets foreign buyers often price exporters for open account terms since the extension of credit by the seller to the buyer is more common abroad therefore exporters exporters who are reluctant to extend credit may face the possibility of the loss of the sale to their competitors let's know the concept of export finance the exporter may require short term media term or long term finance depending upon the types of goods to be exported and the terms of statement offered to overseas via the short term finance is required to meet working capital needs the working capital is used to meet a regular and recurring needs of a business firm the regular and recurring needs of the business firm refer to purchase of raw material payment or wages and salaries expenses like payment of rent advertising etc in the exporter may also require term finance types of export finance the export finance is being classified into two types pre-shipment finance post shipment finance pre-shipment finance pre shipment is also referred as packing credit it is working capital finance provided by commercial banks to the exporter prior to shipment of goods the finance required to meet various expenses before shipment of goods is called pre shipment finance or packing credit boost shipment finance post shipment finance is provided to meet working capital requirements after the actual shipment of goods it bridges the financial gap between the rate of shipment and actual received of payment from overseas buyers there are whereas finance provided after shipment of goods is called forced shipment finance exporting tends to be more demanding financially than selling in the UK consignments are usually larger lead times are longer and the risks are more difficult to control negotiating the terms of an export sale is a matter of balancing the risks and the cost and customer at the same time we need to take into account the problems of handling payment in foreign currencies this briefing focuses on negotiating the payment method choosing the right financing option dealing with foreign currencies first steps in the terms of an export sale must satisfy customer we need to agree the terms of delivery covering the division of responsibility for transport costs and for the risk of loss or damage in transit standard international terms are set in Incoterms 2000 ask potential customers what terms they prefer and what causes them problems pavement methods the pavement method use has a significant effect on the financing require and the level of risk to which are exposed open account payment is similar to offering credit to a UK customer typically the credit term example 30 days starts once dispatch and invoice for the goods in line with the terms of trade we are all the risks of offering credit as such as for a sale in the UK need to arrange finance to fund the whole of the transaction there are no extra costs other than those involved in any export transaction open account payment is typically used for exports within the EU and export sales to whom customers with whom we have an established relationship the payment method the customers creditworthiness will determine what methods are prepared to accept the currency will be paid the documentation financing options unless we have negotiated payment in advance exporting may require additional financing while we may be able to use a standard loan or overdraft facility other options can be more cost-effective and provide access to greater amounts of working capital we can arrange a foreign currency loan or overdraft to borrow the amount of foreign currency expect to be paid we may be able to use a proof of the export sale as security for the borrowing bank may only accept this form of security if it has approved the customer or purchase credit insurance exchange the money bores into pounds and sterling to use as working capital repay the borrowing with the payment receive a from customer foreign currencies most customers will prefer to put and invoice them in their local currencies rather than pounds sterling unless we are prepared to do so they may choose alternative suppliers however invoicing in a foreign currency exposes two additional risks and costs we have a foreign exchange risk for any amounts hold or expect to receive in a foreign currency we are at particular risk if the foreign currency is volatile or chronically weak for example in some Middle Eastern or African currencies some currencies present extra difficulties we will need a foreign currency bank account to hold the funds until convert them to sterling this quick guide explains what an overseas in investment insurance policy is how it works its benefits its key features and how to apply for the policy from UK export finance an overseas investment insurance policy covers the risk of loss resulting from certain political events in connection with an investment made by an investor in the United Kingdom in an enterprise outside the United Kingdom the policy can also cover losses arising in connection with a guarantee given by the insured in respect of an investment made by another person in an enterprise outside the United Kingdom in which need short has an interest the benefits are any investment of resources may be considered for cover including loans or subscriptions for shares in direct investments and guarantees given to other investors may also be covered up to 90% of losses can be covered resulting from the specified events the policy may be renewed annually on the same terms and premium rate and run for up to 15 years risks covered for details of the risks covered are set outline the policy but they include war civil war revolution and insurrection in the host state expropriation or nationalization of the enterprise in which the investment is made or of its property contrary to international law and restrictions on remittances including exchange controls imposed by the host state banks are also allowed to reduce count export bills abroad at rates linked to international interest rates at post shipment stage scheme it will be comparatively easier to have a facility against bills portfolio covering all eligible bills than to have rediscounting facility abroad on bill bible basis there will however we no bar every discounting facility on will to bill basis is arranged by a bank in case of any particular exporter especially for large value transactions banks may arrange a banker's acceptance facility BEF for rediscounting the export bills without any margin and duly covered by collateralized documents eligibility criteria this key will cover mainly export bills with uses period up to 180 days from the date of shipment inclusive of normal transit period and grace period if any there is however no bar to include demand bills if overseas institution has no objection to it the facility under the scheme of rediscounting may be offered if any convertible currency source of your funds there will be no bar on banks to utilize the foreign exchange resources available with them in exchange earners exchange earners foreign currency accounts resident foreign currency accounts are FC foreign currency non-resident accounts banks scheme to discount usance bills and retain them in their portfolio without resorting to rediscounting in case of demand bills subject to what has been stated these may have to be routed through the existing post shipment credit facility or by way of foreign exchange loans to the exporters out of the foreign currency balances available with the banks in the schemes a bid to facilitate the growth of local market for rediscounting export bills establishment and development of an active interbank market is desirable it is possible that banks hold bills in their old portfolio without rediscounting however in case of need the banks should also have access to the local market which will enable the country to save foreign exchange to the extent of the cost of rediscounting further as different banks may be having baf for wearing amounts it will be possible for a bank which has balance available in its limit to offer rediscounting facility to another bank which may have exhausted its limit or could not arrange for such a facility facility or rediscounting with recourse and without recourse it is recognized that it will be difficult to get without recourse facility from abroad under baf or any other facility therefore the bills maybe reduce counted with recourse however if an ad is in a position to arrange without recourse facility on competitive terms which is permitted to a will itself of such a facility now in the end let us summarize what we have learnt in this lecture the bank will not discount the bills and just send the same for collection to importer bank as and when the collection is the amount is credited in exporter account the ICC banking commission was created 80 years ago and has become the number one forum in trade finance as getting paid in full and on time is the primary goal for each export sale an appropriate payment method must be chosen carefully to minimize the payment risk while also accommodating the needs of the buyer the regular and recurring needs of a business firm refer to purchase of raw material payment of wages and salaries expenses like payment of rent advertising etc Direct discounting of export bills by exporters with overseas bank or any other agency will be done only through the branch of a bank designated by him for this purpose the policy can also cover losses arising in connection with a guarantee given by the insured in respect of an investment made by another person in an enterprise outside the United Kingdom in which the insured has an interest you