11
LouisianaExport Guide
2015-2016
A
sanexporter, youhave takenan important step
toenhanceyour revenueandprofitabilityby
exposingyourproducts toabroaderuni-
verseofbuyers. But thebenefitsyougenerate
extendwell beyond thewallsof your com-
pany. Byusingexports to increaseyour sales,
youalsoprovidegood jobs inyour community,
andyouhelp improve thebalanceof trade for
ournation.
But therearealso risks in the settlementof
these transactions, andyourbankcanbeyour
partner tohelpmanageandmitigate these risks.
Risk #1 –Credit Risk
Whenyou sell outside theUnitedStates, you face
monetary risksassociatednotonlywith thecredit
conditionof yourbuyer, but alsowith theeconomic
andpolitical stabilityof yourbuyer’s country. You
caneliminate these risksby requiringpayment in
advance, but indoing soyou likely limit thenumber
ofbuyers for yourproducts. To trulybenefit from selling
globally, youneed tobeable tooffer trade terms similar to
what youoffer yourdomesticbuyers.
Toensureyouwill bepaid for thegoodsyou ship, youcould
requireyourbuyer to request theirbank issueaLetterofCredit
inyour favor. Thisenhances thebuyer’s creditpositionby re-
placing itwith the full faithandcreditof the issuingbank. If you
areconcernedabout theabilityof the issuingbank to fulfill its
promise topay, fora small fee, youcanobtainaconfirmationby
whicha secondbank– typically in the seller’s countrywill agree
topayyou if the issuingbankcannot.
While the issuingbank represents the interestsof your
overseasbuyer, youradvisingbankwill be local toyou–either
yourownbankoranother local bankwith international trade
expertise. Theadvisingbankwill notifyyouof their receiptof the
LetterofCredit, serveasaconduitbywhichyoucan submit the
required shippingdocuments, andworkwith the issuingbank to
ensure thepaymentof your invoice.
For transactionswithbuyerswithwhom youhavebecome
more familiar and comfortable, there is an alternativepro-
cess referred to asDocumentaryCollection.While there is no
credit commitment or promise topay by any banks, thebuy-
er’s and seller’s banks still act as conduits for the exchangeof
bills of lading, invoices andother documents associatedwith
the shipment.
WithaDocumentaryCollection, yourmerchandisecannot
be released to thebuyeruntil all trade requirements,
includingpaymentoracceptanceof thedraft, have
beencompleted.
Risk #2 –FundsAvailability
YourpaymentunderaLetterofCreditorDocu-
mentaryCollectionoccurs in the formofadraft
drawnon the issuingbankor thebuyer. If thedraft is
payableat sight, thenyouwill receiveyourpayment
rightaway.However, ifyouhaveagreed tobepaid
ata futuredate, then thedraft isconsidereda time
draftandyouwillbepaidon thematuritydateof the
draft. Thiscould impactyourcashflow,possibly impeding
yourability tomanufacturenewmerchandise for sale.
To improveyour cashflowunder LettersofCredit,
yourbankwill accept thedraft,whichconverts it toan
instrument knownasaBanker’sAcceptance, orBA. A
Banker’sAcceptance isanegotiable instrument that can
bediscountedbyyourbankor soldat adiscount in the
openmarket.
Risk #3 –Payment Risk
Youandyourbuyermightoperate indifferent currencies,
and thosecurrenciesfluctuate invalue relative toeachother. If
youare sellingoverseasandexpect tobepaidat a futuredate,
thecurrencymarkets could turnagainst you inaway that could
erodeyourprofit in the saleorevencast you intoa loss scenario.
Youcould transfer this risk toyourbuyerby specifyingpay-
ment inU.S. dollars.However,manyexportersfind that theycan
accessmorebuyersorobtainbetter trade terms if theyallow
theirbuyers theoptionofpaying in theirowncurrencies.
Byusingyourbank’sForeignExchange service, youcan lock
in theexchange rateusinganFXForwardcontract. Thisallows
you toconcentrateonyourbusinesswithout concern formarket
forcesyoucannot control and thatmightotherwiseposea risk
toyour company.
This articlewas providedbyWhitneyBank, aprovider of Interna-
tional Banking services in Louisiana since 1883. Formore informa-
tion onhow you canuse banking services to facilitate your export
trades, contact your local bank, or callWhitney’s International
Divisionat 1-800538-7751. (Please see our ad on the back cover.)
WhitneyBank: SimpleToolsToMitigateRisk
“By using exports to increase your
sales, you also provide good jobs
in your community, and youhelp
improve the balance of trade for
our nation.”
