Trade Solutions Start 2 Export FIT Exportbeurs Nele De Cock Christel Heynickx Frank Haak Brussels, 27 29 June 2016
1. International trade from a client perspective: Trade Chain Explore Buy Manufacture Sell Tender 2
1. International trade from a client perspective Scheme Finance Pay and get paid Contract Mitigate risk Tender Buy-Manufacture-Sell Explore Transport Production cycle Pay and collect mitigate risk - finance 3
2. Challenges of international trade Geographical distance and cultural and regulatory differences 4
3. Risk management Commercial Risk: determined by the nature of the parties and their contractual relationship Political Risk: determined by the location Litagation risk - transport risk - administrative risk communication risk determined by the contractual conditions 5
3. Risk management Scheme Quotation Signature of contract or purchase order Dispatch of goods/ Invoicing Delivery of goods Due date for payment Receipt of funds Release/expiry of guarantees EXPORT Negotiation Production/storage Transport Terms for payment allowed Recovery periods Guarantee periods Risk of termination of contract Debtor insolvency risk Political risk Exchange risk Transport risk Technical risk Unfair calling risk Legal risk BID BOND ADVANCE PAYMENT BOND PERFORMANCE BOND PAYMENT GUARANTEE Risk of changes in the cost price Rate risk IMPORT Signature of contract or purchase order Dispatch of goods Receipt of goods Payment Possible exposure to risk 6
4. Solutions: Transport conditions Incoterms Set of international rules for the interpretation of the most commonly used (11) trade terms in foreign trade Issued by the International Chamber of Commerce (ICC) Latest version: 2010 Objective is to clarify the most important responsibilities of buyer and seller Responsibility at the level of risk Responsibility at the level of charges Example: CPT = Carriage Paid To (named place of destination) SELLER BUYER CPT transport risk costs 7
5. Payment Techniques Intro: Climate of trust, balance of power Choice of an adequate payment technique is a.o. determined by a combination of: Climate of trust between buyer and seller Balance of power between buyer and seller Trust Balance of power The exporter seeks to mitigate the risk of non-payment by the buyer, The importer aims to mitigate the risk of non-performance by the seller. If the level of trust is low, the balance of power becomes important. 8
5. Payment Techniques Scheme Finance Pay and get paid Trade guarantees Documentary products Insurance Contract Open account to Documentary products Trade Development Mitigate risk Tender Explore Buy-Manufacture-Sell Transport Discounting and other financing techniques Production cycle Pay and collect mitigate risk - finance 9
5. Payment Techniques Our solutions 10
5. Payment Techniques Our solutions: scheme Goods Documents Funds The most adequate payment techniques to solve the conflict of interest between buyer and seller Erik Buedts - Eddy De Coster - Jos Geeraerts - Jean Minne 11
5.1 Documentary Collection Scheme Buyer Shipping of goods 1 Seller, supplier Payment or acceptance 5 4 Presentation of documents Commercial documents + collection instructions 2 7 Payment or acceptance notice Presenting bank Commercial documents + Collection instructions 3 6 Remitting bank Payment or acceptance notice Erik Buedts - Eddy De Coster - Jos Geeraerts - Jean Minne 12
5.1 Documentary Collection Pros and cons Pros Simple Limited cost, No credit line required Importer: A certain level of security. Drawee is informed with details of the shipping documents and the delivered goods. Exporter: Documents presented remain at his disposal until payment/acceptance; goods remain under control Cons Exporter: - no obligation from any bank to pay. - D/A!!!!! Importer: No intrinsic checking Erik Buedts - Eddy De Coster - Jos Geeraerts - Jean Minne 13
5.2 Documentary Credit Scheme Seller, beneficiary 1 5 1 12 Buyer, applicant 4 7 6 10 11 2 Advising and/or Nominated and/or Confirming Bank 8 9 3 Issuing Bank 1 Contract 2 L/C application 3 L/C issuance 4 Notification or confirmation 5 Shipment of the goods 6 Presentation of documents 7 Payment to beneficiary 8 Sending documents to issuing bank 9 Reimbursement 10 Remitance of documents to applicant 11 Reimbursement 12 Delivery of goods Erik Buedts - Eddy De Coster - Jos Geeraerts - Jean Minne 14
5.2 Documentary Credit Pros and cons Pros UCP. Importer / Buyer / Applicant: - Payment against complying documents -Strict shipping schedule - Possibility to negotiate better conditions Exporter / Seller / Beneficiary: - Irrevocable payment guarantee - Enables financing Cons Importer / Buyer / Applicant: - Involves a credit facility. - Bank deals with documents. Exporter / Seller / Beneficiary - Administration - Confirmation restrictions Erik Buedts - Eddy De Coster - Jos Geeraerts - Jean Minne 15
5.3 On Demand Guarantees Types of trade related guarantees: scheme Bid submitting Bid opening Signature of the contract Coming into force of the contract Last delivery / delivery Provisional acceptance Final acceptance Bid bond Advance Payment guarantee Performance guarantee Retention money guarantee Warranty bond Erik Buedts - Eddy De Coster - Jos Geeraerts - Jean Minne 16
5.3 On Demand Guarantees Scheme Direct advance payment guarantee Sales Contract / Tender = Underlying Relationship Turkish Buyer / Importer (Applicant) Seller / Exporter (Beneficiary) Application form Instructing Party Guarantee (optional) Turkish bank Request for advising (optional) BNP Paribas Fortis nv No financial commitment, only to confirm authenticity. Erik Buedts - Eddy De Coster - Jos Geeraerts - Jean Minne 17
5.3 On Demand Guarantees Scheme Indirect advance payment guarantee Sales Contract / Tender = Underlying Relationship Turkish Buyer / Importer (Applicant) Seller / Exporter (Beneficiary) Application form Instructing Party 2 independent commitments Guarantee Turkish bank Counterguarantee + Request for issuance of the trade guarantee BNP Paribas Fortis nv Erik Buedts - Eddy De Coster - Jos Geeraerts - Jean Minne 18
5.4 Standby Letter of Credit Routing and Scheme Seller, beneficiary 1 1 1 Contract Buyer, applicant 2 L/C application 5 12 3 L/C issuance 4 Notification or confirmation 5 Shipment of the goods 4 7 6 10 11 2 6 Presentation of documents 8 7 Payment to beneficiary 8 Sending documents to issuing bank 9 9 Reimbursement Advising or Nominated or Confirming Bank 3 Issuing Bank 10 Remitance of documents to applicant 11 Reimbursement 12 Delivery of goods 19
5.4 Stand-by Letter of Credit Pros and cons Pros Is subject to internationally accepted standards: UCP 600 or ISP98 The applicant enables the beneficiary to receive an irrevocable undertaking from a reputable bank. Allows for confirmation (not possible with a standard bank guarantee). For the applicant: Frees up cash flow if the SBLC is used as an alternative to 100% advance payment (prior to delivery). Cons Some countries refuse to use SBLC. A credit decision is required for setting up a line under which SBLCs can be issued. Confirmation, as well as re-issuance of a guarantee, are subject to approval (by the bank). 20
5.5 Bank Payment Obligation (BPO) Definition Bank Payment Obligation is an irrevocable undertaking by one bank to pay another bank at sight or at maturity in which only commercial data are exchanged, thereby bypassing the need of paper records. A legally binding, valid and irrevocable undertaking given by one bank to another bank that a payment will be made on a specified date after a successful electronic matching of data according to an industry-wide set of rules. An agreement between buyer and its bank with potential financing options SWIFT Trade Service Utility (TSU) matching platform implementing BPO rulebook and using ISO20022 standards in a multi-bank environment 21
5.5 Bank Payment Obligation (BPO) Scheme BUYER BUYER SELLER SELLER 1. Buyer orders goods from Supplier. Both agree on the BPO terms and conditions 2. Buyer transmits instructions (based on the purchase order) to issue BPO at its bank. Then, this demand is transmitted to the Seller s bank for further review and acceptance by the Seller. 3. The Seller confirms or not the data presented by its bank. The received data are cross checked to find a match. If the transmitted data matches on the TSU, the BPO transaction is established. 4. Seller ships the goods. 5. Seller provides the commercial dataset to its Bank, which submits it to TSU for matching. The result of the matching is transmitted through the Banks to Buyer and Seller for further action. 6. Buyer is invited to accept mismatches if any. Seller is informed of the successful dataset via its Bank. The BPO is due. 7. Seller sends directly to the Buyer the full set of commercial documents. 8. The Seller will be paid on the due date according to predetermined terms. 22
5.5 Bank Payment Obligation (BPO) Pros and cons Pros UCBPO. Importer / Buyer / Applicant: - Payment upon data matching - Strict shipping schedule - Possibility to negotiate better conditions Exporter / Seller / Beneficiary: - Irrevocable payment guarantee - Enables financing Importer & exporter: - No paperwork, easy stream - Less costs Cons Importer / Buyer / Applicant: - Involves a credit facility Exporter / Seller / Beneficiary - Administration - Confirmation restrictions Importer & exporter: - Not used by every bank yet Erik Buedts - Eddy De Coster - Jos Geeraerts - Jean Minne 23
6. BNP Paribas Global Player with a local approach 24
6. BNP Paribas International Network Global Trade Solutions and Trade Centres 25
6. BNP Paribas Fortis is your ideal trade partner! Q & A time Thanks for your attention 26