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Financing and Insurance

QuestionAnswer
Open Account The exporter provides credit for a specified number of days (e.g.30), after which payments for the goods must be made
Letter of Credit (LC) Substituting the credit of the bank for that of the customer. A document from the importer's bank guaranteeing payment by the bank, in a specified number of days, if all conditions of the sales contract are met.
Irrevocable LC The foreign bank cannot withdraw LC (this is the international standard)
Confirmed LC Comfirmed by exporter's bank (the exporter's bank agrees to pay should the foreign bank fail to do so.)
Why does the exporter's bank agrees to pay? Not all banks are honest, may be a new government policy or alteration of exchange controls in the buying country, foreign bank may run short of hard currency, every stage of confirmation costs more.
Export Development Canada (EDC) Provides financing or loan guarantees for major capital projects in foreign markets. Provides buyer financing for capital equipment and services: lend money to the importer of Cdn goods. Provides insurance for Canadian exports.
Loan Guarantee? Is when a bank guarantees that the loan will be repaid, thereby eliminating the risk, but it does not actually loan the money.
Bid Bond Submitted by the company when it submits a bid to guarantee that it will not withdraw later. It is returned to the bidder after the project is awarded.
Performance bond This is a guarantee that the piece of equipment (e.g. a hydro electricity turbine) actually performs the way it is supposed to. Be returned to the bidder after a predetermined period of time.
International Sources of FInancing: Multilateral Development Bank Provides financing for many infrastructure projects in LDCs (Less Developed Countries) ex. World Bank, Regional Development Bank. Canada is a member, Cdn firms can bid on all projects. You will get paid.
Checking the Credit-Worthiness of Foreign Buyer (Due Diligence) Especially if sellling on open account (no LC), you should verify the credit-worthiness of the foreign buyer. Can be done using a Dunn & Bradstreet report, or local bank. You may also ask the Cdn embassy.
Dun & Bradstreet (D&B) Report A British company with offices all over the world. It has provided credit information for over 150 years, including their credit rating, history of payments, their banks, foreign clients.
Created by: rafi.sultani
 

 



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