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400
Financing and Insurance
| Question | Answer |
|---|---|
| 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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