Getting Paid

1
Getting Paid

• The Bankers Perspective

2
Getting Paid - The Bankers Perspective

• David Pearson
• International Development Director
• The Royal Bank of Scotland
• Midlands North Wales

3
Executive Summary

• The Risk Ladder in pre-contract negotiations
• The growth of Receivables Finance in overseas
  trade
• Protecting against exchange rate fluctuations
• Handy hints to make it easier for your customers
  to pay you

4
International Credentials

• RBS Group are the 6th largest Banking Group in
  the World and 2nd in Europe
• The RBS group spans banking, financial services,
  investment management and insurance in the UK,
  Europe, Asia and the US
• We have a presence in 140 countries through a
  network of 3000 partner and correspondent banks
• Team of 19 Trade Finance specialists operating
  across the Midlands
• RBS is committed to providing UK processing of UK
  customers international services
• UKs largest Asset Finance and Invoice Finance
  providers

5
Managing Risk - The Risk Ladder
High Risk
Open Account
Exporter
Documentary Colln
Letter of Credit
Cash in Advance
Low Risk
6
Managing Risk - The Risk Ladder
High Risk
Low Risk
Open Account
Exporter
Importer
Documentary Colln
Letter of Credit
Cash in Advance
Low Risk
High Risk
7
Payment in Advance

• Exporter receives payment and then ships goods
• May be practical requirement to manufacture
  before payment received
• May accept partial payment before shipment

8
Letter of Credit - Documentary Credit

• Exporter receives guarantee from overseas buyers
  bank that they will pay provided the exporter
  produces certain documents on time
• May be confirmed by UK Bank
• Normally irrevocable and can be transferable
• Onus is on exporter to comply with terms of
  Credit
• Subject to Uniform Customs Practice

9
Documentary Collection

• Documents are controlled via the Banking system
  but it is not a guarantee of payment for the
  Exporter
• Exporter retains the Buyer and Country Risk
• Governed by Uniform Rules for Collections

10
Open Account

• Totally reliant on trust as is the case with most
  domestic sales
• Cheap and hassle free
• Potential language difficulties
• Debtors can be insured
• Invoice Finance / Factoring can mitigate the
  risks
• Credit Insurance - may not protect against
  refusal to pay

11
Debtor Finance - What is it?

• Provides services linked to the clients sales
  ledger
• Funding up to 90 against the value of the
  invoice as soon as it is raised, with easy access
  to the invoice finance facility via software.
• Collections (if required), using a dedicated
  in-house team, including the use of multi-lingual
  credit controllers to help collect overseas debts
• Protection through Bad Debt Protection service,
  available for both domestic and overseas debtors

12
Debtor Finance - Who uses it?

• In excess of 10Billion funds advanced in the UK
• In 10 years this has grown over 400
• Over 40,000 businesses
• 88 of funding is to companies with 1m T/O or
  more
• Export factoring has grown 20 in last year
• Export Invoice Discounting has grown 37 in last
  year
• 22 increase in number of companies funding
  export via invoice finance

13
ExportFactors Chain International Option

• FCI is a global network of leading factoring
  companies, whose common aim is to facilitate
  international trade through factoring and related
  financial services.
• FCI's mission is to become the worldwide standard
  for international factoring.
• FCI helps its members achieve competitive
  advantage in international trade finance services
  through
• A global network of first-class factoring
  companies
• Modern and effective communication systems, to
  enable them to conduct their businesses in a
  cost-efficient way
• A reliable legal framework to protect exporters
  and importers
• Standard procedures, aimed at maintaining a
  universal quality
• A package of training programs
• Worldwide promotion aimed at positioning
  international factoring as the preferred method
  of trade finance

14
FACTORS CHAIN INTERNATIONAL
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
15
Managing Currency Risk

• Economic, Translation Transactional
  exposure
• Essential to take action if you have fixed sales
  prices
• A worked example
• Buy and manufacture in UK
• Sell to US in USD at 40 GP margin - sales of say
  100k
• Aug 05 57,471 income (GBP/USD 1.74)
• Sep 05 ??,??? income

16
Managing Currency Risk

• Economic, Translation Transactional
  exposure
• Essential to take action if you have fixed sales
  prices
• A worked example
• Buy and manufacture in UK
• Sell to US in USD - sales of say 100k
• Aug 05 57,471 income (GBP/USD 1.74)
• Hurricane Katrina hits
• Sep 05 54,274 income (GBP/USD 1.84)
• 10 cents drop in value of US 3197 6 drop
  in income

17
Managing Currency Risk - the options

• Invoice in Sterling - competitive?
• Do nothing - high risk
• Sell at Spot and create an overdraft on a
  currency account
• Fixed Forward Contracts
• Option Forward Contracts
• Structured deals for higher amounts and more
  complex transactions eg Vanilla Options
• Best form is Self-Hedging

18
Making it easier for your customers to pay you

• Quote your IBAN (International Bank Account
  Number) and Swift BIC (Bank Identifier Code) on
  all invoices (NB - NOT your usual account number
  and sorting code)
• GB99 RBOS 1234 5612 3456 78
• RBOSGB2L
• Sticky Labels!
• Consider opening accounts overseas - access to
  local clearing systems