MONEY MAT­TERS

OUR GUIDE TO EX­PORT FI­NANCE.

Exporter - - FRONT PAGE - By Glenn Baker.

Ex­port­ing is a risky busi­ness. Aside from the risk of goods not ar­riv­ing on time, or dam­aged, there is the ma­jor risk of not get­ting paid and the is­sue of fi­nanc­ing your ex­port ini­tia­tives to be­gin with.

It's dif­fi­cult to know where to start, but con­sid­er­ing its in­creas­ing im­por­tance in the ex­port fi­nance sec­tor, we thought we'd cover trade credit in­sur­ance first.

Martin Jones, coun­try man­ager, New Zealand for Atra­dius Credit In­sur­ance N.V. be­lieves it's sig­nif­i­cant that more banks are ask­ing bor­row­ers to turn to credit in­sur­ance as a se­cu­rity net to pro­tect against bad debt.

He says in 2016, they've seen a spike in no­tices of non-pay­ment from their pol­i­cy­hold­ers and an in­crease in ac­tual claims be­ing lodged.

“These re­late in part to buy­ers in the Mid­dle East, China and South Amer­ica. There is also some tur­moil in Europe over the refugee sit­u­a­tion, ex­ac­er­bated by other po­lit­i­cal is­sues.”

New Zealand firms must re­main vig­i­lant on what's oc­cur­ring over­seas and scru­ti­nise large new or­ders from trou­bled coun­tries, he ad­vises. “Also be wary when re­ceiv­ing un­ex­pected or­ders from hith­erto un­known cus­tomers or cus­tomers who would tra­di­tion­ally buy from other global sup­pli­ers.”

Jones says Atra­dius has re­cently en­hanced its ser­vices by in­creas­ing its on­line sup­ply of data.

“This helps clients man­age their poli­cies more ef­fi­ciently and pro­vides bet­ter in­sight into the cred­it­wor­thi­ness of cur­rent buy­ers and po­ten­tial buy­ers. The re­port­ing is in suf­fi­cient de­tail to pro­vide Boards with mon­i­tor­ing re­ports show­ing the ex­tent of their cur­rent credit risks.”

Not all mar­kets are equal when it comes to fa­cil­i­tat­ing credit in­sur­ance.

“Sev­eral Asian coun­tries and, in­deed, some South Amer­i­can ones don't make it easy for for­eign in­sur­ers to set up credit

“The credit in­surer acts as an in­de­pen­dent as­ses­sor of a buyer’s fi­nan­cial strength so it can alert a pol­i­cy­holder to a buyer be­ing po­ten­tially a bad payer.”

in­sur­ance op­er­a­tions there,” ex­plains Jones. “The pre­vail­ing gov­ern­ments be­lieve that by so do­ing they are pro­tect­ing lo­cal nascent in­sur­ers, al­low­ing them lo­cal par­tic­i­pa­tion in in­ter­na­tional trade cover.

“To this end the gov­ern­ments set pa­ram­e­ters on any for­eign in­sur­ance co­op­er­a­tion agree­ments and rein­sur­ance treaties. In many cases the re­stric­tions are coun­ter­pro­duc­tive be­cause there is in­suf­fi­cient ex­per­tise among their lo­cal in­sur­ance op­er­a­tives to be able to han­dle the com­plex­i­ties of credit in­sur­ance ad­min­is­tra­tion.”

Jones of­fers the fol­low­ing do's and don'ts on trade credit in­sur­ance: • keep an open mind about the ben­e­fits that credit in­sur­ance can bring to the busi­ness. Try not to use cost alone as the rea­son not to in­sure, or use cost alone when se­lect­ing which com­pany to credit in­sure with.

adopt a re­al­is­tic ap­proach to debtor risk. A good payer in the past may not al­ways pay well in the fu­ture, es­pe­cially if it is lo­cated in one of the world's trou­bled coun­tries.

try to as­cer­tain who your buy­ers' cus­tomers are; a down­stream pay­ment fail­ure can of­ten im­pact on the buyer's abil­ity to pay you.

be alert to the chang­ing po­lit­i­cal and eco­nomic en­vi­ron­ment in your buyer's coun­try, es­pe­cially if they im­pact on the trade flow in and out of that coun­try – for ex­am­ple, im­port re­stric­tions, for­eign cur­rency short­ages or de­val­u­a­tions, em­bar­gos, etc. • In dif­fi­cult trad­ing en­vi­ron­ments con­sider in­tro­duc­ing risk mit­i­ga­tion fac­tors such as tighter pay­ment terms, se­cu­ri­ti­sa­tion and credit in­sur­ance as a way to pro­tect your cash­flow.

as­sume that be­cause you know your buy­ers well (even so­cially) they will never fail you.

ig­nore the pos­si­bil­ity that there could be another re­ces­sion around the cor­ner, a po­lit­i­cal coup, a once re­li­able buyer fail­ing in busi­ness, or a nat­u­ral dis­as­ter.

think be­cause you fac­tor your debts that you're pro­tected from all non-pay­ment risk. A non-pay­ment of a fac­tored debt can still re­bound on you. • • • • • •

Jones says Atra­dius of­ten re­ceives tes­ti­mony from cus­tomers who re­port that their ‘prompt and ready' claim pay­ment process has re­stored their cash­flows or saved their busi­ness from go­ing in­sol­vent. “The credit in­surer acts as an in­de­pen­dent as­ses­sor of a buyer's fi­nan­cial strength so it can alert a pol­i­cy­holder to a buyer be­ing po­ten­tially a bad payer. This has fre­quently pro­tected a pol­i­cy­holder from sus­tain­ing a loss,” he says.

“Atra­dius has nu­mer­ous cus­tomers who ap­ply a house rule of not re­leas­ing ship­ments un­less an in­sur­ance credit limit on the buyer is in place,” adds Jones.

“Also, banks of­ten re­quest their cus­tomers to take out a pol­icy as it en­hances the fi­nanc­ing pack­age and makes them more will­ing to lend.”

More pearls of wis­dom

Greg Fitzsi­mons is another in­dus­try vet­eran with an in-depth un­der­stand­ing of trade fi­nance. Prior to es­tab­lish­ing Ex­port Fi­nance Ltd (EFL) in 2009 he was at ABN Amro Bank for eight years work­ing in as­set based and struc­tured trade fi­nance. There he un­der­took ma­jor pro­ject fi­nanc­ing trans­ac­tions with NZECO (see side­box) as well as fi­nanc­ing the im­por­ta­tion of big ticket cap­i­tal goods.

“At EFL our fo­cus is on emerg­ing ex­porters with bal­ance sheet con­straints pre­vent­ing them from tak­ing ad­van­tage of growth op­por­tu­ni­ties. We work with the ex­porter to pre­pare ap­pli­ca­tions to their banks for in­creased work­ing cap­i­tal through pro­vi­sion of trade fi­nance fa­cil­i­ties sup­ported by trade credit in­sur­ance, in­clud­ing NZECO,” he ex­plains.

EFL is fo­cused on the ex­porter's cus­tomers, says Fitzsi­mons, and how it can make the cus­tomer's bal­ance sheet work for the ex­porter. “We ap­ply to banks for in­creased trade fi­nance fa­cil­i­ties util­is­ing trade credit in­sur­ance, and this work can in­clude fi­nan­cial mod­el­ling and prepa­ra­tion of the busi­ness plan.

“We man­age the trade credit in­surer re­la­tion­ship, and we have pro­vided tem­po­rary pre-ship­ment fi­nance fa­cil­i­ties to New Zealand ex­porters pend­ing ap­proval from the ex­porter's bank.”

His ad­vice for ex­porters is to get to know your bank's trade fi­nance rep and un­der­stand what they can do for you. “Learn as much as you can about your cus­tomers. Who are you ac­tu­ally deal­ing with? What is their fi­nan­cial po­si­tion? NZTE can be very help­ful through their in-mar­ket pres­ence.”

Deal­ing with unau­tho­rised agents, is al­ways a po­ten­tial trap, he says. “Take time to make the right con­nec­tions.”

It's true things can go aw­fully wrong on the fi­nance front with­out proper plan­ning. Not be­ing care­ful with in­voic­ing to cor­rect coun­ter­par­ties as per con­tracts (leav­ing the ex­porter un­able to make a claim in court or to an in­surer) is one ex­am­ple.

How­ever, there are many great ex­am­ples of sound ex­port fi­nance plan­ning too. Gain­ing trade credit sup­port for ex­port cus­tomers in In­dia, al­low­ing EFL's Kiwi ex­porter client to utilise its bank trade fi­nance fa­cil­ity to make in­creased sales by meet­ing In­dian mar­ket pay­ment terms, is one ex­am­ple pro­vided by Fitzsi­mons.

When it comes to New Zealand's trade fi­nance mar­ket­place, he be­lieves many ex­porters don't realise how much sup­port banks are ca­pa­ble of pro­vid­ing and how lit­tle trade credit in­sur­ance costs. “And how, when com­bined with a well pre­pared ap­pli­ca­tion, that bank sup­port can be ac­cessed. Banks gen­er­ally want to help but they can't write the ex­porter's ap­pli­ca­tion for them,” says Fitzsi­mons.

Martin Jones

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