TOOLS FOR CREDIT RISK MITIGATION SEMINAR

 

Buddy Baker

+1-847-830-3038

buddy.baker@gtrisk.com


I.    The perils of selling on credit terms

    A.    What might go wrong

    1.    commercial risks (default, bankruptcy, contract repudiation, abusive drawing of bid & performance bonds, etc.)

    2.    political risks (coups, war, government regulations on foreign payments, etc.)

    3.    transfer/economic risks

    4.    foreign exchange rate fluctuation risks (direct and indirect risks)

    B.    When it might go wrong: pre-shipment vs. post-shipment impact

    C.    Impact of exporting on DSO, A/Rs, cash flow

II.  The spectrum of credit/payment terms

    A.    Extended terms, installment notes

    B.    Open account, clean drafts

    C.    Time draft (D/A)

    D.    Consignment/retention of title

    E.    Sight draft (D/P, C.A.D.)

    F.    Cash against goods, C.O.D.

    G.    Advised letter of credit:  sight & time

    H.    Confirmed letter of credit

    I.      Cash in advance

III. Considerations

    A.    Competition

    B.    Industry practice

    C.    Country practice

    D.    Custom-made vs. off-the-shelf products

    E.    Freight costs

    F.    Profit margin

    G.    Amount and frequency of shipments (high credit)

    H.    Cash flow

IV. Risk protection mechanisms (& gaps)

    A.    Letter-of-credit-related techniques

    1.    unconfirmed L/C

    2.    confirmed L/C

    3.    “silent L/C confirmation”

    4.    assignment of L/C proceeds

    5.    transferable L/C

    6.    standby L/C

    B.    Guarantees (and how they differ from standby L/Cs)

    1.    independent/demand guarantee

    2.    accessory/contract guarantees

    C.    Documentary-draft-collection-related techniques

    1.    sight draft, “documents against payment”

    2.    avalized drafts and forfaiting

    D.    Protection for open account sales

    1.    factoring

    2.    non-recourse sale of receivables

    3.    credit insurance

    4.    credit derivatives

    E.    Protection from foreign exchange fluctuations: FX forwards & options

  1. V.  Credit Policy Matrix Exercise

  2. VI. An Extended Look at Standbys

    A.    Using standbys when selling goods

    1.    credit line back-up (instead of commercial L/Cs)

    2.    bid bonds (seller is applicant)

    3.    performance bonds (seller is applicant)

    4.    advance payment bonds (seller is applicant)

    B.    Using standbys to arrange local guarantees in other countries

    C.    ISP vs. UCP

    D.    Standby loopholes

    1.    court injunctions

    2.    bankruptcy

            a)    of the issuing bank

            b)    of the applicant (preferential payments)

    3.    abusive drawings

    E.    Tips, tricks, & facts regarding standbys

  1. VII. Risk Management Case Studies