Doing business globally adds complexity to your business. Every country has its own market conditions, cultural traits, government regulations and business conventions. Is the complexity worth it? Use the best resources available and the most knowledgeable partners to find the answer to that question.
Tap into government resources
Take advantage of third-party resources including governmental agencies and industry sources experienced in your industry. These partners can often get you the intelligence you need about markets, customers, suppliers and costs to move into the global economy.
- U.S. Commercial Service has 85 international offices pursuing trade promotion. It also has a U.S. Export Assistance Center (www.export.gov) that can provide a host of services to help you target and select the best markets and customers including:
- Market research and due diligence to help you target the most promising countries for your product or service and to evaluate potential business partners.
- An international partner search that targets, qualifies, contacts and even introduces your organization to prospective international customers.
- The Farm Service Agency of the U.S. Department of Agriculture (USDA) can help with agriculture-based export and provide resources like the Commodity Credit Corporation (CCC) to support farmers (www.fsa.usda.gov).
- Overseas Private Investment Corporation (OPIC), a federal agency that provides political risk insurance, all-risk guarantees and direct loans for U.S. investment projects in developing nations and emerging markets (www.opic.gov).
- The Export-Import Bank of the United States (Ex-Im Bank), an independent U.S. government agency, facilitates the export of U.S. goods and services by supplying loans, guarantees and insurance programs that reduce commercial and political risks (www.exim.gov).
Practical financial tools
Businesses use a set of risk management tools to balance their ability to compete globally with their need to protect profits and maximize working capital:
Export financing programs
- Ex-Im Bank, as discussed above, offers financing for U.S. businesses and their customers in foreign markets where the private sector is not readily willing or able to provide financing. Since 2016, the Bank has been operating at a reduced level as it Board of Directors resolves disagreements over the organization’s direction.
- Small Business Administration (SBA) helps small businesses that might otherwise not be able to obtain trade financing. With loans provided through banks like SunTrust, the SBA's Export Working Capital Program provides up to 90 percent-guaranteed loans with working capital for export orders, export receivables or letters of credit (www.sba.gov).
Strategies for mitigating payment risk Payment risk is generally greater in global transactions. Mitigating that risk starts by understanding typical global payment schemes and financial tools to support them:
- Unprotected trade—open account trade transactions are the most basic payments that make up many global trade payments. These payments have no financial protection and are right for buyers and sellers who have a high degree of trust and a track record of work together. The buyer simply pays for the merchandise upon receipt. This payment method favors the buyer as the exporter bears the cost of the merchandise during shipping and the risk of any delay in payment.
- Clean payment in advance is an arrangement where the buyer importer pays for the merchandise before it is shipped. This protects the exporter against virtually all risks, but it exposes the buyer to the risk that merchandise might not be shipped on time, in good order, or at all.
- Documentary collection is a process where the exporter presents a draft or bill of exchange to its bank, along with the shipping documentation. The exporter’s bank forwards the draft and documentation to the buyer's bank. To receive documentation for the merchandise, the buyer must make a payment or provide assurance of payment at a specified future date. The documents are released to the buyer, who can take possession of the merchandise. This arrangement gives more protection to the exporter than an open account and exposes the buyer to less risk than a clean payment in advance.
- Letters of credit are universally-accepted forms of payment which commit a bank to honor drafts and documents that are presented in conformance with stated terms and conditions. The bank substitutes its creditworthiness and reputation for the buyer’s. The bank is obliged to pay the exporter if the stipulated documents are presented within a prescribed period. This gives the exporter an added degree of security versus the documentary collection method. While a letter of credit can’t fully protect the buyer or exporter against the risk of fraud, it provides important benefits to both the buyer and exporter. The buyer doesn’t need to pay until the shipment documents are presented. Meanwhile, the exporter doesn’t worry about the buyer's financial situation and controls the merchandise until payment is made or the documents are accepted for payment.
- Export credit insurance protects the exporter against the risk of nonpayment by its overseas buyer. It gives the exporter protection against payment default by providing conditional assurance that the insurance policy will make payment if the foreign buyer is unable to pay. This important risk mitigation tool allows the exporter to offer the buyer competitive open account terms. Export credit insurance is provided through both Ex-Im Bank and a variety of private sector providers, and once an exporter’s foreign accounts receivable is insured, many lenders will allow it to be used as collateral for export financing purposes.
International treasury solutions
- International wire transfers are one of the safest and quickest ways to send money overseas. Online access allows for management and execution of global financial transactions and large volumes of wire transfer requests across many continents
- International Automated Clearing House (ACH) payments offer a secure and low-cost solution for sending payments internationally.
- Multi-currency reporting services combine foreign currency payables and receivables into a single overseas account, providing streamlined international transaction monitoring capabilities. Multi-bank reporting services can aggregate account balance and transaction information for accounts held at various financial institutions around the world.
The roadmap to a prosperous global trade initiative
As you consider exporting, use all the resources at your disposal, such as national, state and local-level programs. Work with experts in global trade, including attorneys, freight forwarders, customs brokers and international trade insurance specialists. Use your SunTrust financial partners to find and develop the most suitable solutions to mitigate risk and increase profit. Find and work with partners who can simplify the complexity of global business and accelerate your progress by bringing years of trade experience and local market knowledge to your management team.