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Who should attend Credit Risks and Risk Mitigation Techniques: 2-Day In-person Seminar
Credit and collection managers, Purchasing managers, Business owners, CFOs and company treasurers, Treasury managers, Accountants, Bankers, Lending professionals, Insurance professionals
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Seminar Summary:

Review the categories of credit risk incurred when selling to customers inside the U.S. and the additional risks involved when selling overseas and then learn how various tools are designed to manage these risks. (see full course description)

 
 
 

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Training Course Syllabus:


Credit Risks and Risk Mitigation Techniques: 2-Day In-person Seminar

Course Description:

Review the categories of credit risk incurred when selling to customers inside the U.S. and the additional risks involved when selling overseas and then learn how various tools are designed to manage these risks.

The first day´s session compares commercial and standby letters of credit, standard and silent letter of credit confirmations, bank and corporate guarantees, forfaiting, factoring, credit insurance, credit derivatives, and foreign exchange contracts from the perspective of what risks each one covers. Participants learn to identify risks and the appropriate tools for managing those risks.

On the second day, participants will get into the reality of how letters of credit work with an emphasis on making them work properly. Participants will be walked through the steps in the life of a letter of credit, and instructed in identifying pitfalls along the way. The fundamental principles will be reviewed and illustrated using real-life examples. Presenter will explain how these principles apply to both export and standby letters of credit and how these 2 types differ. In particular, participants will learn how to get paid faster under their letters of credit and why letters of credit might not get paid at all.

Later on the second day, participants will get a handle on how to use credit insurance by analyzing real-life case studies. This session will explore recent innovations in types of coverage available, including "key-account" and single-buyer insurance, differences between "named-buyer" ("European-style") and "excess-of-loss" ("American-style") policies, and the relative merits of policies with cancelable limits and those with non-cancelable limits. In particular, the presenter will review situations where credit insurance was used by companies with four varied objectives: risk containment, improved credit decisioning, sales expansion, and increased financing.

Learning Objectives:
Identify payment risks in international commercial transactions
Understand the risks that are and are not covered by various risk mitigation techniques
Match risk mitigation techniques with risks inherent to transactions exporters face
Craft an international credit policy suitable to a company´s risk appetite and competitive position
Understand how banks determine whether or not to pay their letters of credit
Avoid discrepancies in letter of credit documents
Understand the circumstances under which bankruptcy of a customer can prevent payment of their letters of credit as preferential payment
Negotiate for wording that provides both solid protection and quick payment


Areas Covered:
Export Credit Risks: Political, Economic, Commercial, FX
The Spectrum of Credit/Payment Terms: Cash in Advance to Installment Payments
Comparing Export Credit Risk Protection Mechanisms
Independent/demand guarantees
Accessory/contract guarantees
Sight drafts, “documents against payment”
Avalized drafts and forfaiting
Factoring
Non-recourse sale of receivables
Credit insurance
Credit derivatives
FX forwards & options
Mechanics and principles of letters of credit
Confirmed letters of credit
Standby vs. commercial letters of credit
Rules & regulations governing letters of credit (UCP600, ISP98, etc.)
How to use “usance” letters of credit
“Silent confirmation”
Things that can go wrong and how to avoid them

Course Outline:
DAY ONE (8:30 AM – 4:30 PM)

Registration Process: 8:30 AM – 9:00 AM

Session Start Time: 9:00 AM

The perils of cross-border sales
What might go wrong
Commercial risks (default, bankruptcy, contract repudiation, abusive drawing of bid & performance bonds, etc.)
Political risks (coups, war, government regulations on foreign payments, etc.)
Transfer/economic risks
foreign exchange rate fluctuation risks (direct and indirect risks)
When it might go wrong: pre-shipment vs. post-shipment impact
Impact of exporting on DSO, A/Rs, cash flow
The spectrum of credit/payment terms
Extended terms, installment notes
Open account, clean drafts
Time draft (D/A)
Consignment/retention of title
Sight draft (D/P, C.A.D.)
Cash against goods, C.O.D.
Advised letter of credit: sight & time
Confirmed letter of credit
Cash in advance
Considerations
Competition
Industry practice
Country practice
Custom-made vs. off-the-shelf products
Freight costs
Profit margin
Amount and frequency of shipments (high credit)
Cash flow
Risk protection mechanisms (& gaps)
Letter-of-credit-related techniques
Unconfirmed L/C
Confirmed L/C
“Silent L/C confirmation”
Assignment of L/C proceeds
Transferable L/C
Standby L/C
Guarantees (and how they differ from standby L/Cs)
Independent/demand guarantee
Accessory/contract guarantees
Documentary-draft-collection-related techniques
Sight draft, “documents against payment”
Avalized drafts and forfaiting
Protection for open account sales
Factoring
Non-recourse sale of receivables
Credit insurance
Credit derivatives
Protection from foreign exchange fluctuations: FX forwards & options
Credit Policy Matrix Exercise
An Extended Look at Standbys
Using standbys in export transactions
Credit line back-up (instead of commercial L/Cs)
Bid bonds (exporter is applicant)
Performance bonds (exporter is applicant)
Advance payment bonds (exporter is applicant)
Using standbys to arrange local guarantees
ISP vs. UCP
Standby loopholes
Court injunctions
Bankruptcy
Of the issuing bank
Of the applicant (preferential payments)
abusive drawings
Tips, tricks, & facts regarding standbys
Risk Management Case Studies

DAY TWO (8:30 AM – 4:30 PM)

Choosing Credit/Payment Terms
The perils of cross-border sales
What might go wrong
Commercial risks (default, bankruptcy, contract repudiation, abusive drawing of bid & performance bonds, etc.)
Political risks (coups, war, government regulations on foreign payments, etc.)
Transfer/economic risks
Foreign exchange rate fluctuation risks (direct and indirect risks)
When it might go wrong: pre-shipment vs. post-shipment impact
Impact of exporting on DSO, A/Rs, cash flow
The spectrum of credit/payment terms
Extended terms, installment notes
Open account, clean drafts
Time draft (D/A)
Consignment/retention of title
Sight draft (D/P, C.A.D.)
Cash against goods, C.O.D.
Advised letter of credit: sight & time
Confirmed letter of credit
Cash in advance
Basic Mechanics and Principles of Letters of Credit
Structure and flow
3 parties: applicant, beneficiary, issuing bank
3 contracts: contract of sale, L/C application, L/C
Principles
Independent
Documentary
Risk mitigation
Commercial risks: bankruptcy, slow payment, contract repudiation, contract dispute
Documentation risk remains
Confirmed Letters of Credit
Adding a 4th party to the structure
Rights of a confirming bank
Confirming bank must be authorized to confirm
Additional risk mitigation
Political risks
Transfer risks
FX risks (direct & indirect)
Documentation risk still remains
Problems with confirming banks
The confirming bank is chosen by the issuing bank
The confirming bank has a monopoly position (a/k/a a license to steal)
The confirming bank may be an affiliate of the issuing bank
The confirming bank can be enjoined from making payment
International Letters of Credit
Adding an advising bank
Role of the advising bank
Responsibilities of the advising bank
Adding a nominated bank
How letters of credit are available
Rights of a negotiating bank
L/C must call for drafts
L/C must be available by negotiation
L/C must be available with negotiating bank
Negotiation with recourse
Only available from a relationship bank
Similar to depositing a check with recourse
Speed up cash flow
Centralize international banking needs with one bank
The value of receiving “freely available” letters of credit
Discrepancy identification and resolution
Adding a reimbursing bank
Dissecting a Typical L/C in the SWIFT Format
Managing Your Export Letters of Credit
Benefits of centralizing collection of letter of credit payments
Fees based on volume
One-stop information
Consistency
Responsiveness, communication, service
Expedited funds availability
shipper´s indemnities
How to centralize
Stop asking for confirmed L/Cs
Stop asking for L/Cs to come through a particular bank
Start asking for freely available L/Cs
Replacing confirmation
Reasons for having L/Cs confirmed
How confirming banks get chosen
What the exporter wants vs. what the exporter often gets (i.e. “the shaft”)
Advantages (and disadvantages) of “silent confirmation”
“Elective confirmation”
Using a document preparation service
Usance Letters of Credit
L/Cs with time drafts vs. deferred payment L/Cs
Significance of whom drafts are drawn on
Obligations of the drawee
Fixing maturity
Discounting accepted drafts
L/C re-financing vs. time drafts
Effect of “discount charges for buyer” clause
UCP Game (“Last Man Standing”)
Rules and Regulations to Be Aware Of
The Uniform Customs & Practice for Documentary Credits (“UCP”)
The Uniform Commercial Code, Article 5
International Standard Banking Practice for the Examination of Documents under Documentary Credits (“ISBP”)
The “eUCP” (rules for electronic presentation of documents)
The International Standby Practices (“ISP98”)
The Uniform Rules for Demand Guarantees
The International Commercial Terms (“Incoterms”)
Antiboycott regulations
Office of Foreign Assets Control (“OFAC”) sanctions
The USA PATRIOT Act and Anti-Money Laundering regulations
A Look at the UCP600
What the UCP is
Major changes from the UCP500
Selected articles
Examining L/C Documents (Common Discrepancies)
Quoting an L/C Sale (an L/C Instructions Form)
Bonus Topic (Time Permitting): Arranging Local Guarantees (How Counter-Guarantees Work)

Seminar Summary:

Review the categories of credit risk incurred when selling to customers inside the U.S. and the additional risks involved when selling overseas and then learn how various tools are designed to manage these risks. (see full course description)

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