Financing International Transactions and 12 Steps to Exporting Success

While researching material for the previous post on this forum about a publication produced by the Export-Import Bank of the United States (EXIM) that helps empower American small businesses to succeed in global markets, I discovered an infographic that presents three ways to finance international transactions:

Option 1: Traditional Transaction

Exporter sells to buyer and arranges for either cash-in-advance (the safe choice) or open account credit terms, which is an effective sales tool but one that carries some risk.

Option 2: Transaction with a Factor

The Factor buys invoices from the exporter at a fee and pays the exporter immediately. The foreign buyer is instructed to pay the Factor by the due date on the invoice.

• Step one: Exporter contracts with Factor
• Step two: Exporter ships to foreign buyer
• Step three: Factor pays exporter upon shipment
• Step four: Foreign buyer pays Factor for goods by invoice due date

Pros of this transaction include the elimination of risk of nonpayment by foreign buyer, payment to the exporter is fast, generally fewer than 10 days, and it maximizes cash flow. More costly than export credit insurance and generally applicable for sales with terms of fewer than 90 days are two of the key risks of transaction with a Factor.

Option 3: Export Credit Insurance

The exporter wins sale to foreign buyer by offering open account credit terms. The Exporter uses an Export Credit Insurance (ECI) policy to insure the receivables against nonpayment by the foreign buyer.

With ECI, receivables are covered up to 95% of the invoice amount. Costing pennies on the dollar, ECI is a more affordable. This post that I published in this forum provides a thorough overview of ECI.

Trade Finance Guide

Exporters may also find value in the Trade Finance Guide: A Quick Reference for U.S. Exporters, which is produced by the U.S. Department of Commerce's (DoC) International Trade Administration (ITA) that explains the basics of trade finance so that U.S. companies can evaluate appropriate financing options to ensure they get paid for their sales.

Export Solutions Guide

In addition, trade professionals at the U.S. Commercial Service, part of the ITA, produced the Export Solutions Guide: 12 Steps to Exporting Success, which was developed to assist American exporters create successful international sales strategies. The twelve steps include:

1. Learn How to Export
2. Research Foreign Markets
3. Network and Learn at Events
4. Find Buyers and Partners
5. Explore eCommerce Resources
6. Obtain Financing
7. Negotiate an Export Sale
8. Navigate Shipping and Logistics
9. Comply with U.S. and Foreign  Regulations Regulations
10. Perform Due Diligence
11. Protect Intellectual Property
12. Resolve Export Problems

Which resources do you find useful in financing international transactions or achieving exporting success?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Empowering American Small Businesses to Succeed in Global Markets

While I am proud of my three decades of doing business in all corners of the world, I always appreciate the opportunity to learn more about how to seize the opportunities and mitigate the risks of global business. Therefore, it was with great interest to learn about a document produced by the Export-Import Bank of the United States (EXIM), an independent government agency that assists in financing and facilitating U.S. exports of goods and services, that helps empower American small businesses to succeed in global markets.

The document begins with presenting the services provided by the U.S. Export Assistance Centers (USEACs) as one-stop shops that equip American businesses to compete on a global scale. Specifically, USEACs bring multiple exporting resources together in one convenient location. These centers are situated throughout the country to offer support directly to businesses currently exporting or thinking about exporting. USEAC offices are staffed with three of the federal agencies engaged in assisting export businesses: (1) the U.S. Department of Commerce (DoC), (2) the U.S. Small Business Administration (SBA), and (3) EXIM.

The DoC helps business owners learn how to export, connect with foreign buyers, and expand operations in new foreign markets. The SBA supports small businesses that are exporting or interested in learning more about exporting. Moreover, with the help of its partners, the SBA provides counseling and training, helps businesses find buyers with the State Trade Expansion Program, and has loan guarantee programs available specifically for exporters. One way that EXIM assists companies is by providing Export Credit Insurance. An Export Credit Insurance policy covers the accounts receivable generated by international sales, protecting your company against nonpayment by foreign buyers. The insurance policy mitigates risk while empowering companies to meet or beat their competitors. Business owners can use open account credit terms to win new customers and increase sales to existing buyers. Many posts on entrepreneurship in this forum provide additional details about some of the programs offered by these government agencies.

Addressing financing tools from EXIM, the document notes that running a small business comes with risks but getting paid does not need to be one of them. EXIM's Export Credit Insurance empowers business owners to grow sales while mitigating the risk of selling internationally. Using Export Credit Insurance empowers businesses to offer open account credit terms to compete more aggressively, protect their foreign receivables from nonpayment, expand their borrowing base and improve cash flow.

EXIM's Working Capital Loan Guarantee provides exporters with access to the cash needed to fulfill sales and take on new business abroad. Exporters can use a working capital loan to cover the costs of labor, materials, overhead, and supplies required to fulfill a foreign sale. A business can use their Working Capital to pay for materials, equipment, supplies, labor, and other expenses to fulfill export orders, post standby letters of credit serving as bid bonds, performance bonds, or payment guarantees, and purchase products for export.

The document correctly notes that "Locating new buyers overseas can be time consuming, expensive, and frustrating." It points out that the DoC is available to help by matching American exporters with foreign buyers. There are two programs that can businesses can utilize to grow their operations overseas:

DoC's Gold Key Matching Service arranges meetings with interested partners in international markets. The Gold Key team first identifies foreign buyers, assesses them, and provides profiles of the best matches. When it comes time for a meeting with a matching foreign company a member of the Gold Key team can accompany business owners and managers and provide support.

Through the Single Company Promotion, the DoC can organize a variety of promotional events to increase awareness of a company's products and services in a specific international market. These promotional events may include targeted email campaigns, seminars, webinars, direct mail campaigns, and receptions all designed to reach an audience of potential clients. The DoC handles all the logistics, project management, and provides a post-promotion review to discuss next steps.

While not mentioned in the document, it is worth mentioning Export.gov, which is managed by the DoC and International Trade Administration to assist businesses plan their international sales strategies and succeed in today's global marketplace.

Regarding the Small Business Administration, the SBA Learning Center gives businesses access to courses on all of these topics and more:

• Planning and strategy to develop an international business plan
• Legal and regulatory to help you navigate regulations and legal issues
• Documentation and product requirements
• Pricing development and strategy
• Marketing and social media 

The SBA also works with lenders to guarantee loans in support of international trade. These include the  Export Express Loan, the International Trade Loan, and the Export Working Capital Loan. The SBA also has a grant program called the State Trade Expansion Program (STEP) that provides funding to state and territory governments. These STEP funds are exclusively available to help small businesses with export development.

I possess extensive experience working with these three government agencies and can attest to the value each one provides for businesses looking to succeed in global markets. Feel free to contact me if I can be of service to you.

​Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Using Export Credit Insurance, Myths vs. Truths in Exporting, and Questions to Ask Yourself if You Have Yet to Get Paid by a Chinese Company

The previous post on this blog presents ten questions questions every U.S. exporter should ask according to the Export-Import Bank of the United States (EXIM), an independent government agency that assists in financing and facilitating U.S. exports of goods and services. The post references EXIM's Multi-Buyer Credit Insurance, which EXIM says "is a policy that protects an exporter's accounts receivable and has significant benefits. The protection of a policy equips businesses with the confidence necessary to enter new markets, increase sales in existing ones, and chart a path forward with margins they can depend on."

EXIM explains small businesses use credit insurance to:

• Extend credit terms to foreign customers.
• Insure against nonpayment by international buyers.
• Cover both commercial (e.g., bankruptcy) and political (e.g., war or the inconvertibility of currency) risks.
• Arrange financing through a lender by using insured receivables as additional collateral.

Benefits of EXIM's Small Business Multi-Buyer Credit Insurance include:

• Risk reduction: safeguard against catastrophic losses from buyer nonpayment. It covers up to 95 percent of sales invoices.
• Increased competitiveness: unlock the ability to offer buyers the credit terms necessary to expand into new markets and boost sales with existing customers with confidence. In turn, buyers do not need to pay cash in advance and hinder their cash flow.
• Improved liquidity: accelerate cash flow by borrowing against foreign receivables.
• Credit management expertise: ease the burden of credit risk management by leveraging EXIM’s international expertise.

EXIM then provides the following point to explain how its credit insurance works:

• Policies cover both commercial and political losses at 95 percent.
• There are no application fees or minimum premiums. A one-time, refundable advance deposit of $500 is required to issue the policy.
• Premiums are paid no later than 30 days after the month of shipment.

This video provides a brief explanation how EXIM's credit insurance works.

Exporting means undertaking a number of risks. Not all risks are the same, however, and there are myths some business owners may mistakenly believe, which may prevent them from creating an export plan for their business. To dispel these myths, EXIM created a document presenting six truths about exporting.

While each truth in EXIM's document is valuable, I appreciate that in responding to the myth, "I'm too small to go global," the agency explains: "Nearly 42% of all U.S. exporters have fewer than 19 employees."

While I generally agree that "With the right tools, selling internationally is routine" is an accurate truth to the myth of "Getting paid is cumbersome and I'll lose my shirt," not all international markets are the same. For example, Dan Harris with Harris Bricken, an international law firm, writes in a post published on the China Law Blog that "China has all sorts of rules that apply to foreign conversions and remittances." His post looks "at some basic due diligence that can identify or avoid defaults or delays in money transfers out of China."

If you have yet to receive payment, Mr. Harris presents the following eight questions you should ask yourself "before you rush to blame the Chinese company":

1. Do you have any idea what taxes should have been paid by the Chinese company and what taxes should be deducted from the remittance itself?
2. Was your contract exempt from the kind of prior registrations required by the tax authorities?
3. Do you even have an enforceable contract against the Chinese company in China?
4. Has an independent person gone down to the Chinese company's bank branch to confirm what their particular requirements and concerns are?
5. Did you withhold any deliverables until you received all or substantially all of the money out of China?
6. Did you ask the Chinese company to provide examples of previous successful foreign remittances?
7. Does the business license of the Chinese company allow for foreign trade and thereby indicate that foreign remittances would not be unusual in the ordinary course of business?
8. If you're dealing with a State Owned Entity (SOE), or a very large company of any kind, did you understand all of the internal approvals that company would require before a payment could be authorized and did you appreciate how long this might take?

Suggesting business owners need to take responsibility for their failure to understand the risks of doing business in China, including crafting strategies to mitigate those risks, Mr. Harris says: "If the answer to any one of these questions is 'no,' don't blame the Chinese company."

What recommendations do you have in protecting your company's accounts receivable when exporting to foreign markets? Do you agree with EXIM's truths to dispel exporting myths? If you are exporting to China, what advice do you have for getting paid?

UPDATE

A reader of this post sent me a message saying: "For more impartial information on export credit insurance (trade credit insurance), you may want to refer to The International Credit Insurance & Surety Association (ICISA), which published A Guide To Trade Credit Insurance, a practical and accessible industry-wide reference guide on trade credit insurance." The reader also recommends utilizing the resources provided by The International Union of Credit and Investment Insurers (Berne Union), an international not-for-profit trade association representing the global export credit and investment insurance industry.

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

10 Questions Every U.S. Exporter Should Ask

In a post previously published on this blog, I discuss strategies on how to choose an export market for your business. That post references how the Export-Import Bank of the United States (EXIM), an independent, self-sustaining Executive Branch agency with a mission of supporting American jobs by facilitating the export of U.S. goods and services, is one of a number of government agencies that produce useful resources for exporting businesses. One such document presents ten questions, segmented in three sections, every U.S. exporter should ask:

Consider the Basics

1. Am I maximizing my current export revenue?

2. Do I know my current market’s cultural factors and infrastructure limitations?

3. Am I currently reaching all of the markets I've targeted?

4. Do I know how to leverage conditions in this market to add new customers & increase sales with existing ones?

Examine Potential Global Markets

5. Have I located a complimentary market opportunity in a geographic region I am already serving?

6. Have I studied the competition in my targeted market?

7. Do I know how to penetrate this new market effectively and efficiently?

8. Do I have a partner or distributor to help me expand into this market?

Develop Trade Connections

9. Do I know what resources I need to succeed in growing my export base, and where I can acquire them?

10. Do I have a plan for financial obstacles that may arise while I am trying to grow my export sales?

To facilitate in responding to the checklist's initial four questions, the U.S. Small Business Administration (SBA) published the Export Business Planner For Your Small Business, which the SBA explains is an innovative tool "designed to serve as your roadmap for creating your Export Business Plan, exploring foreign markets, developing a Marketing Plan, exploring financing, costing your product, and more."

To help business owners answer the second group of questions on examining potential global markets, Country Commercial Guides prepared by International Trade Administration (ITA) trade professionals at U.S. embassies worldwide provide valuable information on a variety of topics such as market conditions, opportunities, regulations, and business customs for more than 70 major markets. Furthermore, the State Department Partner Posts produces Country Commercial Guides in over 60 markets.

Regarding the third group of questions on developing trade connections, EXIM's Multi-Buyer Credit Insurance is a policy that protects an exporter's accounts receivable and has significant benefits.

While these ten questions are intended for U.S. exporters, any business, irrespective of their home country, will also benefit from this list.

What resources do you recommend for creating an export plan?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Export 101: Choosing Your Export Market

The article below was originally published by The Center of Excellence for Global Trade & Supply Chain Management, a partnership with Highline College in Des Moines, Wash.

"The World is Flat" is not just the title of a book by Thomas Friedman, but it is a concept in conducting business in the 21st Century. Given today's ease of sharing information worldwide, it has become easier than ever to export to markets on the same continent or land thousands of miles away. However, the variety of markets that exist means not all countries provide ideal conditions for your product or service. A business must choose its export market(s) carefully by gathering relevant and accurate information, speaking with trade experts, and performing a country-level risk assessment.

Lots of Market Choices, Make an Informed Decision

There are approximately 196 countries in the world (depending how the word "country" is defined). From Afghanistan to Zimbabwe, each country possesses its own set of risks and opportunities. Developed markets like the United States, Canada, Japan, the United Kingdom or the euro area, the monetary union of 19 of the 28 European Union (EU) member states which have adopted the euro as their common currency and sole legal tender, offer stable conditions with low political and security risks, as well as a strong rule of law for enforcement of contracts and protection of intellectual property to safeguard your investment. While stable, these markets may lack the economic growth that allow for rising consumer or enterprise spending necessary for an exporter to implement a successful international growth strategy.

Emerging or developing markets in Asia, Latin America, Middle East and North Africa, and sub-Saharan Africa may offer a rapidly growing middle class who will purchase your products or services, but also present significant geopolitical and socioeconomic risks. Selecting the right export market involves doing your homework about the specific nuances involved with exporting, learning about the country's political and economic environment, trade regulations and understanding risks associated with each market.

Successful business leaders often say that you worry less about making good decisions if you make informed decisions. And making informed decisions about your business strategy often involves performing a significant amount of research. Choosing the wrong export market for your business is easy when you do not perform the proper due diligence. Identifying the right resources to learn about the nuances of exporting is the first step to developing a viable international growth strategy.

Export.gov Can Get You Started

Export.gov is managed by the U.S. Department of Commerce and International Trade Administration to assist U.S. businesses plan their international sales strategies and succeed in today's global marketplace. The "How to Export" page contains a video collection to help small businesses become better equipped to enter the exciting exporting world. And the report, "A Basic Guide to Exporting," provides an overview of the fundamentals in exporting, designed for small to medium-sized companies who are considering finding new market segments overseas.

Through Export.gov, the Top Market Series contains reports prepared by economists and trade experts who analyze and rank industry opportunities in key overseas markets. Export.gov also provides export information by industry, which is updated regularly by commercial specialists around the world.

Exporters Utilize Country Commercial Guides

Country Commercial Guides, prepared by trade and industry experts at U.S. embassies worldwide, contain information regarding market conditions, opportunities, regulations, and business customs for over 125 countries. These guides are an excellent starting point to find everything you need to know about doing business in an overseas market, detailing eight important factors to help you decide if a market is right for your product or service:

1. Doing Business in …: Provides a broad overview of the market and the top reasons why U.S. companies should consider exporting here. Recommends strategies for entering the market and summarizes challenges or barriers for U.S. companies;
2. Political and Economic Environment: Links to the State Department's website for background information on the country's political environment, its bilateral relationship with the U.S. and the country's membership in international organizations;
3. Selling U.S. Products and Services: Provides guidance and best practices for selling U.S. products and services in the market, includes typical use of agents and selling to the government. Provides steps for establishing an office or joint-venture/licensing partner, and conducting due diligence. Discusses the state of e-commerce, franchising, and direct marketing;
4. Leading Sectors for U.S. Exports and Investment: Identifies the top industry sectors that have potential in the market. Provides a general overview of each sector, including trade data, challenges, sub-sector best prospects, and a list of relevant websites and trade shows;
5. Trade Regulations, Customs and Standards: Describes trade regulations, customs and standards in the market. Provides information on import tariffs and documentation U.S firms should be aware of when exporting, including any prohibited items or temporary entry procedures;
6. Investment Climate Statement: Describes the country's openness to foreign investments and provides information on the country's investment policies, the labor market, political violence and levels of corruption. Describes foreign trade zones and laws for protecting property rights;
7. Trade and Project Financing: Describes the country's financial system and how U.S. firms typically get paid. Describes the banking system and provides information on foreign exchange controls in the market. Describes important sources of funding for project financing; and
8. Business Travel: Describes relevant business travel information and business customs, includes any special visa or entry requirements, potential health risks, travel advisories and information on travelling around the country.

Trade Events, Webinars and Experts

In addition to the aforementioned reports and online resources, Export.gov provides access to information on global trade events and webinars. These include seminars and workshops on export licensing and regulations, and the U.S. Department of State's Direct Line Program that connects you with over 270 embassies and consulates who provide market overviews as well as sector-specific commercial opportunities.

Beyond the valuable resources provided by Export.gov, the U.S. Commercial Service is the lead trade promotion agency of the U.S. government. U.S. Commercial Service trade professionals in over 100 U.S. cities and more than 75 countries help U.S. companies get started in exporting or increase sales to new global markets.

Chambers of Commerce and Export-Import Bank

Under the auspices of the U.S. Chamber of Commerce, the American Chamber of Commerce (AmCham) may be found in many countries worldwide (e.g., AmCham Cameroon, AmCham Canada, AmCham China or AmCham Colombia). This link leads to the American Chamber of Commerce Directory. While the U.S. Chamber of Commerce and American Chamber of Commerce groups located worldwide are membership organizations where dues are required to join, many make their reports or events available to the general public.

The Export-Import Bank of the United States (EXIM), an independent, self-sustaining Executive Branch agency with a mission of supporting American jobs by facilitating the export of U.S. goods and services, is a useful source of information. Specifically, EXIM's "Learning Resources" page contains articles, white papers, and publications focused on exporting globally. It should be noted that EXIM provides valuable services for exporting businesses including working capital loan guarantee, export credit insurance, project and structured financing, transportation financing, and financing for foreign buyers.

How to Analyze Risks in a Market

Once you have identified which of a short list of countries that may be suitable for your business to export to, your next step is to perform some due diligence on the risks that exist in each country. (Businesses should be in the practice of identifying, evaluating, and mitigating risks.) The Economist Intelligence Unit (The EIU), which provides country, risk and industry analysis, across 200 countries worldwide, is a resource many business owners find valuable when it comes to gathering information on a variety of geopolitical or socioeconomic issues. When considering which country your business should expand to, The EIU recommends asking the following questions:

1. Security: How safe is the physical environment?
2. Political Stability: How stable are political institutions?
3. Government Effectiveness: Does political culture foster strong business environment?
4. Legal and Regulatory: Will the legal system safeguard investment?
5. Macroeconomic Risks: Is the economy stable and predictable?
6. Foreign Trade and Payments: How easy is it to get inputs/money in and out?
7. Financial Risks: How healthy is the local financial system?
8. Tax Policy: Are taxes low, predictable and transparent?
9. Labor Market: Could labor market factors disrupt operations?
10. Local Infrastructure: Will infrastructure deficiencies negatively affect operations?

Given today's globalized economy, there are many options to choose when it comes to developing your company's export strategy. However, not all markets are the same and it is important to investigate the pros and cons of each market you are considering. By doing your homework and asking the right questions, you should be able to make the right decision on choosing the best market to export your product or service. Now you need just one more important item for business success: Luck!! And I wish you plenty of it.

About the Author

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He serves as Founder, President and CEO of ROI3, Inc., a Seattle, Wash.-based company whose mission is to empower people in emerging economies through innovative, technology-based solutions. He also co-founded Yeeko Inc., a digital media platform that produces content on culture and literature for Chinese readers worldwide. Most recently, Aaron co-founded CareerLight, LLC, a company that provides customized career training for international students to help them prepare for a successful career. As a business advisor, he provides expertise to Fortune 500 and small businesses alike on global strategic planning and business development, international growth management, and knowledge management. In the public sector, Aaron advises governments to promote comparative national advantages to attract foreign direct investment to stimulate private sector development.