By Drew Felling, MADEC Chair
The Department of Commerce is currently seeking nominations of individuals for consideration for appointment by the Secretary of Commerce to serve as members of one of the 61 District Export Councils (DECs) nationwide. DECs are closely affiliated with the U.S. Export Assistance Centers (USEACs) of the U.S. and Foreign Commercial Service (US&FCS), which is part of the Global Markets unit within the International Trade Administration and play a key role in the planning and coordination of export activities in their communities. https://lnkd.in/ghBSZKn8
As a member of the U.S. Commercial Service’s Mid-America District Export Council (MADEC), I am available as a resource to our federal International Trade Specialists who are in the Kansas City USEAC, and the companies they assist in our Council’s Western Missouri and Kansas Region. I also work as a Vice-President of International Trade for Commerce Bank in Kansas City, Missouri.
I joined MADEC in 2022, upon appointment by the U.S. Secretary of Commerce, and I accepted the Chair position this June. Today, I write to provide examples of how I offer my expertise to global exporters/sellers (“exporters”).
I assist exporters in receiving payment from foreign buyers utilizing international trade transactions, such as Irrevocable Letters of Credit (LC), Documentary Collections, and Standby Letters of Credit. Exporters can better control their payment processes by understanding how these transactions work and how to use them to their advantage.
Exporters who sell their goods and services globally should know how to instruct foreign buyers and banks in drafting an acceptable LC. Exporters should advise their overseas customers as to what terms and conditions will best serve the exporter’s needs. The Bank I work with has created a fill-in PDF template that covers many of the relevant points upon which an exporter and overseas buyer need to agree. By using this template or a similar one, exporters can avoid the unexpected and unknown issues that may arise during these transactions, which often lead to frustration and leave a negative impression with the exporter regarding the LC process. Learning how to manage the international trade transaction process is a key to success for many exporters.
Another beneficial tool banks can offer to exporters is assistance with the sales negotiation process. While exporters often seek to eliminate all risks that can be a part of global sales, the exporter needs to know how to use the international trade transaction process to win sales agreements.
How to use Term Letters of Credit and LC Discounting to Win Sales
A foreign buyer can pay an exporter via an International LC with Terms (“Term LC”), which sets forth an agreed time period after a buyer’s receipt of goods before their bank releases payment to the exporter’s bank on behalf of the buyer (e.g., 60 days from Bill of Lading date). The foreign buyer asks its bank to issue a Term LC on behalf of the buyer. The bank secures collateral for the amount of the Term LC (perhaps putting a hold on the customer’s line of credit with the bank), and sends a message via SWIFT (the Society for Worldwide Interbank Financial Telecommunication) to the exporter’s bank.
With a Term LC, the foreign buyer’s bank will release payment to the exporter’s bank on an agreed-upon future date, which can be from 30 days or up to 360 days from the shipping date of the goods, or any other agreed-upon date. The foreign buyer will receive the exporter’s shipping documents within a few weeks of the shipping date of the goods, for the goods to clear customs in the buyer’s country and for the foreign buyer to take possession of the goods. The exporter, instead of waiting for the agreed-upon date to obtain payment, can ask its bank to Discount the Term LC for a fee and receive payment early, while the exporter’s bank waits for the payment from the foreign buyer’s bank on the agreed-upon date. An amount of a Discount Fee is based upon the agreed-upon date, the reputation of the buyer’s bank, the stability of the buyer’s country, and current bank interest rates.
These are some examples of how our council members help our U.S. Commercial Service officers and be a resource to exporters. In the coming months we hope to post more articles from other MADEC members sharing their areas of expertise. I am happy to be a resource to exporters using my more than 30 years of global sales experience. Please reach out to me at firstname.lastname@example.org