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About the course

This school provides complete coverage of Trade and Commodity Finance

This training course provides practical, in-depth coverage of international trade and commodity finance. The conflicting needs of buyer and seller are identified and how trade finance provides risk mitigation and working capital solutions for both exporter and importer

The training covers the importance of Incoterms® rules, commercial contract, the nature of trade documentation, how to maintain control over the goods, the risks faced by exporters, importers and banks, and detailed coverage of the key trade products to include the parties, mechanics, risk mitigating features, optimal structuring techniques and financing solutions

Emphasis is placed upon risk assessment, problem solving techniques and deal structuring, through a clear understanding of a corporate’s trade cycle. Great attention is paid to the effective and appropriate use of structured financing techniques in meeting the corporate’s needs for optimal working capital solutions, whilst satisfying the bank’s requirement for controlled lending and credit support

The course uses extensive case studies and exercises to develop the understanding of attendees in a practical and engaging way across a range of scenarios on the identification of risk, risk mitigation, structuring techniques and providing optimal working capital solutions for the bank and the corporate

How this course will assist you

By attending this interactive and highly practical five day training course you will:

  • Know when and how to use trade finance effectively
  • Appreciate the importance of the commercial contract, Incoterms® and trade documentation
  • Identify trade risk and how this can be mitigated
  • Construct a trade cycle time line to evaluate type, amount and duration of trade finance
  • List the methods of payment, their use, risks to the buyer, seller and the financier
  • Identify when and how trade finance products should be used
  • Describe the risks, benefits and legal aspects of each of the trade finance products
  • Understand the key aspects and structuring techniques of receivables finance
  • Describe the key supply chain finance solutions and when they should be used
  • Be able to apply credit enhancement techniques, ECA support and evaluate credit insurance
  • Appreciate the operation and risk considerations of on demand bonds and standby letters of credit
  • Identify client needs and to satisfy these through the use of trade finance
  • Appreciate and promote the benefits of trade finance
  • Gather information to thoroughly assess and evaluate a trade proposition
  • Structure a trade finance facility to mitigate risk, to follow the goods and the money and to get the deal approved
  • Explain why trade finance is an alternative to balance sheet lending assessment
  • Understanding the regulatory developments in trade finance
  • Describe the structures, products and risk management in commodity trade finance
  • Formulate a customer winning proposition
  • Apply AML, sanctions and fraud based risk assessment techniques

Agenda

Day 1

Trade finance – its essential role in trade and revenue growth

„Conflicting requirements of seller and buyer

„The importance and implications of trade credit:

  • Need for credit
  • Credit risk exposure
  • Liquidity risk

„Working capital optimisation:

  • Cash conversion cycle
  • Identifying the funding gap
  • Importance of DSO and DPO ratio calculation

„The essential role of trade finance:

  • Benefits to corporate and bank

Incoterms® rules 2010

  • „Their relevance and importance to trade finance
  • „Examination of the most commonly used Incoterms®
  • „Importance of Incoterms® from a trade financing perspective

Commercial contracts and trade documentation

„Key aspects of the commercial contract:

  • Its importance to the financier

Trade documentation; Its importance to trade finance

„Function and key features

„Taking control of the goods:

  • The requirement for original clean shipped on board bills of lading
  • Importance of consignee/negotiable status
  • Taking title to the goods:
  • Possessory documents: pledge and trust receipt
  • Other types of bill of lading
  • Air waybill
  • Taking control of the goods:
  • Consignee
  • Practical issues
  • Other transport documents and risk implications
  • Cargo insurance; key aspects and considerations
  • Inspection certification; basis of inspection and its importance to risk mitigation

Trade and credit risk evaluation

„Identifying and managing trade risk:

  • „Financial; buyer credit risk, country and transfer risk
  • Political risk; contract and/or payment frustration
  • Commercial risk: debt instrument, method of payment, commercial terms, sales leverage
  • Performance; supply chain, nature of goods, delivery, dispute

Activities

  • „How to construct a simple Trade cycle analysis
  • Review of DSO/DPO between Ford Motor Company and Toyota Motor Company
  • „Use of the correct Inco terms depending upon customers’ requirements

Day 2

Overarching International Trade support structure

  • „Background to the ICC
  • „UCP 600
  • „ISBP
  • „eUCP
  • „ISP98
  • „URC522
  • „URDG758
  • „UN convention on Independent Guarantees and Standbys

Methods of Payment

„The Trust league or risk ladder

Documentary collections

„What a collection is:

  • Features and Benefits
  • Bank responsibility
  • Compliance with instructions
  • No undertaking to honour or pay
  • Document disclaimer; numerical count only
  • Parties
  • Types
  • Documents against payment (DP/CAD) Documents against acceptance (DA) Operation
  • Risk and control features
  • When collections should be used
  • Financing; advance against collections
  • Advantages and disadvantages

Documentary letters of credit

„What a letter of credit is:

  • „Description

„Key aspects:

  • „Bank liability
  • Irrevocable
  • Independence
  • Conditional undertaking to pay

„Banks deal only in documents ‘on their face’:

  • „Document disclaimer
  • „Parties

„Structure:

  • „Sight and term

„Availability by:

  • Sight payment
  • Acceptance
  • Deferred payment
  • Negotiation

„Expiry date and place

„Documentary presentation period

„Bank to bank reimbursement

Exercise; structuring an L/C to support an international contract

Confirmation:

  • „Unconfirmed credits; risk implications to the beneficiary
  • Confirming bank liability:
  • Without recourse financing
  • Documentary risk
  • Silent confirmation
  • Assignment of proceeds
  • Letter of credit process
  • Letter of credit example
  • Transferable Credits
  • Amendments;

„Risk appreciation: structuring the letter of credit to protect the:

  • Applicant
  • Issuing bank
  • Beneficiary

Case study exercise; consider a silent confirmation request and prepare appropriate document to support

Case Study Look at an opportunity to structure an import export facility backed by a transferrable 90 usance credit – draw out the trade cycle analysis to show timings and documentary flows between all parties. Compile a list of likely risk issues and suggested mitigants

Day 3

Case Study: Calculate the maximum limit requirements for an export/import company

Documentary letters of credit continued

„Hybrid forms

„Usance payable at sight:

„Red /Green clause

„Back to back

„Revolving/reinstatement

„Standby

„Inactive

„Refinance agreements

Case study; the delegates will be required to consider whether a standby letter of credit is suitable to support the issuance of a counter credit for covering the purchase of fuel oil. The delegates will be required to identify technical issues and beneficiary risk exposure and provide advice to a letter of credit beneficiary on its suitability and make proposals for amendments to mitigate risk exposure and to facilitate financing

Case study: Review of a trade finance facility request covering import of Bathroom equipment from the USA under an L/C and subsequent sale on a collection basis to a Taiwanese buyer. Construct the Trade cycle analysis and document flow and suggest a structure to help facilitate the business and minimize the risk for the bank.

Preshipment Finance

„Explanation and rationale

„Suggested limits on advances

„Other product parameters

Case study; assessment of the risk profile of a client request for a Preshipment finance facility and subsequent discount of future receivable. Formulation of Trade Cycle analysis and proposed trade financing structure to mitigate risk for the bank and customer and calculation of the facility requirement

LC Discrepancies

„Common issues

„Examination and best practice

  • General
  • Invoices
  • Bills of Lading
  • Insurance
  • Bills of Exchange
  • Air/Sea/rail Waybill
  • Invoice

Day 4

Case study; Negotiation of terms for an L/C covering an international export order either as the buyer or seller.

Bonds & guarantees

„What on demand bank guarantees are

„Key aspects:

  • „Irrevocable
  • „Independent
  • Unconditional undertaking to pay
  • Exceptions to the payment principle
  • Banks deal in documents only
  • Ease of claim (beneficiary claim documentation)
  • Direct guarantees; operation and parties
  • Indirect guarantees; operation and parties:
  • Nature, role and risk implications of the counter guarantee (example)

„Types;

  • Bid
  • Performance
  • Advance payment
  • Payment
  • Letter of indemnity

„Unjustified claim (unfair calling)

„Fair calling (political)

„Extend or pay notice

„Foreign laws and usage

„Cancellation

„Risk management; structuring guarantees:

„Operative clauses

Case Study: Review of a request to support expansion of a Global Corporate into a new market. Understand request and calculate extent and nature of facilities required.

Open Account

„Receivables Purchase

„Individual v Whole Book (CID)

„With/without recourse

„Insurance backed

„Factoring

Case study – example structures and plenary discussion covering both disclosed and undisclosed situations

Import Loans

„Outline structures and rationale

„With goods control

Without goods control

Case study Trade Cycle analysis and subsequent structuring for an import/export business with an element of goods control. Agree structure and mitigants to minimise bank risk

Risk sharing

  • „Trade Syndications
  • „Participations funded
  • „Participations unfunded
  • „Multilateral guarantees
  • Reimbursement Guarantees
  • Trade facilitation programs

Forfaiting

  • „What forfaiting is and when it is used
  • Description, parties and operation
  • Without recourse finance:
  • „Events of recourse
  • „Primary and secondary purchase
  • „Risk appreciation and due diligence

Case study; consideration of a request to help structure a forfaiting transaction (purchase a bill or series of bills of exchange and identification of the risk features and further information required to assess the proposition

Finding new Markets

  • „Plenary discussion about sources of new business both in and outside country

Sanctions and boycotts

  • „Differences
  • „Anti-money laundering Laws and Regulations
  • Cost of getting it wrong – monetary and reputational
  • Trade Based Money Laundering
  • „Export Licencing

Fraud

  • „Examples of how and when it can occur
  • Warning signs
  • Effects of Fraud
  • Possible precautions

Day 5

  • Supplier Finance
  • History
  • How it works
  • Some of the benefits
    • Buyer
    • Supplier
  • „Main players

Case Study Review of a financing opportunity for an import export business with multiple solutions

Credit Insurance

  • „Explanation of key types
  • What is covered
  • What is generally not covered
  • Main players
  • Example risk map

Case study: Opportunity to consider complex Import finance facility and CID line for market disrupter oil importer and re-seller with goods control, hedging and price collar

Export Credit Agency support (ECA)

„The role of an ECA

„Financing and mitigating risk with ECA support

„Credit insurance; commercial and political risk

„Loan guarantee to lenders

„Direct support/lending (in qualifying buyer credit transactions)

„Eligibility for ECA support; regulations and criteria

„Types of ECA support; description, parties and operation:

„Supplier credit

„Buyer credit

„Lines of credit; general purpose and project specific

Structured trade finance; exercising control

„The selfliquidating facility; primary source of repayment

„When and why deal structuring should be used:

„Requirement to transfer the primary source of repayment away from the borrower

„Exercising control; ‘follow the goods, documentation and the money’

„Facility structuring; key controls:

„Linkage of payment and/or finance to trade documentation

„Use and application of finance

„Establishing an identifiable and reliable source of repayment:

o Credit quality

  • Nature of the debt instrument
  • Dependencies; performance risk and allowable dilutions
  • Controlling the source of repayment; ring fencing, ownership and capture

„Structuring each stage of the trade cycle: controlling the nature of risk exposure

„Funding alignment; trade loans linked to the trade cycle

„Use of labelled/descriptive trade loans

„Managing risk exposure aligned to facility sub­limits;

„Drawn down documentation

„Duration; identifiable date set for repayment aligned to the trade cycle

„Reality of title and control; liquidation of goods

Case study: Review of complex structure involving Tolling of raw materiels to produce high quality steel ingots that are subsequently sold on

Case study; Opportunity to acquire new customer using Trade as the lead product

Case study; Contract review and subsequent structuring of international trade opportunity

Recent developments and trends:

„Latest market trends:

„Increasing role of open account trade in import and export financing

„Bank Payment Obligation; operation and market constraints

„Blockchain finance; potential application in the trade finance market

Trust the experts

Simon Enticknap

Simon is a highly experienced trade finance practitioner with 40 years of expertise in Sales and Relationship Management focusing on key product areas including Trade Finance, Supply chain finance, Treasury, Payments and Custody. He has been appointed at heading positions at prestigious banking ...

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