Small Business with New 'Export' Sales Orders
Requires Competitive Payment Terms to Win Export Orders
Enterprise- U. S. Manufacturer of Outdoor Advertising Structures
Background : 16-year old closely held company is experiencing new sales inquiries and orders from international companies. Foreign buyers require payment terms beyond those normally offered by the exporter. Normal payment terms are 90 days from date of shipment. Foreign buyers desire payment terms of up to 360 days from date of shipment. The exporter's current lender will not include international A/R in borrowing base unless adequately insured by Export Credit Insurance. Product content is 100% U.S.
Financial Facts : Annual Sales - $19 million (1% international, which would grow to 20% with pending international orders). Current export orders in hand: $4 million to Mexican buyers. Company is deemed 'small' by SBA Size Standards, average annual export 'credit' sales over the past two years have not exceeded $5 million, they have had an Operating History of more than 1 year and they have a positive Net Worth.
Objective : Foreign buyers needed longer-than-normal payment terms on open account to allow time to install equipment and receive payment from their clients (in essence financing their purchase without expensive local bank financing). In this case, foreign buyers require up to 360 days, which the Company could not ordinarily provide without enhancing the quality of the Account Receivable assuring that they would 'get paid' in full and on time. Export Credit Insurance raises the quality of these Export Accounts Receivables, allowing the exporter's bank to include the Export A/R in their borrowing base and receive funding to complete these export orders and carry the A/R for 1 year.
Solution : World Trade Consult, LLC structured a Small Business Short Term MultiBuyer Export Credit Insurance Policy issued by The Export-Import Bank of the United States, the official export credit agency of the United States. This insurance protection plan provides Named Buyer coverage on each new international customer, covering sales terms up to 360 days from date of shipment. In the event of a foreign 'commercial' risk loss (buyer's insolvency, bankruptcy, protracted default in payment), the company would receive 95% of the gross invoice value. In the event of a foreign 'political' risk loss (war, insurrection, cancellation of import licenses, etc), the company would receive 100% of the gross invoice value. The insured exporter pays premium monthly covering only those export sales/shipments insured, with NO MINIMUM ANNUAL PREMIUM REQUIRED WITH ISSUANCE OF POLICY (conserving scarce cash resources).
Outcome : Policy was issued and assigned to exporter's lender who included the $4 million International A/R in borrowing base, providing up to $3.6 million (90%) in working capital funding to complete these export orders. In addition, the exporter's insurance premium of 1.55% for the export sales insurance covering 360 day open account payment terms was much lower, thus more competitive than local Mexican bank financing. With NO First Loss Deductible and only a small 5% co-pay in the event of a 'foreign commercial' loss, the insurance coverage was the fullest in the market for small businesses.