Unit Six

Short-term Export Finance

Part II

конфирмационный дом

(Великобритания)

размещать заказ

фирма экспортного

финансирования

оценка кредита

экспортная фирма

погашать

простой вексель, долговое

обязательство

1) премия, надбавка

2) премия по срочным сделкам
регресс, право регресса,
право оборота

встречный иск гарантия, поручительство предъявительский вексель

TEXT

Read the text below concentrating on its contents and ter-minology:

Confirming house.A confirming house is effectively an agent for an overseas buyer. The confirming house, acting for a buyer, places an order with an exporter and deals di-

rectly with the exporter to complete the contract. In this vvay there is no overseas credit risk or financial burden for the exporter, because the confirming house gives short-term credit to the overseas buyer who pays a commission for the services provided. A specialised form of confirming house is a buying house which makes purchases in the UK for over­seas department stores.

Export finance house.If an exporting company sells only occasional large value capital or semi-capital goods abroad it may be better for it to use an export finance house to handle an overseas contract. An export finance house is particularly useful in coordinating finance when an overseas buyer is sup­plied by several companies, none of which wishes to take the major responsibility for arranging the finance for the con­tract. The export finance house provides cash to the exporter on shipment and credit to a buyer. It handles the credit as­sessment of a buyer, takes out*any necessary insurance, and if a buyer defaults there is no recourse to the exporter. The export finance house is able to take the risk of providing and managing export credit in foreign currencies, relieving its UK customer of these burdens.

Export houses.Export orders are not directly financed by export houses. They buy products from an exporter, acting either as an export merchant, i.e. buying and selling goods overseas, or as an export agent where an exporter receives payment for goods upon shipment and the export agent pro­vides credit to the overseas buyer, promotes the goods abroad, holds stocks in the UK, and even acts as an export sales department.

Short-term ECGD-backed finance.In addition to those sources of short-term finance already mentioned, the UK government's Export Credits Guarantee Department (ECGD) guarantees finance for exports for periods normally ^UP to two years.

ECGD does not itself credit to the exporter because it is an insurance agency. But it provides a guarantee to the

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exporter's bank to reimburse it if any overseas buyer de­faults on payment. With this guarantee the bank can finance the exporter's business at preferential rates of interest.

There are two ECGD bank guarantees for short-term ex­port finance: one covering business where the method of pay­ments is bills of exchange or promissory notes (the Bills or Notes Scheme); and the other for business transacted on open account terms (the Open Account Scheme). The exporter decides how much finance is likely to be required at any one time and applies to ECGD for a guarantee to be given to a bank for this amount. When ECGD has indicated its willingness to issue a guarantee for this amount, the bank issues to the ex­porter a facility letter which outlines the terms and conditions under which finance is available. The facility is on a "revolv­ing credit" basis and is renewable annually. ECGD charges the exporter a premium for the bank guarantee.

Before agreeing to provide a bank guarantee, ECGD re­quires an exporter to sign a recourse agreement which en­sures that ECGD can turn to the exporter for payment if it has to pay sums to the exporter's bank under the guarantee The exporter then makes a counter claim on ECGD under the comprehensive short-term insurance already obtained

Bills or notes scheme.The bills or notes guarantee covers finance for contracts with credit terms of less than two years. Normally an exporter must have held an ECGD comprehen­sive insurance policy for an acceptable period, which could be as much as 12 months.

The exporter presents a bill of exchange to the bank to­gether with documentary evidence that the goods have been exported from the UK and a warranty which confirms that the exporter has complied with the basic ECGD insurance cover. The bank then makes an advance of 100 per cent of the farfe value of the bill or note, excluding any interest ele­ment.

Until the bill is accepted by the overseas buyer, the bank has recourse to the exporter. After it is accepted the bank

has recourse to ECGD and not to the exporter. Sight hills are always with recourse while promissory notes are not. The bank deducts a small fee per item at the time of the ad­vance, takes its normal commission for collecting the bills or notes, and charges interest at a margin above its base rate on a day basis. On receiving the proceeds of the collection the bank reimburses itself for the advance made to the exporter. Open account scheme.The bank advances funds to the exporter up to the total value of the invoice against a promis­sory note issued in favour of the bank, assuming the note docs not go over a credit limit agreed when the facility was established. If the overseas buyer defaults and the exporter cannot honour the promissory note, the bank claims from ECGD, which in turn has recourse to the exporter. Funds can be advanced for up to six months from date of shipment to the overseas buyer.

I Comprehension.Answer the following questions:

1. What part does a confirming house play in export/import

trade?

2. In what sort of transactions arc the services of an export
finance house particularly useful?

3. List the services provided by an export finance house in
handling an overseas contract.

4. What two functions do export houses perform?

5. How docs an export merchant differ from an export agent?

6. What does ECGD provide to British exporters?

7. Why doesn't ECGD provide credit to the exporter?

8. What two types of bank guarantees does ECGD issue?

9. Why docs ECGD require an exporter to sign a recourse
agreement?

10. When can an exporter apply for the bills and notes guar­
antee?

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11. What procedure should the exporter follow in this case?

12. What interest does the bank charge for making an ad­
vance?

13. In what case does the bank advance funds to the exporter
up to the total value of the invoice?

14. Who pays for goods if the overseas buyer defaults?

II

Comprehension.Complete the following on the basis of the information given in the text:

1. By using the services of a confirming house the exporter

avoids overseas credit risk or financial burden because it
is..... which gives...... to.......

2. The export finance house is able to relieve its UK cus­
tomer of the risk of.....

3. The job of an export agent is firstly to ..... , secondly to

.... , thirdly to...... and to........

4. As ECGD is an insurance company, it doesn't.... but it

5. A facility letter is issued by... after ECGD has agreed to

6. A facility letter states all the......

7. The exporter pays ECGD .... for issuing.......

8. In case of bills or notes guarantees the bank can turn to the
exporter for payment until ......

9. After the bill is accepted by the overseas buyer the bank
can turn payment only to..... which........

10. When the bank makes an advance it charges ..... and

then it ..... and ......

•11. If the overseas buyer defaults, the bank. which.......

Ill

The two texts on short term export finance provided you with a set of specialized terms. It is time now to arrange them in groups describing definite financial operations. You '.

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wiU see that terms of more general character often have their synonym (e.g. profit, gain, proceeds) while the very spe­cific ones (e.g. types of bills or export finance houses) have, as a rule, only one name. This results in a great precision of information passed, and you can never be too precise where money is concerned.

By filling in the table below arrange the. knowledge on the terminology of finance you have already acquired:

Its synonyms (if any)

1. Accept
(noun and verb)

2. Advance
(noun and verb)

3. Bill

4. Cash

5. Collection

6. Discount
(noun and verb)

7. House

8. Overdraft

9. Premium

10. Proceeds

Having filled in the, table above, use the terms you have just listed in sentences of your own.

IV

Complete the following:

1. The exporter applies to..... for.......

2. When the exporter has filled in..... he........

4. The UK bank sends......

5. Simultaneously ECGD ... and informs ......

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6. When the UK bank has received ... it........

7. When the exporter receives the ECGD offer he.....

8. The exporter signs a ......

9. ECGD extends a .....

10. When the goods .... the exporter.......

11. On receipt of shipping documents, the bank....

12. The bank forwards......

13. When the bills are presented to the foreign buyer, he