Global Trade Show Selling Article #2 
by Dell Deaton
 

 

Photo: Dell Deaton, Proteus TradeShow MarketingFeature article—
"Make your bank a hardworking partner to close international sales"

In a presentation to exhibitors bound for Mexico, Martha I. Johnson took some of the mystery out of the vital role financing plays in current sales into Mexico.

Johnson is Vice President of International Finance at Old Kent Bank in Grand Rapids, Michigan. And she has an impressive track record in working with her export clients to close business with Mexican customers.

… Johnson detailed several types of transactions, their applications, and levels of risk — from most conservative to highly speculative.

1. Payment in Advance

“You send the money, then I’ll send the product,” she explained, is the safest. But it is only likely to work if there is a clear and immediate need for your product and no competition. It transfers all risk to the buyer.

2. Confirmed Irrevocable Letter of Credit

This is “confirmed” by a U.S. bank (not a U.S. branch of a Mexican bank), and that confirmation has a cost for the risk that the U.S. bank is taking — often 1/8 percent to 1/4 percent of the value of the Letter of Credit, plus several hundred dollars for the bank to affect the transaction.

“This is when you can’t take any Mexican credit risk on your balance sheet,” Johnson said. “No foreign government risk, no foreign bank risk, no foreign customer risk.”

3. Irrevocable Letter of Credit: This is issued by a foreign bank, and the bank is substituting its own credit for the credit of the buyer.

Documentary Time Drafts, Documentary Sight Drafts, and Open Accounts are much riskier instruments. Drafts are due at specified times or upon demand.

In none of these cases does a bank guarantee payment. But these approaches are faster, more flexible, and less costly to execute. “They may make sense due to the length of the relationship between seller and buyer,” Johnson explained.

She warned that the fraudulent Letter of Credit is “really easy to do” and explained precautions she uses to protect her customers.

"You should always have your bank ‘advise’ your Letters of Credit. They can help you do a dry run and avoid problems later.” Some key benefits of this approach include evaluations for legality, review for authenticity, and reading for logic (“I notice that this says your ship date is in three days, is that what you intended?”).

Martha Johnson’s presentation was part of the Representaciones Guadalajara exhibitor in-State briefing sponsored by the Michigan International Trade Authority on August 2 [1995].

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Publication:

Published August 1995 in Exhibit Mexico (ISSN 1080-4072), Ann Arbor, Michigan; written by Dell Deaton: 404 words.

 
 
 
 
 

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