Background
- - Support branch office (exporter) which exports goods to its head office on the open account basis and experiences difficulty in financing from local banks in the foreign country.
- - Applicable to the case when financial cost of the exporter’s country is expensive.
- - In case of export to the third party, offers benefit of financing to the exporter without opening a L/C.
Overview
- Citibank provides short-term trade finance at a lower cost to the overseas branch office or the third party exporter which trades exports goods to its head office or the third party on the open account basis.
- - Exporter: Seller of goods in a foreign country (branch office or the third party)
- - Importer: Exists in Korea (head office)
- Applicable to Open Account
- Financing under the pre-established credit line of the importer
- Discount period is mostly 30 days to 180 days
- Spread is set based on the credit rating of the importer (obligor).
- ※Subject to change in consideration of the financial cost level in exporter’s country.
Transaction Flow
- Matters to be checked in advance
- - Export receivables shall be legally available for transfer and sale to overseas.
- - Sale of export receivables shall not be treated as overseas borrowing but as outright sale (true transfer).
- - Withholding tax shall not be levied for sale of export receivables to overseas.
- Transaction Flow
- - Enter Master Receivables Purchase Agreement between the exporter and Citibank.
(Agreement on Transfer of Export Receivables) - - The exporter presents shipping documents to Citibank for discount.
- - Upon receipt of the Certificate of Receipt from the importer, Citibank discount the receivables without recourse.
- - Citibank credits net amount to the exporter’s account after deduction of commission.
- - The importer pays to Citibank at maturity.
- Benefit
- - Exporter saves expenses by financing from Korea at lower cost.
(e.g. 2 to 3% p.a. for US Dollar financing in Philippines) - - Importer saves costs for L/C opening and workload for document handling
- - Exporter can create additional room for export due to decrease of A/R by sale of export receivables
※Can lead to increase of export
- Main Target Customers
- - Exporter who maintains a significant volume of inter-office exports consistently.
- - Exporter who maintains a significant volume of exports to the creditworthy third party importer consistently.
- - Exporter who intends to sell export receivables at low cost.
- - Importer who intends to get rid of banking charges related to L/C opening and workload for document handling.
