Export Financing Business Guide

Last Verified: April 25, 2012

TABLE OF CONTENTS

• Methods of Payment
• Contract Bonds
• Loan Programs for Canadian Exporters
• Financing Solutions for Canadian Companies 
• Export Insurance
• Other Types of Export Financing
• Trade Incentive Programs

When it comes to business financing, most people automatically think of loans to buy equipment or lines of credit to help with marketing costs or hiring staff. However, when it comes to exports, the term "financing" takes on a broader scope and can include money loaned to foreign buyers for the purchase of your goods, leveraging your existing equity, or incentive programs that save you money by providing refunds on duty.

When exporting, you should decide how you want to be paid ahead of time as it will affect the type of financing you will need, what kind of insurance will be required, and how much working capital you will have available for day-to-day operations. For example, if you insist on cash in advance, you will not have to insure yourself against non-payment and you can use your money to take advantage of other business opportunities rather than having it tied up while you wait to get paid.

METHODS OF PAYMENT

The following are the main methods of payment for exporters:

1. Cash in advance - the most secure method of payment for you. However, most foreign buyers will not pay in advance unless it is a special order. You may get a portion of the money up-front and the rest upon delivery.

2. Letter of Credit - a legal document between an importer and exporter that sets out the terms and conditions of payment. It acts as security for both parties, giving the exporter confidence that the importer is able to pay for the goods while assuring the importer that payment will be made to the exporter only after the terms outlined in the letter of credit have been met. This is the most common method of payment. There are many options available for the letter of credit. For more information, talk to someone in the international banking division at any of the major banks.

3. Open Account - the exporter ships the goods as soon as the order is received and then invoices the purchaser for payment within a certain amount of time (i.e. 30 days). Although it significantly cuts down the paperwork, it is very risky for export ventures as the seller is financing the venture and has no recourse if the buyer doesn’t pay. However, if you have a long term supplier who you trust implicitly, it can be a time-saving method of conducting business.

4. Documentary Collections - the exporter issues a bill of exchange (which is an unconditional request for payment on demand or at a specified time) and other documents which transfer ownership to the buyer. The exporter instructs their bank to transfer ownership upon full payment. The banks, in this case, act as intermediaries rather than guarantors. If payment is not made the document of title, usually the Bill of Lading, is held by the foreign buyer's bank until instructions for payment by the buyer are provided. This is riskier than the Letter of Credit as the banks will not guarantee a bill of exchange. Therefore, the exporter assumes responsibility for the shipment and risks non-payment.

Most banks have international divisions that can help new exporters decide which method of payment and financing will be best for their venture as well as what services are available to help them.

CONTRACT BONDS

Contract bonds are often required by foreign buyers as a form of security to ensure you will honour your contractual obligations. Bonds can either be issued by banks in the form of standby irrevocable letters of credit (ILC) or letters of guarantee or by surety companies in the form of contract surety bonds. Letters of guarantee are commonly used in global transactions while surety bonds are more commonly used in North America.

Foreign Exchange Facility Guarantee

This program helps Canadian companies that purchase foreign exchange contracts free up working capital by guaranteeing the collateral and enabling them to lock in the exchange rate to protect against foreign currency fluctuations.
Internet: www.edc.ca/EN/Our-Solutions/Bonding-and-Guarantees/Pages/foreign-exchange-facility-guarantee.aspx
Search words: Foreign Exchange Facility Guarantee

Export Development Canada
Manitoba Regional Office
Phone: : 204-975-5090 or toll free 1- 888-235-6148
Fax: 204-975-5094
Internet: http://www.edc.ca

LOAN PROGRAMS FOR CANADIAN EXPORTERS

Commercialization Support for Business Program

This program helps Manitoba continue to move forward by supporting product and process commercialization and business development in all sectors and all regions of the province. The program includes:
Concept Development (Max up to $25,000) – from concept to prototype development;
Product Development (Max up to $40,000) – pre-commercialization activities like feasibility or engineering analyses, trial production and test marketing;
Product Commercialization (Max up to $200,000) – moving from prototype to market-ready product;
Market Development (Max $30,000) – materials and activities needed to enter new markets successfully;
Certification Assistance (Max $15,000) – obtaining plant or product certification;
Intellectual Property (Max $25,000) – securing intellectual property rights for the product or process.

Entrepreneurship, Training & Trade
Fax: 204-945-1193
E-mail: csb@gov.mb.ca
Internet: http://www.gov.mb.ca/ctt/busdev/financial/csb/index.html
Search words: commercialization support, Manitoba

Investment Cooperation Program (INC) (Formerly known as Industrial Cooperation Program (CIDA-INC))

The program shares some of the costs involved in studying the viability of an investment, demonstrating and adapting appropriate technologies, and undertaking activities aimed at enhancing the economic, environmental and social benefits of those investments.

Foreign Affairs and International Trade Canada (DFAIT)
Program Advisor, Investment Cooperation Program (INC)
Internet Contact: http://www.tradecommissioner.gc.ca/eng/document.jsp?did=99267
Internet: http://www.tradecommissioner.gc.ca/eng/funding/investment-cooperation-program/home.jsp
Search words: Investment Cooperation Program

Market Xpansion Loan

The Market Xpansion Loan program provides up to $100,000 in long-term financing to entrepreneurs who want to grow their business locally or expand into foreign markets. The funds provided by the BDC can be used to: Participate in prospecting initiatives like trade shows overseas; develop export and/or e-commerce plans; advance SR&ED (Scientific Research & Experimental Development) refunds to replenish working capital, or cover SR&ED consulting costs; conduct product development and R&D and purchase additional inventory for export.
Internet: http://www.bdc.ca/en/solutions/financing/Pages/fs_market_expansion.aspx
Search words: Market Expansion Financing, BDC

Business Development Bank of Canada
Phone: Winnipeg - 204-983-7900 or 204-983-6530 or Toll Free 1-877-232-2269
In Brandon: 204-726-7939
Internet: http://www.bdc.ca/en/home.htm
Search words: BDC Canada

FINANCING SOLUTIONS FOR CANADIAN COMPANIES

Companies often need financing to support their international transactions: to pay for the up-front costs associated with the production of a large export order, to expand into new markets or to respond to a buyer's request for financing.

Export Development Canada (EDC) provides Canadian exporters with financing, insurance and bonding services as well as foreign market expertise.

Existing Lines of Credit structure is particularly suitable for foreign companies looking to repeatedly buy goods and/or services from one or several Canadian suppliers. EDC has also established lines of credit with financial institutions that can on-lend money to foreign buyers of Canadian goods and/or services. Such lines of credit are particularly suitable for smaller transactions.
Internet: http://www.edc.ca/english/financing_foreign_lines_of_credit.htm
Search words: Existing Lines of Credit, EDC

Export Guarantee Program enables you to obtain loans from your financial institution to provide you with the financing you need for your export-related activities or foreign investments.
Internet: http://www.edc.ca/english/financing_export_guarantee.htm
Search words: Export Guarantee Program, EDC

Foreign Buyer Financing can help you offer your customer extended payment terms by providing them with financing for an export sale of capital goods and/or services.
Internet: http://www.edc.ca/english/financing_foreign_buyer.htm
Search words: Buyer Financing, EDC

Project Finance provides project sponsors with access to limited-recourse financing for large-scale global infrastructure and industrial projects.
Internet: http://www.edc.ca/english/financing_project_finance.htm
Search words: Project Finance, EDC

Supplier Financing provides you with access to cash rather than waiting for payment from your foreign buyers.
Internet: http://www.edc.ca/english/financing_supplier_financing.htm
Search words: Supplier Financing, EDC

Export Development Canada (EDC)
Manitoba Regional Office
Phone: 204-975-5090 or toll free 1-888-235-6148
Fax: 204-975-5094
Internet: http://www.edc.ca
Search words: EDC

EXPORT INSURANCE

Insuring your exports not only protects your assets but can serve as security if you need to access working capital.

Accounts Receivable Insurance (ARI) covers your full book of business for up to 90 per cent of your losses against such commercial risks as your customer refusing to pay. Coverage can be flexible to accommodate your unique needs including ARI for your foreign affiliates. Other risks covered may include: refusal to accept the goods; bankruptcy or insolvency; cancellation of import or export permits; currency transfer; war, revolution, or insurrection; and contract cancellation.
Internet: www.edc.ca/EN/Our-Solutions/Insurance/Pages/accounts-receivable-insurance.aspx
Search words: Accounts Receivable Insurance, EDC

Contract Frustration Insurance (CFI) covers Canadian companies for up to 90 per cent of costs incurred or receivables lost in association with a specific export contract for services, capital goods or projects. It protects you against a range of commercial and political risks, including: buyer insolvency; cancellation of export or import licenses and permits; host government’s moratorium on debt; non-conversion of currency or inability to transfer funds; non-payment or default by your customer; termination or cancellation of the contract by your customer; and war, revolution, insurrection or other political disturbances
Internet: www.edc.ca/EN/Our-Solutions/Insurance/Pages/contract-frustration-insurance.aspx
Search words: Contract Frustration Insurance, EDC

Performance Security Insurance covers up to 95 per cent of your losses if your customer demands payment of a bond issued by your bank without valid reason. When a customer demands payment on a bond (an irrevocable letter of credit (ILC) or letter of guarantee), your bank must pay immediately.
Internet: www.edc.ca/EN/Our-Solutions/Insurance/Pages/performance-security-insurance.aspx
Search words: Performance Security Insurance, EDC

Political Risk Insurance helps protect overseas assets, such as equipment and manufacturing facilities, for up to 90 per cent of losses against political risks such as: breach of contract; conversion; expropriation; non-payment by a foreign government; political violence; repossession; and transfer.
Internet: www.edc.ca/EN/Our-Solutions/Insurance/Pages/political-risk-insurance.aspx
Search words: Political Risk Insurance, EDC

Single Buyer Insurance covers unlimited export sales to the same customer for a six month coverage period on shipments or services. The policy insures up to 90 per cent of your losses if a customer does not pay after accepting the goods for reasons that may include: bankruptcy or insolvency; currency conversion and transfer; and war, revolution, or insurrection.
Internet: www.edc.ca/EN/Our-Solutions/Insurance/Pages/single-buyer-insurance.aspx
Search words: Single Buyer Insurance, EDC

Surety Bond Insurance gives surety companies reinsurance capacity of 100 percent, minimizing their risk which enables them to provide Canadian companies with the bonding support required to conduct business overseas.
Internet: www.edc.ca/EN/Our-Solutions/Bonding-and-Guarantees/Pages/surety-bond-insurance.aspx
Search words: Surety Bond Insurance 

Export Development Canada (EDC)
Manitoba Regional Office
Phone: 204-975-5090 or toll free 1-888-235-6148
Fax: 204-975-5094
Internet: http://www.edc.ca
Search words: EDC

OTHER TYPES OF EXPORT FINANCING

Canadian Direct Investment Abroad (CDIA) Program (See Export Guarantee Program)

Through its Canadian Direct Investment Abroad program, EDC offers financing to Canadian firms seeking to expand their overseas operations. Any Canadian company with operations in Canada, or any Canadian company with a head office in Canada, may obtain financing as long as it takes an active part in directing and/or managing the affiliate or subsidiary, and has a minimum 10 per cent ownership in the affiliate or subsidiary. The investment must also be a direct investment and not a portfolio investment. Financial terms vary according to factors that include the market, the size and nature of the investment, and the industry sector.
Internet: www.edc.ca/EN/Our-Solutions/Financing/Pages/export-guarantee-program.aspx
Search words: Export Guarantee Program, EDC

Factoring

EDC has established factoring arrangements with financial institutions that can help you discount your trade receivables which can, in turn, free up your working capital. With EDC's Accounts Receivable Insurance in place, banks may be willing to purchase some or all of your receivables for cash, knowing they are protected should your customers fail to pay.
Internet: http://www.edc.ca/english/financing_factoring.htm
Search words: Factoring, EDC

Export Development Canada (EDC)
Manitoba Regional Office
Phone: 204-975-5090 or toll free 1-888-235-6148
Fax: 204-975-5094
Internet: http://www.edc.ca
Search words: EDC

NORTHSTAR Capital Financing

NORTHSTAR Trade Finance Inc. was created to support Canadian exporters by offering financing to credit worthy buyers of eligible Canadian goods and services.

NORTHSTAR Trade Finance Inc.
Phone: Head Office – toll free 1-800-663-9288
Fax: 604-664-5838
E-mail: northstar.ca/contactInfo.php
Internet: http://northstar.ca
Search words: NORTHSTAR Trade

Prime Contractor Service

In order to increase trade, CCC works in areas where there is a clear role for government, responding to the need for additional contracting capacity in defence and emerging and developing country markets and by helping foreign governments benefit from Canadian export capabilities through the negotiation and execution of government-to-government contracts. In addition, CCC manages the cycle of payments from the foreign government buyer to the Canadian exporter in order to establish and maintain a predictable and timely payment schedule.

Canadian Commercial Corporation
Phone: 1-800-748-8191
Internet: http://www.ccc.ca/eng/bus_forExporters_sovereignContract.cfm
Search words: Prime Contractor Service, CCC

TRADE INCENTIVE PROGRAMS

The Canada Border Services Agency (CBSA) has a variety of programs that allow them to waive (relief), postpone (defer) or refund (drawback) some or all of the duties and taxes payable when importing goods.

Trade incentive programs keep Canadian companies competitive by giving them, under certain circumstances, duties relief on imported goods that may be used to produce goods for future export.

Canadian Goods Abroad Program

This program allows duties relief on the Canadian export value of goods when the goods (subject to certain conditions) are returned to Canada after being exported for repairs, equipment additions, or work done abroad.
Internet: www.cbsa-asfc.gc.ca/trade-commerce/tip-pec-eng.html#a4
Search words: Trade Incentives

Duty Deferral Program

The duty deferral program gives you three options, each with particular advantages or purposes:

Custom Bonded Warehouse Program

A customs bonded warehouse is a facility operated by the private sector but regulated by the Canada Border Services Agency (CBSA). Through the Customs Bonded Warehouse Program, you may qualify for a complete deferral of customs, anti-dumping and countervailing duties and excise duties and taxes, including the goods and services tax and the harmonized sales tax. You only pay duties and taxes on the portion of goods entering the Canadian market. If you export goods, you don't have to pay any duties. While the goods are in the warehouse, they may undergo certain minor manipulations such as marking, labelling, testing, inspection, packaging, display, dilution, normal servicing and maintenance, grading, shorting, trimming, slitting or cutting and repackaging.
Internet: http://www.cbsa-asfc.gc.ca/import/ddr-red/tab8-eng.html
Search words: Bonded Warehouse Program, CBSA

Drawback Program – Claiming a Drawback on Exported Goods

The Drawback Program provides for drawbacks on consumable and expendable goods used in production processes, as well as scrap materials. In addition, the Program allows for the assignment of rights to claim a drawback using a waiver system. Through the Program, an exporter can claim a drawback on imported goods that were sourced from a supplier in the domestic market.
Internet: www.cbsa-asfc.gc.ca/import/ddr-red/tab2-eng.html
Search words: Duty Drawbacks, CBSA

Duties Relief Program

The Duties Relief Program enables qualified companies to import goods without paying duties, as long as they eventually export the goods. Before export, companies can further manufacture or use the goods in a limited manner without having to pay duties.  The Duties Relief Program can help give your business a competitive advantage by lowering your costs since you won't have to pay duties on the goods when they are imported. You are not restricted to a specific geographic site to participate in the Program. You choose the place that best suits your business needs to set up your facility. As well, with the Duties Relief Program, you do not have to post a bond to financially secure your liability.
Internet: http://www.cbsa-asfc.gc.ca/import/ddr-red/tab1-eng.html
Search words: Duties Relief Program, CBSA

Canada Border Services Agency (CBSA)
Phone: 1-800-461-9999 (English); 1-800-959-2036 (French)
Internet : http://www.cbsa-asfc.gc.ca/trade-commerce/tip-pec-eng.html
Search words: Trade incentives programs

• Export Information Sources
• Checklist for New Exporters

Canada/Manitoba Business Service Centre
250 - 240 Graham Avenue
Winnipeg, Manitoba  R3C OJ7
Telephone: 204-984-2272
Fax: 204-983-3852
Toll-free (information): 1-800-665-2019
TTY Toll-free (hearing impaired): 1-800-457-8466
E-mail: manitoba@canadabusiness.mb.ca
Web site: http://www.canadabusiness.mb.ca/

DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

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