Norm had just participated in one of the many workshops and seminars I teach every year at the World Trade Center Denver. This seminar was geared toward companies that had just begun exporting.
My presentation discussed the basic methods of payment used by exporters. After the session, a tall, broad-shouldered man introduced himself as Norm and asked if I would have lunch with him.
At a nearby restaurant, Norm, a new exporter, said he was bidding on a project in Taiwan that would become the world’s largest aquarium. The country’s ministry of education was designing the aquarium for aquatic studies as well as a tourist attraction.
Norm was a sales representative and would provide the aquarium’s life support systems, which included pumps, valves, filters and other parts. He planned to purchase goods from 17 different vendors, arrange for their export, and manage the installation in Taiwan. He asked if there were any financial tools he could use to pay the manufacturers.
Immediately, I suggested a transferable letter of credit; a technique where Norm had no familiarity. Grabbing a paper napkin, I drew a flowchart illustrating how a bank could take a transferable letter of credit issued to him and parcel it to his vendors. Norm would not need to put up his own money. “I need this exact mechanism to make this transaction work,” he remarked.
Next, I asked him if any of his 17 suppliers has had experience exporting, and he replied, “A few, but most have not.” Finally, I asked him about the contract’s size, and he didn’t flinch: “About $9 million.”
So much for starting small with your first transaction.
However, the transaction developed successfully, and Norm received a letter of credit in transferable form. He asked the bank to transfer it to the 17 other parties. The outcome of this sizable project could not have been better. Due to cooperation among all vendors, freight forwarders, and banks, they made more than 100 shipments, and all vendors received the payments due them.
To receive a flowchart of how a transferable letter of credit works, send an e-mail to rbsseminars@aol.com.