Know your documentation when financing cross border

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Much of the China-USA trade flow of goods is financed by U.S. or Chinese banks or trade finance and factoring companies. I have written about a few of them. (See - Capital Business Credit helps extend terms for Importers)

Some consumer and electronic imported goods may require the permission of a trademark owner to import them. Failure to have a licence may hold up goods in customs and impact financing arrangements.

Stephen Perl, CEO of 1st PMF Bancorp, provided anecdotal evidence that several factoring companies claim the Customs Border Patrol (CBP) is detaining and seizing a much higher percentage of the electronics trade because they have decided to raise their internal requirements for documentation. His example was Google authorizing tablet computers with Google software, which makes sense for use of their logos, etc.

"Invoice factoring and trade finance companies financing electronic goods coming out of China, especially with IP on the box or even embedded in the tablet or other electronic devices need to be on high alert to review their respective client(s)’ documentation to make sure that there are no issues upon importation. If your collateral is detained or seized by U.S. Customs, then what?"

Whether this is the start of customs being more onerous or more one-offs, I am not sure. The key point is that if an importer has not cleared U.S. Customs, his “goods” are not “in the U.S.,” and are thus not subject to other courts jurisdiction as far as Customs' clearance.

Alan Lebowitz, founding partners of Grunfeld, Desiderio, Lebowitz, Silver, has a good list that can help financiers who work with corporations finance their imports.  Some of his questions include:

  • Has your company ever received a penalty or liquidated damages claim from CBP?
  • Has CBP detained or seized any of your shipments in the last five years? If so, what was the outcome?
  • Has CBP suspended liquidation of any of your entries in the last five years?
  • Do you ever receive invoices payable in a foreign currency?

Lending to importers who source overseas has another layer of complexity that needs to be managed. This has typically been the bankers’ domain, but as international trade has moved to open account (not using bank intermediated settlement mechanisms like Letters of Credit, Collections or Standbys) it is worth being educated on.

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