Methods of financing Personal Customers.

 

A personal customer is defined as an individual banking in his personal capacity. He could be employed in some organization getting a monthly fixed salary, or an owner/ Director of a business deriving a monthly remuneration.

 

• A personal customer may require a TOD to meet an urgent personal commitment such as school admit ion fees for a child, urgent medical treatment which may be considered favorably, to be recovered from the clients next month salary.
• A client may need finance to purchase consumer durables or part finance a vehicle which may be considered under a personal loan scheme,
• A lease may be granted to finance a purchase of a vehicle or some times a computer depending on the client’s credibility.
• Client may require opening a LC to import a vehicle. Most of the time this is done when the client has got a permit to import such vehicle on duty concessions.
• Client may require purchasing / constructing a house in which case a housing loan could be provided to finance such requests. Housing loans are granted as long term finance and attract lower interest rates.
• Client may approach the bank to get a certain cheque purchased, which he has received. We may consider the request depending on the credibility of the drawer of the cheque. (LBP) (Most of the time this may be a pay order drawn by a bank.)
• Client may approach the bank to get a foreign draft, which he has received. We may consider the request subject to availability of the foreign banks specimen signatures which has to be verified to confirm the authenticity of the instrument. (FBP)
• A client may require a bank guarantee to be given to a service provider such a mobile net work to obtain certain services such as international roaming.
• A client may be given a credit card to finance his personal requirements. The limit of such card may be determined by his monthly income.

 

 

 

 

Methods of financing a Trading Customer.

 

A trading customer is a person who is engaged in buying of merchandise from the local market and resells with a mark up on wholesale or retail basis.

 

 

 

• A trading customer may require working capital for his day to day business activities such as purchase of merchandise, payment of administration & selling expenses which may be financed by a POD. His requirement for working capital should be a fluctuation need in which case a POD is suitable.
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• If the requirement for working capital is a permanent fixed amount it would be prudent to finance such requirement by way of a Term Loan. Where the client will be able to repay the loan with the profits generated from the business.
• If the requirement for working capital is a permanent fixed amount it would be prudent to finance such requirement by way of a Term Loan. Where the client will be able to repay the loan with the profits generated from the business.
  
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• Client may require the bank to purchase a trade related cheque to finance a an urgent payment.  This may be considered favorably depending on the drawer of the cheque.
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• If the client is extending credit to his clients they may get cheques which are post dated, and will have to wait till the date of such cheques dawns for them to encash or deposit to their account. This would no doubt tie up clients working capital which would result in liquidity constrains. We may consider granting the client a post dated cheque purchase facility for the client to over come their liquidity constraints.
  
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• There are clients who purchase produce such as paddy from farmers which require them hold large amounts of stocks at a given time. This is due to the fact that the client will have to purchase the entire produce from a particular farmer. In such cases the bank may consider giving Pledge Loans (PLN) and holding the produce in joint custody of the bank and the client.
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• Client may require bank guarantees to be given to his suppliers to purchase goods on credit. We may consider giving the client an Ordinary Guarantee for such requests.
  
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• A trading client may want to purchase a vehicle for the purpose of transporting/ distributing goods which could be financed by way of a Lease.
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• Any special equipment required for trading activity could be financed under a lease or a term loan.

 

 

 

 

Methods of financing an Importer.

 

An Importer is a customer who is engaged importing goods and equipment, to be resold on a whole sale basis or on retail basis. An importer may engage in trading of their imported commodities.

 

• PODs & Term Loan can be considered to finance their working requirements as described above.
• A Post Dated Cheque Purchase facility could be considered if the client is giving credit to their customers to get over liquidity constraints.
• Cheques may be purchased depending on the drawer of such cheques if the need arises where the client wishes to utilize the funds before it is realized.

• An importer would require a Letter of Credit line to import good on a regular basis. This is when the supplier is relatively strong or when trusts between the buyer and the seller are in the process of bonding. When they have engaged in business for some time the supplier may opt to send goods on DP or DA teams where there is no liability towards the bank for the payment.
• When the imported good arrive to the country the importer must have funding to retire the import documents and clear such goods from the port by paying the applicable duty. If the client requires funding for retiring of import documents we may consider a Revolving Import Loan (RIL) facility for the client. This is in another way of financing working capital for an importer.
• If the security provided to the bank is weak, the bank may not be willing to give a RIL, as the custody of the goods would rest with the client and there is always the chance of client misappropriating the sales proceeds of goods. In such a circumstance the bank may opt to provide the client with a Pledge Loan (PLN), where the goods imported would be locked in acceptable pledge store, jointly locking up with two separate locks. The client will repay the PLN part by part and get the stocks released as and when such payments are made. It is prudent to grant only a percentage of the import bill value (90% to 75%) to ensure there is a client’s contribution towards the consignment. This will incline the client to get the stocks cleared as soon as possible as there is clients own funds blocked in the consignment.
• In some instances the vessel carrying the cargo might arrive before the shipping documents (Bill of Lading) arrive at the bank preventing the importer from clearing the goods. This may result in unwanted demerge incurred for the delay clearing of cargo from the port. In such instances the client may request the bank to issue a shipping guarantee favoring the shipper claiming that our client has true title to the goods under the relevant Bill of Lading. This will allow the client to clear the cargo with a set of copy documents. Shipping Guarantees are usually given for consignments imported through LC terms. On exceptional basis there can be instances where such shipping guarantees are issues on consignments brought under DP or DA terms where the client has unquestionable reputation and integrity. Please note that when shipping guarantees are issued additional 10% margin from the invoice value should be taken. The value of a Shipping guarantees will be 300% of the invoice value.     
• The duty component is usually financed by the POD. But occasionally there can be instances where the duty component is incorporated in to the RIL or PLN.
• In some instances the imported consignment may be held by the customs for numerous reasons where proper duty component can not be decided. In such cases the client may require the bank to issue a PCC Guarantee (Principal Collector of Customs). This will guarantee a certain sum to the customs if there is additional duty imposed by them. The customs shall release the cargo relying on this PCC Guarantee. Please note that PCC Guarantee although has an expiry date, such guarantees should not be cancelled and may be claimed even after the said expiry date.
• Sometimes importers bid for tenders for the supply of good / machinery for the government in such cases the client will require tender guarantees and there after performance guarantees if they are successful in securing such tender/contract. Such contract may give provision for the payment of an advance for the purpose of caring out the contract, in which case the principal of the contract will require a advance payment guarantee to release such advance. In this case you will be required to formulate a suitable bank guarantee line for the client to accommodate such requests.
• Client’s requirements for vehicles machinery may be considered under leases.    

 

 

 

 

 

Methods of financing Exporters.

An exporter is a customer engaged in purchasing/ manufacturing/ processing commodities in Sri Lanka and export to a foreign land against a valid export letter of credit or a confirmed order. The export of may send the commodities in the form of finished goods or raw material. Export may be in the form of a service.

 

A client providing good and servicers to a BOI company is also considered a indirect exporter.

 

 

• Client’s working capital requirement can be financed by way of a POD or a TLN.
• If the client requires capital in the form of a capital infusion a TLN can be considered for this purpose.
• When a client receives an Export LC or a confirmed order, they will require working capital to process the order. Although this can be financed by way of a term loan or an overdraft this is not done so for the reason that it would be hard to monitor the activities of the client. There is always the possibility of client misappropriating funds. Therefore it prudent to provide the client with a Packing Credit Loan (PCL) for each Export LC or Confirmed Order. Always provide a percentage of the Export LC or Confirmed Order (75% to 90%) so that the client’s contribution is evident. This is to recovered by the relevant export proceeds.
• After processing the order client could carry out the export and prepare the required documents as per the Export LC or Confirmed Order. These documents would be then handed over to the bank for on ward transmittance to the buyer’s bank.
• If the export is under LC and all the necessary documents are in order and every thing is in conformity to the LC conditions the exporter’s bank would negotiate the documents and the exporter would get the export proceeds immediately. However most often this not the case as there would be numerous discrepancies found in the set of export documents in relation to the Export LC. In which case negotiation is not possible. These documents would have to be sent to the exporter’s bank on collection basis and the exporters funds would be blocked until such time the buyer receives the export documents and clears them (pay for them). In such cases the bank may offer a Export Bills Purchase Facility (EBP) to the client and offer to purchase the export documents there by giving the exporter immediate credit for his export.
• An exporter may receive foreign drafts for some reason the bank may be requested to purchase same to utilize the funds immediately. The act of purchasing such foreign draft is called Foreign Bills Purchase (FBP)
• Any vehicles or machinery may be financed by way of leases.

 

 

 

Methods of financing Manufactures.

A manufacturer is a client who would process raw materials and produce a finished good for the sale in the local or foreign market. The inventories of this client would be in three stages Raw Materials, Work in Progress & Finished Goods.

 

• Working capital could be financed by way of PODs & TLNs as described above.
• Capital infusion could be made by the banks by way of a TLN.
•  If the client is selling the finished goods in the local market all facilities mentioned under a trading customer are to be used,
• If the client is exporting the finished goods then all facilities mentioned under exporters are to be used.
• The client may require to import raw materials for the production process and the bank can offer all facilities mentioned under importers.
•  All machinery and vehicles required could be finance under leases.
• If the client requires buildings to house the industry a medium or long term loan could be granted to finance such requirements. Mostly these kinds of requirement are financed my way of refinance loan where the interest rate in much lower than the normal loan schemes.

 

 

 

 

Methods of financing Contractors.

 

Contractors are clients engaged in construction. There are four types of contractors. Civil, Electrical, Road, & Water.

 

• Client will require working capital to finance their day to day expenses such as wages etc, which could be financed by way of a POD.
• If the working capital requirement is a permanent deficit a TLN is more appropriate.
• Vehicles and machinery should be finance by way of leases. There have been instances where TLNs have been granted for the finance of machinery.
• Refinance loans may be considered for the finance of machinery provided this is within the parameters of the refinance loan scheme.
• If the client requires to purchase local cheque drawn by a reputed organization, a pay order or a foreign bank draft this may be considered under LBP or FBP as described above.
• A contractor has to bid for tenders to secure contracts. This requires Tender Guarantees (TDG) favoring the principal.
• After the tender is awarded the contractor must furnish a Performance Guarantee (PFG) to secure due and diligent performance of the contract.
• The principal may offer an advance payment to mobilize and commence work for which a Advance Payment Guarantee (APG) will be called for by the principal. Your client will request such guarantee to be issued on behalf of him.
• When the contract is concluded, most of the time the principal shall hold 10% of the contract value for a period of 6 to 12 months. This known as retention money. This is to hold the contractor liable for any short coming in the work done. If the client requires this money as well for the smooth running of his business they might request the bank for a Retention Guarantee to be issued in favor of the principal there by the principal shall release the retention money relying on such guarantee.

           

 

 

 

 

Methods of financing Service Providers.

 

Service providers are clients who perform or deliver some kind of service to its customers. A client who is in the telecommunication industry is a service provider. A client who provides an accounting and tax consultancy service is a service provider.

 

• Client’s requirement for working capital could be financed by way of PODs & TLNs.
• Their requirements for equipment & vehicles could be finance through leases.
• If the requirement to finance equipment is a substantial amount like in the case of mobile technology service providers it is prudent to finance same with TLNs. These loans are most of the time given as syndicate loans where two or more banks will fund the requirement of the client. This may be due to the fact that the loan quantum exceeds the single borrower limit of a bank or the banks may want to spread the risk involved.
• Any other facility may be offered to such clients looking at their financial requirements.

 

 

Methods of financing Brokers & Indenting Agents.

 

Brokers and Indenting Agents act as middle men for transactions between two parties. Usually these clients do not require any bank funding. How ever they may request for bank facilities on and off for numerous requirements.

 

• When ever there is a delay in receiving a designated commissions the client may require a over draft to fund their normal day to day activities such as payment of utility bills, salaries etc. The bank may decide whether such OD should be a TOD or a POD depending on the circumstances.
• Client may request you for a lease for a vehicle or computer to keep in touch with his foreign contacts, which may be considered after determining their level of regular income.
• Telecommunication service provider might request you to open a LC to import some equipment,which may be considered provided there is a facility line available to pay for the consignment when it arrives. A RIL should not be considered in cases like this, as RILs are granted for a short periods and involves goods for trading. It is prudent to have a medium or long term facility to fund such projects
• Any other facility requirements should be evaluated on a case by case basis.

By

Sanjeeva Pieris