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Trade and Project Financing in Canada

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Sections

How Do I Get Paid (Methods of Payment)
How Does the Banking System Operate

Foreign-Exchange Controls

U.S. Banks and Local Correspondent Banks
Project Financing

Web Resources

How Do I Get Paid (Methods of Payment)

Methods of payment in Canada are similar to those practiced in the U.S. domestic market. Depending on the magnitude of the contract, U.S. manufacturers exporting to Canada generally ship on open account, and do not require letters of credit. Typical terms are 30 to 90 days with a discount of 1 to 2 percent of the invoice for early payment, usually, if paid within ten days. U.S. firms exporting to retailers, (mainly to department stores), tend to offer a higher discount for settlement within ten days. Normal precautions in dealing with a first-time customer should be exercised, and safeguards instituted wherever possible — at least until a good relationship has been established with the customer. While U.S. firms exporting to Canada may not face the same risks encountered in other foreign markets, caution in dealing with first-time customers should be exercised and safeguards instituted wherever possible until a good relationship has been established.

The U.S. Commercial Service in Canada offers the International Company Profile as a tool to help evaluate the creditworthiness of potential customers or partners. Moreover, U.S. firms may wish to consider using the U.S. Export-Import Bank’s export credit insurance program. The Export-Import Bank of the United States (Ex-Im Bank) is the official export credit agency of the United States and its mission is to assist in financing the export of U.S. goods and services to international markets. For further information please see: http://www.exim.gov

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How Does the Banking System Operate

The Canadian banking system is well-developed and mature, and in general highly conservative and regulated with more stringent rules governing leverage and capital ratios. While most of Canada’s financial sector is controlled by federal agencies, loan and trust companies, as well as life insurance providers may be governed by either federal or provincial regulations. For example, the co-operative credit movement, which includes credit unions and the caisses populaires in Quebec, are regulated almost exclusively under provincial jurisdiction. The Office of the Superintendent of Financial Institutions Canada (OSFI) is the primary regulator and supervisor of federally regulated deposit-taking institutions, insurance companies, and federally regulated private pension plans. They also regulate and oversee all foreign financial services companies operating in Canada.

The banking system in Canada groups financial institutions into five main categories: chartered banks, trust and loan companies, the co-operative credit movement, life insurance companies, and securities dealers. In 2010, there were 22 domestic banks, 25 foreign bank subsidiaries, 23 full service foreign bank branches and 6 foreign bank lending branches. Combined, these institutions manage CDN$ 3.1 trillion in assets. Banks account for over 70 percent of the total assets of the Canadian financial services sector, with the six largest domestic banks accounting for over 90 percent of the banking industry’s assets. These six major banks have a significant presence outside Canada in areas such as the United States, Latin America, the Caribbean and Asia.

Canada's banks operate through an extensive network that includes over 6,100 branches and 17,321 automated teller machines (ATMs) across the country. Canada has one of the highest numbers of ATMs per capita in the world and benefits from very high penetration levels of electronic channels such as debit cards, Internet banking and telephone banking. In 2010, over 71 million credit cards were in use in Canada.

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Foreign-Exchange Controls

The government of Canada does not restrict the movement of funds into or out of the country, and imposes no restrictions on the buying or selling of any foreign currency. Corporations and individuals can operate in foreign funds and arrange payments in any currency they choose.

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U.S. Banks and Local Correspondent Banks

Under NAFTA, U.S. banks have a right of establishment and a guarantee of national treatment in Canada. All major banks in Canada have the ability to do business with U.S. banks and some have operations in the United States. Major Canadian banks have correspondent accounts with most major U.S. banks.

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Project Financing

Over the last four years, Canada has been ranked by the World Economic Forum as having the soundest banking system in the world. While conservatism shielded the Canadian banking sector from much of the recent global financial crisis, it also means that companies in general tend to have more difficulty in securing trade or project financing. The U.S. Export-Import Bank provides trade and project finance support for U.S. exporters. Ex-Im Bank has a particular interest in supporting U.S. small and mid-sized companies, and especially those exporting in the following key industry sectors: oil and gas, mining, agribusiness, renewable energy, construction equipment and services, medical equipment and services, aircraft and avionics, and power generation and related services.

The Canadian government, provincial and municipal governments provide extensive financing support for major projects such as infrastructure, energy, and waste and water treatment sectors. In some cases, Canadian entities provide all of the financing for the project (usually through bond offerings), and open the project for competitive bid. In many cases (most often in the energy sector), Canadian entities offer natural resources assets for bid and seek project developers who can secure their own financing. In a growing number of cases Canadian entities seek to develop infrastructure or energy projects through public-private partnerships in which the Canadian side offers rights, loan guarantees, and/or partial financing in an effort to leverage needed additional project financing from private sector partners.

Canada does not qualify for project financing from any of the multilateral development banks such as the World Bank, the Inter-American Bank for Reconstruction and Development, or from the Overseas Private Investment Corporation (OPIC).

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Web Resources

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