Payment Terms and Financing Options to Maximize Sales While Protecting Against Nonpayment
The U.S. is Panama's primary trading partner. Panama's total imports from the U.S. were over US$9.9 billion in 2012 and represented a 30% market share of all imports for Panama. Over US$1 billion was exported from the U.S. through Panama’s Colon Free Zone to the rest of Latin America.
Despite the size of this market – and the fact that Panama uses the U.S. dollar as its currency - many U.S. exporters are unsuccessful in selling to Panama or increasing their exports to Panamanian buyers. Frequently, U.S. exporters lose sales due to the payment terms they demand of their Panamanian buyers.
U.S. exporters should be aware that Panama's lending rates are far higher than those faced by companies in the U.S. They are losing sales to Panamanian buyers because they are frequently demanding payment either by Confirmed Letter of Credit or Cash In Advance. This can result in the following situations:
1. U.S. exporter fails to win new sales contracts or loses existing Panama clients because other foreign competitors are willing to provide the Panama buyer with open account terms. Some Panamanian companies pay more just to get 30 or 60-day open account terms.
2. U.S. exporter sells less to a Panamanian client. One Panamanian company interviewed stated that it would purchase four times as much from its U.S. supplier if it were given 90-day terms rather than having to pay cash in advance.
3. U.S. exporter loses medium term sales contract because a foreign competitor assists the Panamanian buyer in achieving better financing terms.
While it is prudent for U.S. exporters to insist on secure payment terms, it pays for them to consider the broad variety of payment terms available to them in order to become as competitive as possible.
The purpose of this guide is to identify the main financing and payment mechanisms available to support U.S. exporters selling to Latin America in general and to understand the cost, advantages and disadvantages of each mechanism. This guide is an introduction and the reader is encouraged to use it as a starting point in order to become more familiar with the subject. In many instances, the use of expert help is recommended. To that end, the following mechanisms will be examined in this report:
1. Cash In Advance;
2. Confirmed Letter of Credit;
3. Open Account Terms;
4. Open Account Terms with Export Credit Insurance;
5. Documents Against Payment (D/P) & Documents Against Acceptance (D/A);
6. Export Finance by a US Commercial Bank (US$ denominated);
7. Import Finance by a Latin American Bank (Foreign Currency denominated);
8. Lines of Credit Available from Latin American-based Development Banks;
9. Sales to foreign public sector buyers with foreign Central Bank Guarantees are also addressed.
This guide was authored by the U.S. Commercial Service and funded in part by donations from PNC Bank and FedEx, U.S. Commercial Service Partners.
The guide is published in English (for U.S. exporters) and in Spanish (for you to share with your Panamanian buyers).
English Version: http://buyusainfo.net/docs/x_1197802.pdf
Spanish Version: http://buyusainfo.net/docs/x_7091554.pdf
For more information on financing exports to Panama, please contact us.