Blog/News

West Coast Longshore Contract Extension

Sadie Keljikian, Express Trade Capital

Longshore workers from 29 ports across the west coast have voted to determine whether to extend the collective bargaining agreement they share with the Pacific Maritime Association, or PMA, for an additional three years. Early reporting on the ballot suggests that the extension will pass with 67% of votes, but the union’s Coast Balloting Committee will announce official results on August 4th. The agreement was scheduled to expire on July 1, 2019, but assuming the extension passes, it will be in effect through July 1, 2022.

The International Longshore and Warehouse Union (ILWU) voted on the unprecedented extension proposal after a year of debating and democratic process, allowing all registered longshore workers from Bellingham, WA to San Diego, CA to vote. The extension promises to raise wages, solidify health benefits and increase pensions.

ILWU International President Robert McEllrath said “The ILWU was founded on principles of democracy, and the rank-and-file always have the last word on their contracts. There was no shortage of differing views during the year-long debate leading up to this vote, and members didn’t take this step lightly. In the end, the members made the final decision to extend the contract for three years.”

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Decoding Invoice Terms

Sam Permutt, Express Trade Capital

Making sense of the various terms contained in invoices can be frustrating. Plus, terms are getting trickier and more involved as big customers continue to strategically extend their payment terms and interrupt cash flows for smaller businesses (in turn creating a greater need for factoring). When negotiating a purchase order or contract, it is essential to know what payment terms are, what they mean, and what options exist.

To help make sense of the most used invoice terms, here’s a helpful cheat-sheet:

Net due upon receipt of goods (or n/ROG)

If the terms are net due upon receipt of goods (or nROG, or n/ROG — “n” standing for “net”), the invoice amount is due when the customer receives the goods. Note that the date of “receipt” is up to the customer receiving the goods; goods can remain in a shipping container, for example, before the vendor decides to “receive” the goods. However, if the terms are Net 30 ROG, that means payment is due 30 days after the receipt of goods.

Net 30 days

Payment terms that require a simple count of days after the date of the invoice (e.g. N30, N60, N90, etc.) are the most common terms used between wholesale vendors and their retail customers. Luckily, they are also straightforward and easy to understand.

When an invoice states net 30 days (typically written as “N30”) the invoice amount is due 30 days from the date of the invoice. For example, if an invoice for $1,000 is dated July 1 and the terms are net 30, you need to pay $1,000 by August 1 or else additional fees or interest may apply. If the terms are net 60, the payment is due on September 1st (i.e. 60 days after the invoice date). For net 90, payment is due on October 1st (i.e. 90 after the invoice date), and so on.

1/10 Net 30

When an invoice includes the terms 1/10, n/30, the “1” represents 1% of the amount owed, the “10” represents 10 days and the “30” represents 30 days. According to the terms 1/10, n/30, you may take an early payment discount of 1% of the amount owed if the amount owed is paid within 10 days instead of the normal 30 days. In other words, you can pay within 10 days and deduct 1% from the invoice amount or pay the full amount in 30 days.

2/10 Net 30

Just like 1/10 Net 30, with terms of 2/10, n/30, the “2” represents 2%, the “10” represents 10 days, and the “30” represents 30 days. This means that the customer can take an early payment discount of 2% of the amount owed if payment is made within 10 days. In this scenario, the customer can choose either of the following: pay within 10 days and deduct 2% from the invoice amount, or pay the full amount in 30 days with no discount.

5/10, 2/30, Net 60

Under these payment terms, the customer gets a 5% discount if they pay within 10 days or a 2% discount if they pay within 11-30 days. Otherwise, full payment is due within 60 days of the invoice date.

Net 30 EOM

“EOM” stands for End of the Month. This means that the invoice is due and payable 30 days after the end of the month in which the goods were delivered. For instance, if the goods were delivered on July 15, payment is due 30 days after the last day in July.

Some account debtors (i.e. the buyers who owe payment on a given invoice) set cutoff dates whereby they consider all goods shipped after a certain date as if those goods were shipped the following month. For example, if the cutoff date is July 20th, and goods are shipped on July 21st, the buyer might start counting net 30 days after the end of July.

Net 10 EOM 30

Per industry practice, when an invoice is dated after the 20th of the month, the clock begins to run on the first day of the following month rather than at the end of the month in which the goods were shipped.

Therefore, if the invoice is dated July 25, the count starts 10 days after the month ends (thus August 10th) plus another the buyer has another 30 days to pay, meaning that the full amount is due on September 10th.

By contrast, if the invoice is dated July 19 – i.e., before the 20th of the month – the count starts 10 days from the invoice date of July 19th (thus July 29th) plus 30 days, meaning the full amount is due on August 29th.

*The party who is obligated to pay the invoice is referred to interchangeably as the “customer(s)”, the “buyer(s)”, the “retailer(s)” or the “account debtor(s)”.

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Why Use Purchase Order Financing?

Sadie Keljikian, Express Trade Capital

What is purchase order financing?

Purchase order financing is a trade finance solution designed to help businesses finance the production and shipping costs required to fulfill their customers’ purchase orders. This allows companies, typically wholesalers who import or export goods, to grow without selling equity or exhaustively increasing their bank lines.

In a purchase order financing arrangement, a financial institution pays for the cost of goods and shipping (or a substantial portion of that cost). Effectively, the payment is then a loan. Although a purchase order is not an asset, purchase order funders use creative means to secure their loan: in addition to filing a blanket lien on the borrower company, funders collateralize their loan with inventory which corresponds directly with the goods being provided by the supplier (and purchased by the financier on behalf of their client).

Why not just take out a traditional loan?

While purchase order financing, often called PO funding, is a remarkably useful tool for importers, exporters, and wholesalers across industries, it is also one of the least understood varieties of trade finance. As a result, businesses often don’t know it even exists and therefore miss the opportunity to fund their operations and maintain sufficient cash flow without accruing considerable debt. They usually agree to burdensome loan obligations, or relinquishing equity instead.

Many companies sign up for products that have a strong online presence or are otherwise easy to understand but are not ideal solutions. For example, SBA loans are very popular and inexpensive but they are also typically small, inflexible and take many months to get approved, whereas PO funding has none of those roadblocks. Alternatively, a lot of companies also take on high interest merchant cash advance loans (or MCAs) because they have invested a lot in marketing. MCAs are easy to understand, have quick and easy application processes and they employ aggressive sales tactics. However, PO funding offers more flexibility and greater loan amounts at a fraction of the cost.

Is purchase order financing right for me?

PO funding is helpful for companies who need capital to keep pace with their rapid growth or whose credit histories are insufficient to obtain traditional bank lines for operational capital. Unlike banks and traditional lenders, the purchase order funder underwrites the transaction rather than the credit of the business seeking the loan. Therefore, PO funders look to the credit of the final customer (usually a retailer) in addition to that of the wholesaler. By underwriting the transaction, the PO funder is free to look at the underlying purchase order and overall transaction structure rather than solely looking to the financials of the borrower.

In general, PO financing best suits suppliers with at least a few customers who place large orders. Having big-box customers is advantageous because they often have good credit, so your funding requests are more likely to be approved and financing costs will probably be lower.

Aside from credit requirements, purchase order funders look at many other aspects of the transaction. Purchase orders should have a minimum profit margin of 20% to provide enough cushion to cover the extra cost of PO funding. Purchase orders should also be non-cancelable. Due to wishful thinking or simple oversight, companies often overlook contingencies in purchase orders and might not realize that an order is actually on consignment, which allows the customer to return whatever goods do not sell. The purchase order can also call for partial consignment, unreasonably long terms, or any number of other onerous terms and conditions. PO funders are adept at reading purchase orders and helping their clients understand and structure their transactions more efficiently.

How are PO financing rates determined?

PO financing rates are proportionally based on utilized funds, meaning the amount that the finance company pays to the client’s supplier. Once the lender confirms the utilized funds, they use the supplier and the customer’s credit to determine risk. Like most traditional loan agreements, the bigger the volume, the lower the rates. Also, the greater the risk, the higher the rates.

Purchase order financing rates vary between lenders and locations, but on average, they are determined using a similar formula:

(a) Deal Fee – The funder will charge a “deal fee” or “facility fee” to do the transaction. The fee is usually 1-3% of the loan amount requested and covers service costs (i.e. processing and administrative costs).

(b) Interest – PO funders will then charge interest on the loan amount until the client pays it back. A typical PO funding interest rate is 2-3% for the first 30 days, and around 1% per 10 days after the initial 30. This is subject to change based on the creditworthiness of the client and/or that of their customer, and the risk involved in any given transaction.

How does PO funding relate to factoring?

While factoring and PO funding are different varieties of lending, they often work in tandem. When a wholesaler enters an ongoing factoring agreement, they receive funding against their invoices, which retailers repay (barring any issues). When factoring and PO funding are utilized in conjunction, funds lent against purchase orders can translate to an advance (or portion thereof) against invoices. In other words, the wholesaler no longer needs to repay the financial institution that provided funding against their purchase orders. The financial institution is then reimbursed when they collect from customers on the factored invoices.

How do I start?

If you plan to seek funding against your purchase orders, prepare yourself as best you can. Investigate your customers’ creditworthiness to whatever extent you can. If you and your customers have good credit, your lender will most likely approve your request and offer you competitive rates.

At the end of the day, the specific details of purchase order financing agreements vary from lender to lender and from one client to the next. Risk analysis is not an exact science, but if you find yourself short on operational funds and have reliable, creditworthy customers, purchase order financing can simplify your sales process and day-to-day finances significantly.

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Unclouding the Future of Manufacturing

Sadie Keljikian, Express Trade Capital

Job creation, especially in the manufacturing industry, is a hot topic in the US right now. Since last year’s presidential campaign, there’s been an ongoing debate among politicians, business owners, and news outlets about the future of domestic manufacturing. President Trump has blamed the uptick in outsourced labor and consequent job losses on NAFTA, calling it the “worst trade deal” in American history. However, numerous sources argue that technology and automation are the real culprits.

Several sources claim that machines (not outsourcing) are responsible for about 85% of US manufacturing jobs lost since 2000. Even so, many American-run companies are bringing domestic manufacturing back in anticipation of potential legal and regulatory changes emanating from the tumultuous Trump administration, like the proposed border adjustment tax. With advances in automation spanning every industry, even farming, and robotic technology becoming more affordable, it is hard to imagine that there are as many potential jobs in domestic manufacturing as voters have been led to believe. It’s easier for candidates to make vague promises than to explain the more complex and subtle truth. Thus, politicians have been stoking voters with pledges to bring back a golden age of employment that no longer exits and is no longer feasible.

Businesses are taking different approaches in their attempts to create jobs. Some are bringing manufacturing back to the US, banking on the cache of goods labeled “made in the USA” and on US consumers to support domestic businesses by purchasing them, even at a premium compared to their imported counterparts. However, since automation has taken over so many manufacturing processes, it is unclear whether it is a viable long-term solution for employment. Others are attempting to create new jobs by consolidating the retail experience. With recent difficulty in the retail industry, particularly among stores commonly found in malls, some retailers, like Walmart, are creating a mall-like experience within their stores. Many Walmart locations now include services like eye care, dining, and salons, which keep customers in the store by providing them with services they already need.

Other sources claim that there is a serious opportunity for job creation inherent in the current rise of e-commerce. As online shopping continues to grow in popularity, retailers who focus on e-commerce are hiring new sales staff at impressive rates. What’s more, comparable jobs in e-commerce have better salaries, paid leave, stock benefits, and insurance than similar positions in their brick and mortar counterparts. Unfortunately, however, these jobs are highly concentrated in major metropolitan areas, so they don’t reach most of the geographical US.

Some experts are still holding out hope for traditional US manufacturing jobs, just not in mass-produced products. In recent years, the US has seen a rise in domestic manufacturing of custom or handmade products. While these products will never reach mass-production volumes, they appeal to the conscientious shopper who is less concerned with cost than they are with knowing where their money is going. These businesses usually use eco-friendly, fairly traded raw materials and typically work on a much smaller scale, in terms of both space and workforce. Since the products are more expensive to make, they naturally cost more for consumers. However, marketing and sales of such products typically target consumers who are willing to pay the extra cost of purchasing ethically sourced goods, so low volumes aren’t as much of a hindrance to the success of smaller scale, eco-friendly, domestic manufacturers.

In contrast with all the above perspectives, some still say that domestic manufacturing employment is already far more prosperous than most of us realize. A recent paper from the Center for Opportunity Urbanism indicates that 52 of the country’s 70 largest metropolitan locations have actually seen an increase in industrial employment since 2011. Forbes agrees and both say that while manufacturing is unlikely to disappear altogether, the issue is not that the industry is disappearing, but rather that it peaked in the 1950s and will likely never reach or surpass those levels again. Both sources blame automation for the sea change in the industry.

Whatever the case going forward, several of the country’s most prosperous industries are changing the way they do business. Many companies employ technology to cut costs and increase efficiency, often at the expense of jobs. Others simply outsource their production to countries with substantially cheaper labor costs. Might this mean that the end of significant employment in the US manufacturing sector? Possibly. The shifting landscape indicates that the new challenge for governments, manufacturers, and especially for retailers, is creating new jobs. So far, that’s job we cannot automate or replace with technology. Either way, it seems clear that, as technology continues to advance, creative destruction will continue to bedevil any semblance of a stable labor market.

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CBP 201: Products to Watch Out For

Sadie Keljikian, Express Trade Capital

A galaxy of constantly changing regulations governs the complex world of US imports. In our previous article on this subject, we focused on agricultural and licensed products. This time, we focus on some of the primary regulatory requirements imposed on other varieties of goods.

Medications/Medical Equipment

Prescription drugs, and even certain non-prescription drugs, are strictly regulated in the US, so much so that imported medications and medical equipment must be declared and permitted by CBP and the FDA ahead of shipment. Adding to the difficulty of regulatory compliance, international laws regarding medical supplements and equipment change quickly and often, which requires importers to stay vigilant and nimble.

Paperwork is paramount. For example, drug paraphernalia imports are illegal in the US unless intended for “authentic medical conditions.” If you import goods classified as drug paraphernalia, it is safest to include as much documentation as possible to specify and confirm the intended use of the items in question, including medical records if possible. Thorough documentation should, in theory, help your goods move more quickly, but you should always build in extra time in case CBP flags your shipment for inspection.

Automobiles

Depending on your level of experience in the automotive industry, you may have trouble auditing your automobile imports since regulations are more technical than those for most other products.

First and foremost, any automobiles imported into the US must adhere to the Environmental Protection Agency’s fuel-emission requirements, unless the vehicle was manufactured before a designated date. Gasoline-fueled cars or light-duty trucks, for example, must adhere to federal emission standards unless they were manufactured before January 1st, 1968.

Furthermore, if the vehicle has ever been driven outside the US, its undercarriage must be thoroughly cleaned to remove any foreign soil or dangerous pests. CBP indicates that you must have the car steam-sprayed or thoroughly cleaned by other means prior to shipment to prevent ecological damage.

There are also specific documentary requirements for automobile imports including EPA form 3520-1 and DOT form HS-7. Depending on the vehicle’s size, vintage, and fuel efficiency, there may be more. As always, do your research or hire a customs broker if you aren’t confident in your compliance.

Ceramic Home Goods

Although items like ceramic tableware and other home goods are not restricted per se, some ceramic goods from outside the US contain dangerous levels of lead in their glaze. These products are ultimately unsafe because the lead can seep into food and beverages served on or in them. Therefore, when importing ceramics, the primary concern is lead concentration.

CBP recommends testing the lead content in imported ceramics to avoid distribution of harmful goods. Since a lot of countries do not have strict legal guidelines for vessels intended to handle food, foreign government agencies will often skip this step. Thus, it is up to the ceramics importer to obtain satisfactory inspections and documentation.

If you must import and distribute ceramics that are not safe for food or drink, or you cannot ensure quality control or compliance, you must provide clear instructions to use those ceramics for decorative purposes only when you distribute them to avoid endangering customers and possible litigation.

Cultural Artifacts

One of the more prevalent challenges in importing is monitoring your supply chain. If your goods come from a foreign country, and you aren’t familiar with your supplier’s practices, you could find yourself in possession of, and liable for, stolen cultural artifacts. The best way to avoid this is to know with whom you are doing business and remain extra cautious in countries that are home to frequent artifact smuggling. As always, obtaining thorough documentation is key to avoiding confrontations with the CBP and other government agencies with jurisdiction over the matter.

Alcohol

While alcohol imports are generally legal in the US, one must acquire a permit from the Alcohol and Tobacco Tax and Trade Bureau before importing alcohol for sale. It is also important to note that most alcohol regulations differ between states. Thus, there are limits on the quantity of alcohol one can bring into certain states. Importers must always thoroughly research the regulations of state into which they plan to import alcohol and acquire any additional permits.

It is important to note that absinthe and any comparable spirits fall under stricter regulations. If you import absinthe, you need full details on the brand you plan to purchase and its packaging. Bottles labeled with the word “absinthe” or printed with images implying psychotropic effects may not be imported into the US. The product must also contain less than 10 parts per million of thujone due to its potentially dangerous effects.

These are just a few of CBP’s regulatory requirements and restrictions. CBP’s numerous regulations cover virtually all commercially traded goods. Before importing goods, educate yourself thoroughly, or, hire a competent customs broker to guide you through the process and to ensure that your goods are never delayed or detained due to lack of compliance.

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