Tales of foreign sales.

Bob and Kang are on different sides of the same sale, not to mention different countries. Tune in for a lighter look at the snags they encounter in sewing up their export transaction.

This is an accounting novel that juxtaposes the complementary perspectives of a buyer and seller in global trade. Bob is controller of a U.S. manufacturing company, and Kang is a Far Eastern buyer purchasing some paper-converting machinery from Bob's firm. The story follows the sale from signed equipment order to installation. Do any of these export issues sound familiar to you?

THE PROCESS BEGINS

June 3, 1996

A short time ago in a bank far, far away, Kang applies for financing.

KANG: I signed the equipment order four months ago, and I keep faxing their sales manager that we're working on getting the funds. The import license requirements makes the whole deal a chicken-and-egg situation. When we finally get the license, it's good for only three months. I have to be careful on the letter of credit's latest ship and expiry dates.

Meanwhile, back in the States ... Bob is contemplating the sale to Kang.

BOB (sings): Summer's here and the time is right for deposits in the banks!

The equipment order shows a total price of $500,000. A 15-percent deposit is $75,000, with a letter of credit for the rest. Will they be home for Thanksgiving?

I don't get it. It's been four months since sales gave me a copy of the faxed, signed order. So what? Without money, the customer isn't really committed. Our general manager has decided to release a stock machine to manufacturing. If this customer doesn't come through, we're stuck with a finished product and no cash.

At a recent export seminar, a speaker told me Bank of America flowcharted this foreign-credit-approval process. I'll try to get a copy.

REFLECTIONS

July 1, 1996

KANG: The Drupa [a German acronym meaning "spotlight on all new technologies for the global printing and paper market"] trade show was quite an experience. Dusseldorf gets to accommodate the revenues of more than 500,000 visitors from the printing industry. Seems like it took a week to find the Americans' booth, but watching their machines run made it easier to see which equipment would serve us best. You can't be too careful when you're investing half a million dollars. It was also nice to meet the people who actually design and build the machine. They seem to have a good relationship with Vince, their Far Eastern sales agent.

BOB: Glad we got something at Drupa. Almost half a million in expenses and I'm still paying their people. Finance charges on invoices I've never seen before. They must resent our beating their home-country manufacturers. And the VAT (value-added tax) game. It's like deposit bottles. Their government hopes it's too much of a hassle to turn in something for money back. At 15 percent of most of our expenses over there, that's about $50,000! Not this guy. I'll get good marks for follow-up on those documents. Several vendors are anxious to help us get our money back faster - that's because the fee is usually 15 percent of the recovered amount.

Since we'll probably get orders from Drupa through 2000, I'm going to capitalize the show costs. My research built a strong case. After discussing this at length with the president, general manager and our audit partner, three years amortization seems quite appropriate.

Fax madness for two weeks. Must have sent 10 on the China Books order - forfeiting rates, net-present-value analysis, lists of Ex-Im Bank facilities from the trade resource center in Portsmouth, N.H. They're smart buyers. A lot of work, but since they used one of the banks on the Ex-Im Bank list, certainly gratifying. The L/C instructions I sent should make our lives easier come shipment time before Dec. 31, I hope.

CIF (cost of insurance and freight) is a good compromise. We get to use our own freight forwarder. That means peace of mind for us, because I'm not big on trusting unknown people to collect on our letters of credit. And we'll get a good steamship rate. I hear there's movement in Congress to eliminate the Department of Commerce. Obviously some legislators don't know how much help little guys like us need. About 20 percent of last year's sales were from Ex-Im Bank-guaranteed loans.

Maybe I should think about their working-capital guarantee. It'd be nice to get the cash ahead of shipment. A company has to work with its local bank well in advance, though. Too late on this order, but I'll seriously consider applying on the next deal.

Have to get the import tariff rates on our customer's countries. The country-desk listing from Washington will be very helpful. I just call the "China" person, and she'll tell me how much tax China Books will have to pay its government for bringing in our machine.

CLOSING THE DEAL

Aug. 1, 1996

KANG: The bank just called me with an approval for a loan. Now I've got to get wire instructions for the 15 percent from those pushy Americans. They said delivery this December. I'll put down the latest shipment date of Dec. 31, with an expiry of Jan. 31.

BOB: It's almost too good to be true. Try not to get emotional, Bob. They'll probably take three weeks to transfer the funds. And we can't ship the machine until we get the original L/C - but wait a minute. I'll ask Kang to permit shipment through Montreal on the L/C when I fax the wire instructions. Then we don't pay those harbor maintenance fees.

PRODUCTION AND SHIPMENT

Sept. 4, 1996

KANG: Now we just need to wait for the machine to get here. This faxing across the world is awkward, because while I'm writing in mid-morning, they're going to bed. I'd better order that counterstacker option. The extra $20,000 should be worth the plant efficiency we'll gain. I'm sick of bank rhetoric, so we'll just wire them the additional funds before shipment. The amendment to the L/C will cost too much time and money.

We really need to get this case-maker machine into production early next year. We'll have to increase capacity to handle the orders we expect. I should ask the Americans when I can fly to New Hampshire for the acceptance test.

BOB: If we're going to get the China Books casemaker out this year, the customer must accept it by Dec. 16. That gives us a week to break it down and skid it, and a week to get it on a boat. We have very little room for error because of the holidays. Besides, the customer wants special packing in desiccant because of climatic conditions. So we'll need to send the shipment to a packing specialist before it goes to port.

The export incentive from the government works well with our foreign sales corporation. If we accomplish a $250,000 gross margin, foreign taxable income (after allocating operating expenses) will be $100,000. Normally, the federal tax would be $34,000, but under the incentive, we'll actually pay $2,720 on the 1120FSC return form. That's over $31,000 in savings!

Nov. 1, 1996

BOB: Things are getting tight because of that counterstacker option. Engineering had to do a fair amount of extra work to get it released. But the pro formas I've been sending around to all the managers shows them how much positive impact this one shipment will have. Seems like the company's mental health gets stronger when we have a very tangible goal like this.

Time to send the original L/C to my forwarder by second-day air. Can't forget the bank invoice forms and marine insurance certificate. Fast Forward Co. will get the invoice approved by the bank faster, but their insurance cost for one shipment is almost what I pay for my annual policy.

Dec. 2, 1996

KANG: Bob faxed me possible vessel dates. They're going for Friday, Dec. 20, out of Montreal, so I'm booked to be in New Hampshire Dec. 11-15. That vessel arrives in Shanghai Jan. 25. That would be just right. I hope they'll be ready, because our material will be a challenge for them to run. But we need to make sure it runs properly, or it'll do more harm than good to ship it just to make deadlines.

Dec. 9, 1996

BOB: I'm glad our general manager decided to release the casemaker as a stock machine during the DRUPA show. He okayed it because the China Books deal looked firm. We'd never be able to ship it this year otherwise. Kang seems like a decent person - very bright. They got their material here two weeks ago for us to try, and since then manufacturing has been working hard trying to meet their specs. I hope we have a good week.

Dec. 13, 1996

KANG: The machine looks impressive, but I'm not convinced we can run a consistent 120 per minute. I insisted we come in tomorrow for one more demo. They're close, so if they don't quite do it, I won't pay the installation bill until we're comfortable with production at our plant. Besides, Bob told me the boat will probably leave late, so they have a little extra time to get the container to the pier.

BOB: Why do foreign shipments at year end always - per Tom Waits - "put the vice grips on my mental health"? Cheryl at Fast Forward said we should be ready first thing Monday, Dec. 16, if we want to get the container on board for Dec. 31. Since nothing happens the last week of the year, it needs to be there this Friday morning to be processed by the line. The steamship companies will probably start the holidays at noon on the 24th.

Red alert! Call Cheryl immediately and tell her the 40-footer must have a wooden floor - with no room for surprises.

Jan. 2, 1997

KANG: Bob just faxed me the ocean bill of lading. On board vessel Tiger Shark Dec. 31; estimated day of arrival at Shanghai is Jan. 30. They just made it! I'm glad we ran Saturday, Dec. 14, though. We should get good production consistently after they install it here.

BOB: Thanks to Kang, I can pay some frivolous personal credit-card bills with my Christmas check. Because China Books has a debit account in Boston, we save about two weeks' float. Speaking of bills, this collection will help the hefty accounts payable runs we have coming up this month. And the auditors know my receivable journal entry for this shipment as of Dec. 31 was proper.

RELATED ARTICLE: BOB'S EPILOGUE: REAL-LIFE SOLUTIONS

This novel is based on some of the frustrations I've had while handling export transactions for my company. As I wrestled with these dilemmas, I often longed for an export handbook or training sessions that would encapsule all of the information companies need to make exporting easier.

Today, that's no longer an idle wish. I've been working with my local trade resource center to schedule some brainstorming sessions on the nitty-gritty of exporting. This May, we'll begin with trade finance, inviting bankers and controllers. We'll flowchart how an importing buyer obtains financing. In subsequent seminars, we'll cover the meaning and composition of a steamship conference; when to pursue duty drawback; NAFTA documentation changes; and how much a business can be fined for false declarations of value on export documents.

For more information, contact Dan Hussey, International Trade Resource Center, Portsmouth, N.H., at [phone]; fax [phone]. Or to locate your nearest trade resource center, call Ex-Im Bank at (800) 565-EXIM, extension 3200; fax [phone]. The e-mail address is www.exim.gov. - RRC 

Mr. Costa is controller of Crathern Engineering Co. in Contoocook, N.H. He works out his pet exporting peeves by turning them into plays and novels. You can reach him at [phone].