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  • 10.8.7-RISK AND THE RELATION TO TRADE CREDIT-WHAT A BORROWER MUST SHOW

  • THE-COFFEE-GUIDE.gif 
  • What a borrower must show

     
     

    Advances at each stage

    Borrower must show

    Ratio and cost of advance

    Conditions

    Financing of margincalls


    1.Document negotiation


    Real function, i.e. adds value.

    Track record. (Defaults are most likely to occur in the first 3 to 5 years of new operations.)

    Quality management.

    Understanding of the coffee business.

    Deals are correctly structured.


    Ratio or percentage of advance: highest.

    Interest rate: lowest.


    Sold to   approved buyer.

    Documents and/or payment via bank.


    Exposure has been hedged, or PTBF sale has been 'fixed'.


    2. Pre-shipment


    Appropriate business plan and reporting systems.

    In-house financial and volume limits.

    Clear document flows, proper stock rotation.


    Ratio: lower.

    Cost: higher.


    Pre-sold to approved buyer or hedged.

    Collateral manager.


    Depending on package and borrower's 'book'.


    3. Export processing


    Own capital.

    Visible, permanent and pledgeable assets.


    Ratio: lower again.

    Cost: higher again.


    Pre-sold to approved buyer or hedged.

    Collateral manager.


    Depending on package and borrower's 'book'.


    4. Interior buying


    Adequate warehousing and insurance.

    Access to collateral management.


    Ratio: lowest or even nil.

    Cost: highest.


    Pre-sold to approved buyer or hedged.

    Collateral manager.


    Depending on package and borrower's 'book'.