HOW CHANNEL FINANCING IS SPEEDING UP THE PAYMENT PROCESS FOR SHIPPERS

When U.S. tech companies sell their products overseas through far-flung distributors, there’s often a long lag time between the moment they send the product on its merry way and the joyful moments when payments for the goods arrive from these distant sellers.

It’s not that the resellers are trying to evade payment. Often, they are small businesses that don’t have much access to credit and are waiting for their own clients to buy the products from them to in turn pay the vendor. While vendors may understand their predicament, it can be hard to wait for 60 days, 90 days or more to finally get a check from a reseller while facing their own looming bills, like paying rent or making payroll.

Enter channel financing. In this arrangement with a bank, a vendor issues an invoice to a reseller or a buyer and gets paid for it—minus the bank’s charges for financing the transaction—as early as the same day, with the money coming from the financing institution. The bank, as the middleman in the transaction, receives a payment from the reseller or the buyer in an agreed-upon period, such as 60 to 90 days. The idea is to make it possible for vendors to sell their products to distant distributors with little access to credit, whose slow-moving payments might otherwise lead to a cash-flow crunch for the vendor. In some cases, a vendor wants to insulate its network of buyers from local market conditions that could limit their ability to purchase its goods.

“It is really end-to-end financing,” says CPA Bill Braunberger, a partner at Moss Adams, an accounting and business consulting firm headquartered in Seattle, Wash., who has arranged channel financing for his clients.

Channel financing has picked up steam in the past decade, as banks have made a push to offer customers an alternative to letters of credit, which some customers grouse cost them too much.

“Banks are doing this in response to the fact that their letter-of-credit volumes are going down, as customers move to open accounts,” says Michael McDonough, senior vice president and head of Product, Global Trade and Finance Receivables at HSBC Bank USA, N.A. “There is a view in the market that letters of credit carry fees that can be done away with. Banks are looking to re-engage in the space, with a more modern, technically sophisticated solution.”

At Wells Fargo, says Steven Hopkins, senior managing director of Supply Chain Finance at Wells Fargo Capital Finance, “There’s been growth every year.” Some of that uptick in channel financing has come as a result of acquiring two institutions that offered the product: Wachovia Bank and Castle Pines Capital, acquired in 2008 and 2011, respectively.

One advantage of channel financing is that it can be used to simplify a complex web of financial relationships between vendors and their resellers and distributor. Another benefit, notes Braunberger, is that it can help vendors deal with currency risks. Banks employ specially tailored, high-tech systems to keep track of the transactions going on. “This is very much a living and breathing, dynamic financing business, with an awful lot of activity,” says Stephen Elson, managing director, supply-chain finance at Wells Fargo Capital Finance.

That said, channel financing isn’t ideal for every business involved in international trade. It is generally structured to meet the needs of small and midsize companies that work with multiple distributors who can’t pay swiftly for goods purchased. The idea is to make these relationships more sustainable for both parties. “If the vendor chooses to subsidize the resellers, it could represent a very attractive package for the resellers, compared to their own bank line of credit or capital,” says Elson.

Conceivably, some well-capitalized vendors could extend trade financing to their distributors without the added cost of having a bank act as a middleman in the financing. Like other short-term forms of financing, channel financing costs more than, say, a business loan guaranteed by the U.S. Small Business Administration. “It is short-term working capital,” says Elson. As such, it is a little bit more expensive.

Channel financing tends to be best for substantial-sized small businesses and midsized firms. The typical reseller credit line for a vendor sponsored channel financing program at Wells Fargo is $3.5 million to $1 billion, according to Hopkins.

And if slow payments from resellers are not the reason for the cash-flow crunch you are experiencing, this product may not help you resolve your problems. “It gives the buyer more time to make a payment and the seller gets their cash faster,” says McDonough. “Both parties achieve the goal of working capital optimization.”

Is channel financing right for your company? Here are some key factors to consider.

What are your business goals? Banks involved in financing international trade for small and midsize firms typically offer a suite of products aimed at exporters, so it is a good idea to talk with your accountant or banker to find out if channel financing is actually the best option for you. It is generally marketed to companies that want to provide financing to multiple businesses that are important sales channels for a product. Usually, channel financing is tailored to vendors with recurring transactions with their resellers, say experts.

“Banks have tended to try to look for flows of transactions, where there’s a regular flow of business between a buyer and supplier, whether cross-border or in the same country,” says McDonough.

An exporter that needs to finance receivables from overseas customers who fit a different profile might be better served by other options. For instance, in trade receivables financing, an exporter that sells its wares or services to one or two big corporate customers abroad might get an advance from a bank against the value of receivables from those customers. The rates for the advance would be based on the credit profile of the corporate Goliaths, which is generally far better than a small vendor’s.

What is your industry? At Wells Fargo, channel financing is increasingly used by tech firms that rely on networks of distributors. “We identify those vendors we’d like to build a relationship with,” says Hopkins. Typically, the vendor, which becomes the sponsor for the program, will then identify channel partners to which it will be sending invoices it would like to finance through the bank to get quicker payments.

Other banks make channel financing available to businesses trading in a variety of industries. For instance, in one case, Braunberger secured channel financing through a bank for an electrical products maker with joint-venture partners in China. (Channel financing is also available in many cases for domestic transactions.)

Is the price right? Using channel financing requires the vendor to pay a combination of interest and transaction fees, so it is important to figure out if using it ultimately helps you sell enough of your products for it to pay off.

The rates you pay for channel financing vary, but, notes McDonough, “it is all based on the buyer’s credit risk.”

To picture how this plays out, envision that you are a small tech firm selling to value-added resellers overseas and need to finance a $100,000 invoice that you have sent to one of them. The buyer of your products—that is, the resellers—promises it will pay the bank in 90 days. “I might pay the exporter $96,000,” explains McDonough. “The bank would be willing to advance that money to the exporter today. The $4,000 becomes my fee for giving the exporter the money 90 days early.” There would be no cost to the resellers. However, if the resellers did not have excellent credit, the cost of financing could rise. The bank might charge $6,000 or $7,000 for the same-size transaction.

Banks also consider other factors in pricing, such a program size and the size of transactions, notes Hopkins. But bear in mind that the cheapest deal may not always be the best. Channel financing isn’t easy to wrap your mind around at first—and you need to understand its ins and outs to use it successfully.

“If you are new to this vertical financing arrangement, don’t get too caught up on the cost,” advises Braunberger. “Look at the services. There is a huge education process associated with it.”

4 QUESTIONS TO ASK IF YOU’RE CONSIDERING A CREDIT FACILITY

When exporters want to win new business from clients who are oceans away, they often rely on a secret weapon: credit facilities.

This type of financing—typically a revolving line of credit or, for those with strong balance sheets, a term loan—can give the exporter enough of a cash cushion to extend payment terms that go beyond 30 days, says Gary Mendell, president of Santa Monica, Calif.-based Meridian Finance Group, which provides credit insurance and trade finance tools to exporters. That can be an important selling point with distant clients, who may have limited access to credit from their own banks and may face high interest rates, currency exchange controls and other obstacles. And it may help an exporter encourage distant clients to stock up on items that are cumbersome to ship by placing larger orders. “Credit lubricates commerce,” he says.

Having a credit facility can also cushion a business from cash-flow problems if a client takes 90, 120 days or even more to pay the bill—which is not uncommon in many parts of the world, even among clients who always pay in the end. “Slow payments can come from anywhere, not only emerging markets in Asia, Africa and Latin America, but also from customers in Europe, especially since the advent of the economic crisis in the Euro-zone,” says Mendell. By financing its accounts receivable, an exporter can continue to pay its overhead and invest in new opportunities in the meantime, he says.

There’s a hitch, though. While many U.S. banks offer credit facilities to large and midsize businesses, banks don’t often offer such products to smaller firms, so these deals can be hard to arrange, notes Rohit Arora, CEO of Biz2Credit, an online matchmaker between businesses and lenders based in New York City. “That product is not available very easily,” he says. Arora adds that in his experience, small firms often turn to the export financing available through the U.S. Small Business Administration. Because of the lack of options, when small loan applicants inquire about credit facilities at his firm, he says, “What we do is offer a normal credit product, and they use it for export financing.”

Nonetheless, some banks and alternative lenders do work with larger small businesses on credit facilities. “While larger banks may offer a broader range of international trade services, some smaller businesses may find their receivables financing solutions with community banks or non-bank asset-based lenders,” says Mendell. “A growing numbers of smaller banks, factoring companies, and other lenders are learning to work with export credit insurance, foreign receivables financing, and other trade finance services once provided only by larger banks.”

Here are some key questions to ask yourself if you’re thinking about using a credit facility.

Why do you need the financing?

Finding a solution to slow paying, credit-challenged international clients isn’t the only reason a credit facility may work for you. For many companies, credit facilities are useful in an international expansion. “They need a line of a credit to help them fund their business as it is growing,” says Derrick Ragland, executive vice president and head of mid-market, corporate banking, HSBC Bank USA. One industry for which credit facilities are common is energy, where companies use this type of financing for projects like oil exploration or laying pipelines.

Is your company ready for scrutiny?

Because of the risks involved in financing international businesses, lenders tend to vet borrowers carefully. “We spend a fair amount of time doing due diligence on the business plans people provide us,” says Andy Moser, CEO and president of Salus Capital Partners, a provider of secured asset-based loans headquartered in Needham Heights, Mass., that generally makes deals in the $5 million to $50 million range to privately held and publicly traded companies.

Salus also spends a lot of time getting to know the management team. Often bringing in outside consultants to help in the vetting process, the lender looks at a company leader’s ability not just to execute a business plan but to adapt it to new circumstances. In today’s fast-changing business climate, “You have to react to change really effectively,” Moser says.

Before Salus makes a deal, it arranges a “field exam,” which Moser jokingly describes as “an audit on steroids.” If you want a credit facility, he says, you need to show that you have audited financials, not just those that have been reviewed by an accountant, a process that is less rigorous. Banks typically share this requirement.

“You really can’t attract investors or raise any meaningful amount of capital without having a good audit,” Moser says.

Can you pay back the loan?

This is likely the number one question in a lender’s mind. Before arranging a credit facility at HSBC, says Ragland, bankers want to see if the company’s assets match the funds it will be issuing. That applies to importers, as well as exporters. “If they are going to be buying goods overseas and selling them here in the U.S., are there assets to back up that usage of the money?” he asks. Banks typically advance a portion of the money based on accounts receivable or inventory, he says.

It is also important to safeguard yourself against nonpayment risks—which lenders may require. “In most cases, banks and other lenders in the USA will not finance foreign receivables unless the sales are protected against nonpayment risks with an export credit insurance policy,” says Mendell.

How much will it cost you?

Credit facilities will often cost you around the same as other loans from a bank. For smaller businesses, SBA loans may be part of a credit facility. Their interest rates are typically the prime rate (3.25 percent at the time of publication) plus no more than 2.25 percent for loans maturing in seven years or less. Rates vary, based on factors such as the strength of the company. “It’s also based on how they’re using the money—short term money, long term money—and what life cycle the company is in,” Ragland says. Bankers will also evaluate factors like how you will be paid in a deal you are financing with a credit facility, given that fluctuating currency may bring some risk.

If you turn to a nonbank lender, it may cost you more. At Salus, the total equivalent interest rate of the loan, including interest and fees, would typically be in the high single digits or low teens, says Moser. “We’re above a bank but certainly less than equity or other fund type investors,” says Moser. “You have to weigh pricing with the flexibility of the structure and the liquidity you get. In our case, we are always providing much more liquidity than anyone else, much more than a bank. There’s a higher cost to that.”

TIPS FOR SECURING SUPPLY-CHAIN FINANCING IN A TOUGH LENDING ENVIRONMENT

When Stella & Chewy’s, a manufacturer of all-natural dog food, wanted to finance new equipment such as freeze dryers for a new facility in Milwaukee in 2011, CFO Greg VerPlank tried a strategy that many companies abandoned after the global financial crisis. He turned to the company’s banker.

Paul Sackman, an assistant vice president of Commercial Banking at Park Bank, a local institution focused on serving southeastern Wisconsin, worked with Stella & Chewy’s to secure the loan for the equipment and refinanced its existing debt, says VerPlank. While VerPlank declined to share the exact amount of the loans, he says, “The bank has been very amenable to all of our financing needs.”

Hunting down financing for the various elements in a manufacturing company’s supply chain has never been simple. That’s been especially true since the recession, given the slow thawing in lending by banks, which are generally seen as the most cost-efficient source of outside capital. “It’s been a somewhat difficult time for companies to find financing,” says Carol Lapidus, partner and national leader for Consumer Products Industry at McGladrey, a provider of assurance, tax and consulting services.

Like Stella & Chewy’s, some manufacturers have succeeded in securing a line of credit from their banks while others have gotten creative by negotiating favorable terms with suppliers and customers or turning to short-term, alternative financing or private-equity investors. The 2013 Capital Markets Report by the Pepperdine Private Capital Markets Project found that among deals closed in the 12 months prior to September 2012, 20 percent of asset-based lenders had worked with firms involved in manufacturing, making this the best-served among all industries. Among private-equity investors, 19 percent said they were involved in deals with manufacturing firms. The trend is likely to continue. Among private-equity professionals, 19 percent said they planned to make investments in manufacturing companies in the 12 months after the survey.

While there are plenty of supply-chain financing options for manufacturers, it can be hard to navigate them. Here are some tips on how to find the money you need.

STREAMLINE OPERATIONS

Reducing the funding you need to the bare minimum will not necessarily give you an edge in winning a bank loan, because very small deals that aren’t very profitable may not be so attractive to lenders. A May 2013 survey by the Federal Reserve Bank of New York found that while 73 percent of small firms in New York, New Jersey and Connecticut that sought loans of $100,000 or more were successful in obtaining them, only 57 percent of those seeking less than $100,000 got the money they wanted.

However, making operations more efficient and preventing wasted supplies can reduce your need for financing. Rick Pay, a Portland, Oregon-based consultant specializing in operations and the supply chain, says that many companies he sees have to replenish their stock about four times a year. “If they could take that to six, they could free up a significant amount of cash,” he says, because buying less more often would reduce inventory by one-third, thus keeping more cash on hand and diminishing the need for financing.

NEGOTIATE BETTER DEALS

Some small manufacturers are improving cash flow by asking clients for payments up front, progress payments in which they get paid in installments before a job is completed, or help in financing raw materials, says Jill Lippert, a quality engineer at Exact. The Netherlands-based firm with offices in the U.S. offers manufacturers solutions in areas such as production and logistics, including software to help them determine the precise amount of inventory to keep on hand. “They are getting really creative,” says Lippert of the contract manufacturers she often works with. “I see this trend continuing.”

When bank financing slowed during the recession, many manufacturers were also forced to negotiate better terms with their suppliers, according to Jeff Stibel, CEO of D&B Credibility, which handles credit scoring for businesses. For instance, a manufacturer might ask to pay suppliers in 90 days rather than 30. Stibel sees this approach continuing and potentially reducing the role of banks. “A lot of these companies have found this alternative to be much more cost effective,” he says.

Paying on consignment is also becoming more common. Firms that make machines might negotiate a deal to pay a component supplier once it actually sells its machines, for example. “It’s a virtuous circle,” says Stibel. “If you’re a supplier of machine parts, your goal is to sell those parts. If a purchaser who’s making a widget can’t afford to buy them, you’re inclined, as long as it is a reputable firm, to say, ‘Just take my parts on consignment.’ At least they’re getting payment and expanding their business.”

Stibel says that by forcing firms to work more closely with their trade partners, the reduction in bank financing could ultimately make some manufacturers more competitive. “It could eliminate a middleman that was increasing the costs of fulfillment,” he says.

LOOK FOR A FRIENDLY BANK

If you do need to seek outside financing, it’s hard to beat a bank loan on interest rates. The maximum rate in the U.S. Small Business Administration’s popular 7(a) loan program, often used to finance operations, is the base rate (currently 3.25 percent) plus 2.25 percent, if the money is due in less than 7 years. The average 7(a) loan size was $337,730 for the 2012 fiscal year.

While lending may not be back to pre-recession levels, some banks are actively trying to recruit manufacturers as customers. In July, HSBC Bank USA announced a $1 billion, 18-month dedicated loan program for small and midsize U.S. firms looking to export or find growth opportunities abroad. The financing can be used to cover supply-chain costs, according to a spokesperson. Some banks also offer asset-based financing, although it is generally easier to secure for domestically made products than for those being manufactured overseas, says McGladrey’s Lapidus.

As Stella & Chewy’s found, small, local institutions may also welcome business from firms in their area, so stopping into your neighborhood branch may pay off. “What I’m seeing is the smaller community-sized or regional-sized banks seem to be a little more aggressive in dealing with small- and middle-market companies,” says consultant Pay. “They tend to be offering a little better terms.” VerPlank, Stella & Chewy’s CFO, has stayed in close touch with his banker. “I have daily conversations and golf with him,” he says.

TRY ALTERNATIVE FINANCING

Methods like factoring and purchase-order financing can be very costly compared to bank financing, but for manufacturers with a troubled credit history or poor cash flow, they can be a good short-term solution, say experts. “That’s where you go as a last resort,” says CPA Richard Levychin, a partner at accounting firm KBL LLP in New York City. In factoring, a manufacturer will generally sell its receivables to a financing company for a discounted price. With purchase-order financing, a business with a purchase order from a customer can receive financing to pay its suppliers. The average annualized rate for factors often ranges from 24 to 30 percent, says Levychin. For purchase-order financing, rates may be even higher.

Lapidus has seen an uptick in use of purchase-order financing among U.S. firms that contract with factories overseas. “It used to be that more companies that were manufacturing overseas had a relationship and were getting terms,” she says. “They didn’t have to pay the factory for 30 to 90 days after the goods were produced.” However, economic problems in other parts of the world have put pressure on plant owners there, she notes.

Companies can reduce the costs associated with manufacturing in Asia by minimizing the need to fly goods to the U.S. from other countries and instead ship by boat, which is slower and cheaper, Lapidus notes. She adds that some advance scheduling is required to be sure goods make it to retailers and others sales outlets on time.

CONSIDER A PRIVATE EQUITY INVESTOR

In the past, many manufacturing-firm owners looked to private-equity firms to buy them out when they were looking to retire. However, experts say that more owners are now willing to sell a stake to outside investors in exchange for growth capital—and finding them very responsive. “There are a lot of funds starting to show up, looking for deal flow,” says Levychin. The trend, he says, has heated up among firms involved in overseas manufacturing.

Lippert, based in western Pennsylvania, says sometimes taking on private-equity capital is a matter of survival. “So many of these small firms go under,” she says. For some, bringing on a partner can bring a turnaround.

To find the right private equity firm, it helps to have an intermediary. Often, boutique investment banks will introduce clients seeking financing to private-equity firms that know their industry, says Lapidus. “We’re seeing there is a lot of capital out there and private-equity firms are really looking to invest in companies that have great growth potential,” she says. “These private-equity firms are thrilled to come in on a majority or minority basis and invest if they see growth potential.” And the management expertise they bring can often go beyond funding the supply chain and help bring about new opportunities owners may not have considered.

5 Questions To Ask Your Financial Institution About Its Global Capabilities

Sotiria Krikelis thought she’d picked the perfect bank for her company, which makes Relax Missy foldable ballet flats that women can slip into a purse when they want relief from painful high heels. She sailed through the application for a small-business loan to finance production runs in China in two weeks. The big, global institution even gave her free letters of credit, which her factory required up front.

But there was a hitch: Bank employees botched the inputting of basic information on Krikelis and her three-year-old, New York City-based business, One Life, Live-It, Inc.—and the agony of actually getting the letter of credit delivered was akin to walking in cruel shoes. “Anything you can imagine went wrong, from the misspelling of my business name to the inputting of my Social Security number,” she says. “When they did have to create the letter of credit, they couldn’t find my business name on file or my Social Security number on file.” It took endless phone calls to resolve the problem.

Krikelis kept her loan with that bank but moved her checking account to TD Bank, where she’s never had a problem. As she found out, it can be tricky to figure out which bank is best equipped to handle your global financial needs. A domestic institution that sounds great on paper may turn out to be poor at executing the transactions you need or lack the specialized know-how to do business in your target market efficiently. And if you choose a foreign bank, you could get stung by unfamiliar laws and regulations—and even instability in the local economy that puts your money at risk. “Be careful. Be very, very careful,” advises Mike Arman, an Oak Hills, Florida, entrepreneur who has been involved in the import-export business for 30 years.

So how do you find a bank that works for you? Here are some questions to ask.

How complex are my needs?

If you’ll only be making simple transactions where you pay in U.S. dollars, don’t rule out your existing bank. It may be great at handling your needs. Herman A. Harrison, who runs 30-employee Foster Transformer in Cincinnati, has worked with a joint-venture partner in China for more than a decade to make some of his electrical products overseas. He negotiated arrangements to conduct transactions with his overseas partner in dollars, so they rely on wire transfers. “That’s about as complicated as it gets,” he says. He has found that his regional bank, PNC, can handle them just fine.

Businesses that will have transactions in a variety of countries or use a foreign currency may need to shop around to find a bank that can handle their particular needs. “The small business has to do a strategic map of where it is going in the next three to five years. Which of the countries are going to be relevant?” says Sankar Krishnan, director of banking and insurance marketing at Sutherland Global Services, a business process outsourcing company based in New York.

Once you know where you’re headed, find out which banks have a physical presence in those markets or are part of networks that operate there, he advises. “As a small or medium client in the U.S., you are better served by the global banks that operate in those markets,” says Krishnan. For leads, he suggests trying the Banking Association for Foreign Trade, a group for organizations involved in international transaction banking, and the Export-Import Bank of the U.S. Ask if the bank offers “multicurrency accounts,” a relatively new product. As the name suggests, they will enable you to conduct transactions in a variety of currencies from the same account, so you don’t have to have two separate accounts for deals done in, say, U.S. dollars and the euro, saving you money.

What level of customer service does it offer?

A bank that does a great job with domestic transactions may not be great at handling international ones. No bank is going to tell you that it will treat your business as a headache, but you can get an idea of what’s ahead by asking how often it handles foreign transactions. If the team at your branch seems clueless, move on.

Arman was taken aback when his former bank, a mid-sized domestic institution, didn’t want to handle his wire transfers to a company in St. Petersburg, Russia, to purchase items like fur hats used by the military to sell in the U.S. “They were nervous about it,” he says. His banker finally asked him to take his account elsewhere. He withdrew his $85,000 on the spot and moved it to another bank down the street.

You’ll often get better service at an institution where bankers don’t get shifted around among branches frequently and you can develop a rapport with one person. Krikelis had such a relationship at the bank where she still has her small-business loan—until her banker was transferred to a new branch—but, because of frequent changes of personnel at the bank, has never been able to find someone to give her the same ongoing, personal service. “Whenever I go in to see someone, it’s always someone new,” she says.

At TD Bank, however, she has built a strong relationship with her banker over the past several months, and that’s made life easier. “He is willing to work with you on things,” she says. She has made a number of overseas wire transfers there and has never had a problem. “It works out beautifully,” she says.

A good relationship may save you money. Ted Scofield, general counsel of New York City-based Icebreaker Entertainment, which has manufactured games in China and now has 18 licensing partners that manufacture its products, says that his banker—also at TD Bank—is so helpful that he’s willing to drop the bank’s wire transfer fee. “We always ask them to waive the fee, and they do,” Scofield says.

How does it handle foreign currency conversions?

If you will not be trading in U.S. dollars, picking a bank that manages currency conversions frequently will make your life easier. “Any bank should be able to do it,” says Craig R. Arends, a partner in the CPA firm and consultancy CliftonLarsonAllen LLP in Milwaukee, Wisconsin. “The key question is: What does the process look like? How long does it take? What are the fees associated with it? Some banks have higher fees than others.”

If you run a substantial size business doing a heavy volume of overseas sales, pick a bank that can help you to manage currency risks. “If there’s a devaluation of the currency you’re in, you’re going to lose money,” says Arends. Some banks do derivatives transactions that will help clients offset the risk, he says.

Does the bank do business in the market you’re entering?

Banks need to understand the local regulatory environment in any country you’re entering and stay on top of political and economic events that may affect your transactions—which is hard to do from a distance. “You’d want to hear that they have people on the ground in that country, either directly associated with them or through some type of international affiliation,” Arends says. “If they don’t have their own bank or an affiliate there, it’s not the bank you want to go with.”

Would you be better off with an overseas bank account?

Some big banks have global branches where you’ll be well served. However, sometimes you may need a bank account in an overseas institution. Say, for instance, you’re going to sell the products you manufacture to consumers in Spain through a web store. It may be easier to handle the transactions through a bank that’s based in Spain than one in the U.S., says attorney Dara Green, director of international tax with the CPA firm Kaufman, Rossin & Co. in Miami. That may also be true if you have set up a business entity in another country to handle sales generated there and need to pay taxes on that income under existing treaties.

To make the right choice for your business, think through how you’ll be receiving and making payments to vendors and others before deciding what type of account to open, Green advises. Foreign banks may not roll out the welcome mat. Expect to provide extensive information about what type of business you run, who owns it and where it’s getting money. “They basically have to know everything about it,” she says.

To prevent tax evasion, the Foreign Account Tax Compliance Act (FACTA), enacted in 2010, requires all foreign financial institutions to report to the IRS on accounts and holdings of their U.S. clients, both individuals and companies in which they have a substantial ownership interest. “It complicates things,” says Green. “A lot of foreign banks don’t like having a U.S. account holder at all.” Some foreign banks are even purging accounts by U.S.-based clients, she says.

To get a sense of what opening an account will be like at a foreign bank, call and explain your type of entity to bank officials, that you’re based in the U.S.—and want to open an account. Ask: “What information will you need from me, and what restrictions will I have if I open an account with you?” You’ll find out quickly if any obstacles are insurmountable.

Bear in mind that foreign banks are subject to the rules of the countries where they operate—and your money may not be as safe there as it is domestically, in a bank where deposits are protected by the FDIC, says Arman. “I don’t think I’d want to have a bank account in another country unless I knew exactly what I was doing.”