Earlypay Trade Receivables Trust

For Credit assessment and risk rating purposes, TF facility limits are assessed as part of a Customer Group and will be subject to normal commercial lending assessments.

Review to ensure:

• Country, Industry and Counter party risks are assessed and understood
• Foreign currency risk is understood and where appropriate mitigated by using Currency risk
  management products
• Customers’ business, trade finance operations and quality of debtors are understood
• Term of the facility aligns with the trade terms and matches the trading cycle (the time it takes to purchase and self-inventory and convert sales to a Tax invoice)
• Confirmation of PPSR lodgement (if applicable).

• Sets out the basis for the sale and purchase of goods and Incoterms rule.
• Embodied in either the commercial contract, or buyer’s purchase order and contain the terms and conditions of sale and purchase.

Review is required for all suppliers prior to TF funding. This may include a check on the supplier via Equifax’s International Reports or similar or payment history with the client.

The information generally received from this report includes but is not limited to:

• Company Profile.
• AML/CTF Issues.
• Structure and Ownership.
• Company Location and contact details.
• Business type and Industry sector.
• Business Activities.
• Director details.
• Key Facts.
• Credit Rating and Risk Analysis.
• Adverse data.
• Financial Summary.
• Trade activities.
• Dishonour checks.
• Litigation against company.
• Financial and legal status.
• Bank reference.
• Trade references.
• Competitors.
• Related parties etc.

Historical analysis of buyer/seller relationship, whether the supplier is a related party or if there are any contra arrangements, issues, and length of relationship.

Payments will be made direct to the supplier.

Each approved supplier is reviewed to ensure an acceptable supplier profile.

Incoterms

Incoterms are a set of internationally recognised trade terms, published by the International
Chamber of Commerce.

Incoterms rules describe task, cost and risk involved in the delivery of goods from seller to buyer

There are 11 sets of Incoterms rules (2010 rules) which define the following trade transactions
between seller and buyer:

• Responsibility for cost (i.e., freight, insurance and custom duties)
• Customs clearance (export and import)
• Point of risk transfer from seller to buyer
• Place or point of delivery
• Incoterms rules do not replace the need for a commercial agreement
• They do not cover all possible legal practical issues arising from a trade transaction
• One of the key areas not governed by Incoterms rules is the transfer of property or title to goods. This will need to be set out in the commercial agreement
• The most common Incoterms for imports into Australia are
• FOB – Free on Board
• CFR – Cost and Freight
• CIF – Cost, Insurance and Freight

FOB – Free on Board

“Free on Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes to the buyer when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

Credit Considerations

While the incoterm states that the Seller is to place the goods “Free on Board” the vessel in reality it is accepted that the Seller arranges for the goods to be delivered to the Port of Loading. The Buyer is responsible for arranging shipment and Marine Insurance from the port of loading.

Seller may arrange:

• For the goods to be delivered alongside the vessel at the port of loading, and the

Buyer may arrange:

• A shipping agent to load the goods on board and delivery to the buyer’s premises
• Marine Insurance from the shipped-on board date on the vessel Therefore:
• All shipping documents from the Buyer are to be supplied to EARLYPAY as a copy, and evidence of Marine Insurance (as set out in clause 7. Legal Requirements)

Risks and Mitigants

Risk: Goods not manufactured or shipped

Mitigant: Funding only made available upon receipt of a copy of documentation as set out in the commercial agreement (e.g., Bill of Lading, invoice, etc). This is a control point for each drawdown.

Risk: Deposit paid by EARLYPAY, however, goods not manufactured or shipped.

Mitigant: Deposit details would be outlined within the supply agreement or proforma invoice. Due diligence on the supplier in conjunction with Equifax International report (if required) would highlight any previous performance issues. Loan would also be payable from availability within the Invoice Finance facility.

Risk: Marine Transit Insurance not in place in terms of Incoterm.

Mitigant: Policy is to ensure a current Marine Transit Insurance, noting EARLYPAY’s interests, is held on file and cross referenced prior to drawdown of Trade loan.

Risk: Containers fall off the ship in transit to Australia.

Mitigant: A current Marine Transit Insurance, noting EARLYPAY’s interests, is held on file and cross referenced prior to drawdown of Trade loan. Any shortfall between insurance claim and Trade loan amount to be recovered from availability within the Invoice Finance facility.

Operational Requirements

Operations team to understand and adhere to approval condition and relevant shipping documents
required for each drawdown.

Discrepancies are to be raised with the National Manager Trade Finance

CFR – Cost and Freight

“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes to the buyer when the goods are on board the vessel the seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination

Credit Considerations

The seller arranges and pays for the freight from port of loading to the port of discharge and this cost is included in the commercial invoice (usually it’s not itemised).

Seller must arrange:

• A shipping agent to organise for the goods to be loaded on board the vessel at the port of loading, and the

Buyer must arrange:

• Marine Insurance from the shipped-on board date on the vessel

Therefore:

• All shipping documents from the buyer are to be supplied to EARLYPAY as a copy, and evidence of Marine Insurance (as set out in clause 7. Legal Requirements)

Risks and Mitigants

Risk: Goods not manufactured or shipped

Mitigant: Funding only made available upon receipt of a copy of documentation as set out in the commercial agreement (e.g. Bill of Lading, invoice, etc). This is a control point for each drawdown.

Risk: Deposit paid by EARLYPAY, however, goods not manufactured or shipped.

Mitigant: Deposit details would be outlined within the supply agreement or proforma invoice. Due diligence on the supplier in conjunction with Equifax International report (if required) would highlight any previous performance issues. Loan would also be payable from availability within the Invoice Finance facility.

Risk: Marine Transit Insurance not in place in terms of Incoterm.

Mitigant: Policy is to ensure a current Marine Transit Insurance, noting EARLYPAY’s interests, is held on file and cross referenced prior to drawdown of Trade loan.

Risk: Containers fall off the ship in transit to Australia.

Mitigant: A current Marine Transit Insurance, noting EARLYPAY’s interests, is held on file and cross referenced prior to drawdown of Trade loan. Any shortfall between insurance claim and Trade loan amount to be recovered from availability within the Invoice Finance facility.

Operational Requirements

Operations team to understand and adhere to approval condition and relevant shipping documents required for each drawdown.

Discrepancies are to be raised with the National Manager Trade Finance

CIF – Cost, Insurance and Freight

“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. However, the seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. Note, however that the seller is required to obtain insurance for only minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

Credit Considerations

The Seller arranges and pays for the freight from port of loading to the port of discharge and Marine Transit insurance and this cost is included in the commercial invoice (usually it is not itemised).

Seller must arrange:

• Arrange a shipping agent to organise for the goods to be loaded on board the vessel at the Port of Loading, and the
• Marine Insurance from the shipped-on board date on the vessel

Therefore:

• All shipping documents from the Buyer are to be supplied to EARLYPAY as a copy, and evidence of Marine Insurance is not required

Risks and Mitigants

Risk: Goods not manufactured or shipped

Mitigant: Funding only made available upon receipt of a copy of documentation as set out in the commercial agreement (e.g Bill of Lading, invoice, etc). This is a control point for each drawdown.

Risk: Deposit paid by EARLYPAY, however, goods not manufactured or shipped.

Mitigant: Deposit details would be outlined within the supply agreement or proforma invoice. Due diligence on the supplier in conjunction with Equifax International report (if required) would highlight any previous performance issues. Loan would also be payable from availability within the Invoice Finance facility.

Risk: Supplier does not insure the goods for transit.

Mitigant: A copy of the relevant shipping documents will include a copy of the Marine Transit Insurance from the Supplier as per Incoterm. The requested drawdown cannot occur until all documentation is checked by the Operations team.

Operational Requirements

Operations team to understand and adhere to approval condition and relevant shipping documents required for each drawdown. Discrepancies are to be raised with the National Manager Trade Finance

Satisfactory credit history of client, its associates, directors, and major shareholders & acceptable financial position with:

• Legitimate trade transactions that relate to Customers Core business or are considered complementary to the business’s objectives and within the directors’ ability and experience levels
• Finance period must match the trade terms of the underlying trade transactions but will not exceed 180 days
• Acceptable Year End Financial Reports Incl. Profit & Loss, Balance Sheet, Cashflow Projections, Year to date management accounts. If the historical financial statements evidence losses, it is imperative that EARLYPAY understands the company’s turnaround story as part of the assessment. Forecasts/Projections for the next financial year are required to determine underlying funding requirements of the business. For weak financial profiles, additional security may be required as part of EARLYPAY security structure.
• Acceptable Detailed aged receivables
• Acceptable Detailed aged payables (these need to be separated out for the overseas suppliers)
• Up to Date Full Stock Lists when/where required
• At least one director is a Resident of Australia
• Client/Director and Guarantors are not known to be insolvent or bankrupt

All transaction documents for TF facilities (including the TF Facility Agreement and any supporting securities) are currently drafted by external lawyers.

Transaction documents are currently executed by “wet-signing” and execution is certified by external lawyers.

There is capability to electronically execute TF transaction documents and this may be explored in the future. Electronic execution of TF transaction documents would be via a secure and encrypted electronic signature platform with 2 factor identity verification and robust audit trail on signatories to ensure compliance with the State, Territory and Federal Electronic Transactions Acts.

• All facilities are to be secured by way of a General Security Deed over the borrower (ALLPAAP registered on the PPSR)
• Priority Deed may be required if client has an existing financier
• Director / related party guarantees may be required
• Integrated Facility Deed to ensure cross-collateralised to IF facility.
• Marine Transit Insurance (refer below) also needs to be assigned to EARLYPAY
• The insurer has a rating of at least A-.

Marine Transit insurance must include:

• Institute Cargo Clauses A
• Strike clauses (Cargo)
• War clauses (Cargo)
• Be for an amount no less than 110% of the Cost, Insurance and Freight (CIF) value of the goods/equipment
• Note the interests of EARLYPAY with all claims payable in Australia
• Ongoing evidence of insurance is required to be held by EARLYPAY for the life of the facility

• PSMI security interest registration on the PPSR for the imported inventory
• For weaker credit profiles, additional security may be sought such as freehold property or tangible security or similar to support transaction
• Any other documents as required by the Trade Finance Manager/Head of Risk/Chief Operating Officer/Head of Operations or Earlypay’s nominated advisers (Accountant or Legal)