CoronavirusICC survey exposes pain points in traditional trade finance

ICC survey exposes pain points in traditional trade finance

Coronavirus and the new International Chamber of Commerce (ICC) survey have exposed how corporates need a single, consolidated view of all their credit lines with multiple banks, says Andrew Raymond, CEO, Bolero International

For a large organisation engaged in cross-border trade, effective management of a thousand or more letters of credit (LCs), standby LCs or bank guarantees every year is a huge challenge.

Across the world, corporate treasuries are compelled to use numerous bank portals to access trade products that impact their credit lines, a time-consuming activity which makes visibility, control and cost minimisation extremely difficult. In addition, while digitisation increases, some banks are decommissioning the tools that facilitate bank guarantee management.

As the coronavirus pandemic continues to disrupt the normal operations of trade these headaches have multiplied, especially as paper trade documentation continues to drag down efficiency.

ICC survey shows a trade finance environment ripe for digitisation

The newly published 2020 International Chamber of Commerce Global Survey On Trade Finance shows that despite increasing trade digitisation among banks, many corporates stick to slow and cumbersome paper-based processes. Between half and two-thirds of local banks in the survey indicated that client usage of digital channels across trade finance products is either “minimal or non-existent”. For global banks the figure is closer to a third.

Attitudes are changing however, as the coronavirus restrictions on physical movement showed just how vulnerable the financial supply chain is when paper letters of credit or guarantees are held up by the same restrictions as cargoes, even though they travel separately.

The use of paper under LCs can jeopardise a transaction at many potential break points. They must be presented physically, often to a prescribed location. Being time-limited, LCs (and bank guarantees) can expire before they are utilised, or presentation periods can be exceeded. Digital presentations are clearly the way forward.

Single interface transforms trade finance banking relationships for treasuries

While they have often digitised many other functions and use multi-bank solutions for their cash management, major exporters and importers have often neglected trade finance. But corporate treasuries don’t just need to digitise LCs and guarantees, they need a more far-reaching solution that introduces much greater efficiency into their relationships with all their banks when applying for and managing credit lines, LCs and guarantees.

Instead of toggling between different bank portals to work out the best rates, establish which credit lines are still open, which are close to expiry and then submit applications, corporate treasuries could make life easier for themselves. Implementation of multi-banking trade finance solutions would give them a single, consolidated view of all their credit lines with different banks.

Adoption of such platforms delivers far greater visibility and control. Importers and exporters can spot the most competitive rates for each transaction far more quickly and easily than by logging in and out of numerous portals. From a single platform they can manage and edit letters of credit, bank guarantees and electronic presentations, as well as open account transactions and electronic bills of lading – the latter being hugely significant documents.

Applying for documentary credits and gaining approval becomes simpler and far less time-consuming. This reduces costs, vastly accelerates completion of entire transactions, while reducing disruption to the supply chain through loss of transparency on transactions.

For large, multinational corporates with subsidiaries or treasuries distributed in different regions of the globe, a cutting edge multi-banking trade finance solution provides greater visibility across borders and organisational boundaries, aiding more efficient use of credit lines and working capital. A headquarters treasury can maintain supervision and control of all credit lines from banks, delivering economies of scale while reducing risk.

Multi-bank trade finance solution to alleviate CFO pressures

The ICC survey found that 75 percent of global banks and 77 percent of regional banks have either to some or a great extent, removed paper from issuing and advising in documentary transactions. Most however, remain paper based. The appetite for digitisation in trade finance among banks is growing, yet its use by corporate treasuries remains disappointingly low. The survey found the most common form of trade finance digitisation adopted by banks is the online platform, used by 55 percent. And only 15 percent of the banks surveyed said LCs had to be in paper form in the jurisdictions in which they operate. In effect, the barriers to digitisation are falling, but many treasuries continue to stick with manual processes.

It is true the pressures heaped upon CFOs at large corporates engaged in international trade have only increased during the pandemic. Yet this makes it all the more urgent that they take another look at how they manage and optimise their LCs, guarantees and credit line relationships with banks.

Linking into the banking ecosystem through a single interface that dispenses with paper documents and generates huge efficiencies is an obvious move as the world recovers from the disastrous effects of the pandemic.

 

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