In a fast-paced global economy where companies and consumers work and shop 24/7, trade demands the rapid exchange of goods, money and services. But the sad truth is that – all too often – goods only move as quickly as the paper documentation that supports them. Treasury Today speaks to an expert in financial technology innovation to examine how e-presentation can bring trade up-to-speed.
After years of painful experiences, finance and commercial/shipping teams in bulk commodity suppliers are realising the value of using technology to make the critical process of sending and receiving key trading documents more efficient.
Here, moving to an electronic ‘e-presentation’ system accelerates the process of carrying out transactions under a letter of credit by removing the need to repeatedly courier original paper documents. Meanwhile, the fact that e-presentation of trade documents is now a practical option for open account, documentary collections, BPO and letter of credit transactions has also increased demand for their use.
According to Tom Rahder, VP product strategy, Bolero International, “Much of the greatest value in the technology lies in its ability to legally replace original paper documents with ‘original’ and universally-accepted electronic ones, radically cutting the time they spend in transit. As well as accelerating the speed at which the documents are delivered, the ability to exchange ‘machine-readable’ structured data creates further opportunities for straight through processing in both banks and corporate enterprises.”
For this reason, says Rahder, the more widespread adoption of electronic e-presentation systems which take advantage of the ICC’s already internationally-accepted eUCP standard has been extremely important. The fact that these electronic documents, including an electronic bill of lading (eBL), are accepted by all parties and sent electronically removes the need for paper documents to be transported. As such, the technology can be used not just for simple company-to-company invoices but also to carry out the type of complex letter of credit presentations and transactions frequently seen in international deals, he explains.
To-date, those organisations already using electronic trade finance platforms have benefitted from faster payment, quicker connections with their banking partners and the opportunity to move away from the inherently risky and time-consuming letter of indemnity (LOI) process.
“As well as seeking to speed up settlements and take the sting out of fast-changing market conditions, in some organisations reducing the risk of fraud and reputational damage has been a strong motivating factor in the decision to switch to electronic letters of credit and eBLs,” Rahder notes.
“Meanwhile, from a banking perspective, suppliers of structured credit have realised that there is some interesting funding that can be done off the back of eBLs, which is increasingly being used to create new financing products around the individual shipment of goods.
“Current evidence supports the fact that using automated trade finance such as e-presentations rapidly cuts dependency on LOI. In the first six months alone, businesses have reported a 90% reduction in the number of letters of indemnity issued against transactions where e-presentations and eBLs were used.”
Getting trade partners on board with electronic workflows
In order to make a successful transition, Rahder believes that the growing number of businesses now rushing to adopt e-documentation solutions for complex, cross-border trades need to be mindful that on-boarding end users and counter parties is a critical part of the process.
“In this respect, there are a lot of parallels that can be drawn between e-invoicing and multi-bank trade finance and e-presentation, which also rely on the participation and collaboration of banks, corporates and the wider carrier community. Here too, the technology needs to work in the real world as well as in theory,” he explains.
Speaking about his company’s technology, Rahder says that many trading partners have rapidly adopted the Bolero ePresentation solution, with 55 carriers and 60+ importers on-boarded in the past 12 months. “A recent milestone has been achieved with the first back-to-back LC transaction completed May 2014. Importers are now able to re-use the solution in their own export function, providing further benefit to them and their end customer.”
Making the grade
Aside from choosing the right technology, how then can companies interested in e-presentation make sure they get it right? “In most cases, successful adoption has been achieved by offering participants a gentle migration path to straight through processing (STP), rather than prescribing a ‘big bang’ leap to fully-structured document data,” advises Rahder.
So, while the dematerialisation of trade documents might seem to many like a revolution, in fact a steady evolution is precisely what is called for.