Insight & Analysis

Five questions treasurers should ask their banks about post-COVID-19 trade digitisation

Published: Jun 2020

As a changed world with many new trading rules is likely to emerge from the pandemic, here are five questions that corporates need answering before going digital.

Stickies with 5 question marks

Continued use of paper trade documents means banks will struggle to meet the needs of exporters and importers as COVID-19 restrictions are tentatively lifted. Global trade is preparing itself for the journey to recovery, making the demand for fast, digital services, with minimal human involvement, more urgent against a background of extremely difficult conditions.

With UNCTAD (The United Nations Conference on Trade and Development) having predicted a 27% decline in global trade in the second quarter of 2020, it’s small wonder that it sees the necessity of seizing on every possible efficiency to ease trade and aid recovery. It gives paperless trade systems a high level of priority in its ten-point plan.

“Apart from sheer speed of transfer, electronic versions of essential trade documents have the distinct advantage of not being held up at borders or lost during movement restrictions,” says Andrew Raymond, CEO, Bolero International. “This has become a vital attribute.”

Bills of lading, for example, are crucial trade documents that serve many purposes. Created by carriers, they can be used by exporters to draw under letters of credit (LCs) from the buyer’s bank, payable at sight, or to obtain finance in case of deferred payment. As documents of title, they confer ownership of a shipment and are forwarded to the buyer’s bank in exchange for payment against the LC. The buyer will also use the bill to claim the consignment, once delivered.

Severe consequences ensue if documents such as bills of lading go missing or are held up. As Raymond notes, “fees and penalties mount as cargoes sit in port longer than necessary”. This, he believes, is where the advantages of digitisation are most obvious.

Exchanged on a secure, purpose-built trade digitisation platform, trade finance instruments, electronic bills of lading (eBLs) and other digitised trade documentation, take hours to process instead of days or weeks for paper equivalents.

“This is why banks are more likely to invest in paperless systems in the aftermath of the coronavirus pandemic. Yet digital trade finance solutions vary hugely and corporates must take care they do not sign up to services that are poorly designed, lack connectivity or have little acceptance in the wider trade sphere,” advises Raymond.

Here, then, are five questions that he says treasurers should be asking of their banks when it comes to post-pandemic trade digitisation:

Can everything be managed end-to-end from a single interface?

To be able to leverage the full set of efficiencies of digitisation, it should be possible to manage all the documentation required to support a transaction from a single interface. This should provide simple access to multiple banks for fast comparison of credit lines, rates, fees and offers. “This is the primary means by which corporate treasuries will improve their cash flow and use of working capital,” says Raymond. “Fast access to a wide choice of credit lines also reduces the need for expensive bank instruments.”

Does the solution bring all parties together?

For it to work well, buyers, sellers and carriers all need to be on one platform because there needs to be a good, secure flow of information between all parties. A bank’s digitisation solution should connect seamlessly with treasury’s back-office and the corporate eco-system, giving access to alternative funders and third-party providers such as logistics companies, carriers, insurers and counterparties. “This is connectivity that should be easy and open to increase efficiency and provide customisation,” comments Raymond.

Is the bank offering the necessary experience of digital trade?

Treasury should question whether a bank and its solution providers have the necessary understanding of the business and its trade flows. And although many platforms today focus on their integration with emerging blockchain solutions, a current network of users and documents based on real working practices in global trade is still needed. Look for a network of users among banks and significant corporates, and see if its practice is sanctioned by national authorities.

Will the platform be secure, compliant and fit for trade post-COVID-19?

A critical electronic document such as an eBL must be underpinned by a respected body of law, such as English common law, to give both the corporate and its customers greater confidence. A platform must also conduct compliance checking in line with international trade rules such as those prescribed by the International Chamber of Commerce eUCP which govern LCs. For many corporates, the immediate post-COVID era will be one in which they cannot be certain of the solvency of their trading counterparties. And whilst KYC protocols need to part of the solution, they should not so laborious that they become a barrier.

Does the solution offer visibility of bills of lading as well as LCs from multiple banks?

Bills of lading are critical documents that are often subject to change. This requires visibility and vigilance. A digital platform must therefore give corporates access to eBLs as well as LCS and other trade finance options.

Ideally, a bank’s trade finance digitisation platform should enable use of critical trade documents, such as the eBL, under any transaction. With some of the toughest trading conditions ever experienced, open account trading is likely to sustain its dominance in cross-border transactions. That makes access to eBLs an important requirement.

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