Insight & Analysis

How treasuries transform their use of multiple credit lines in trade finance

Published: Sep 2020

Increased bank digitisation and the emergence of new tools enable corporate treasuries to eliminate much of the time and cost involved in managing credit lines with multiple banks, says Andrew Raymond, CEO, Bolero International.

row of portals

Wherever they are in the world, corporate treasuries spend long hours on numerous bank portals as they access trade products that impact their credit lines. It is a time-consuming activity that makes visibility, control and cost-minimisation extremely difficult and requires repeated log-ins and use of password protocols. To complicate matters, while digitisation increases, some banks are decommissioning the tools that facilitate bank guarantee management.

Hardly surprising then that large importers and exporters find management of a thousand or more letters of credit (LCs), standby LCs or bank guarantees every year to be a huge challenge. With the advent of the COVID-19 pandemic, the headaches have multiplied, especially as paper trade documentation continues to drag down efficiency.

Corporates are missing out

As a starting point, treasuries need to drop the use of paper in transactions. The newly-published 2020 International Chamber of Commerce Global Survey On Trade Finance shows that despite increasing trade digitisation among banks, many corporates still rely on 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.

The survey also found that while 75% of global banks (and 77% of regional banks) have either to some or a great extent, removed paper from issuing and advising in documentary transactions, most remain paper-based. Just 15% of the banks surveyed said LCs must 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.

Attitudes are changing, however. The COVID-19 restrictions on physical movement demonstrated the financial supply chain’s vulnerability relating to 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. LCs must be presented physically, often to a prescribed location. Being time-limited, LCs (and bank guarantees) can expire before they are used, or presentation periods can be exceeded. Digital presentations are clearly the way forward.

All-encompassing solutions needed

While they have often digitised many other functions and use multi-bank solutions for their cash management, major exporters and importers have often neglected to digitise trade finance.

The most common form of trade finance digitisation adopted by banks is the online platform – offered by 55% in the ICC survey. Treasuries should be using these digital platforms to bring themselves all the security and efficiency that flows from electronic presentation of LCs and guarantees. Yet that still requires logging in and out of portals. What corporates need to take performance to the next level is a more far-reaching solution that provides a single, consolidated view of all their credit lines, LCs and guarantees with all the banks they deal with.

Implementation of multi-banking trade finance solutions would eliminate the need to toggle between different bank portals to work out the best rates, establish which credit lines are still open, which are close to expiry, before submitting applications.

Adoption of such solutions 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 and vastly accelerates completion of entire trade transactions, while reducing disruption to the supply chain through loss of transparency.

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

Plenty to gain

The pressures piled onto CFOs at global corporates engaged in international trade have only increased during the pandemic. The ICC survey has also revealed how banks have embarked on the journey to digitisation in trade finance and yet uptake by corporates remains relatively low.

It is becoming harder for treasuries to ignore the increased control and efficiency that digitisation offers. The adoption of multi-banking trade finance solutions allows them to manage and optimise their LCs, guarantees and credit line relationships with banks with an ease and efficiency that has not been possible before. The case for linking into the growing digital banking eco-system through a single interface is becoming more convincing by the day.

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