Having seen a significant growth in international trade during the last couple of decades, there has never been a greater appetite within the financial sector to support exporting and importing companies of all shapes and sizes. The major banks have resourced more international trade specialists in both front line sales and operations, hoping to win a greater share of this very lucrative market.
Banks are well aware that businesses that trade internationally are statistically proven to be worth far more to them in income terms than businesses which confine themselves to purely domestic trade. That said, the increasing regulatory challenge facing the financial sector has resulted in banks taking a far more balanced and cautious approach in handling trade transactions, often refusing to engage with non-customers trading in more ‘difficult’ territories or sectors.
Our previous article – Is Your Bank Asking You Lots of Questions – refers to the challenges of financial crime.
The challenge for exporters and importers is to evaluate which bank or financier is truly able to differentiate themselves by being able to offer excellent relationship skills, value for money, a global network, world class trade operational centres and informed, proactive and local international specialists.
Exporters regularly receiving letters of credit have an opportunity to ‘test the water’ when dealing with advising banks with whom they have no direct relationship. Such banks may not be represented on the local high street, but usually have trade operations in the major cities. There are for instance more than 200 banks represented in London alone, many offering a high quality service for European based exporting and importing companies.
When choosing a trade bank, you should consider the following:
Skills and knowledge
Are you likely to be dealing with trade ‘practitioners’? You will benefit hugely by speaking directly with a representative who has operational experience of handling trade instruments such as letters of credit, documentary collections and bank guarantees. A strong working knowledge of International Chamber of Commerce rules and practices, including UCP600 (Documentary Credits) and Incoterms® 2010 is essential in today’s increasingly complex trade environment, yet some banks continue to offer front line support from staff who are unable to navigate their way confidently through a basic SWIFT format letter of credit!
Do you have direct access to a dedicated international trade specialist? We hear from many SMEs that this is an area where their main bank lets them down. Businesses with a relatively low turnover of let’s say, less than GBP£ 1m, of which a significant amount is exported / imported, tell us that the only support available is via ‘call centres’ manned by generalist customer service staff. The more progressive financiers will recognise the potential for growth amongst smaller traders and offer face-to-face reviews as the basis for establishing trade facilities. A good relationship manager should have gained a detailed understanding of their client’s trade cycles and financing requirements. Larger companies should already be speaking to their bank’s trade specialist, although anecdotally we are hearing that even in such cases, neither the Finance Director nor Export Sales Manager know who this representative is or that they exist!
How truly global is your bank? The increased cost of mitigating risks associated with financial crime has resulted in many banks reducing the number of ‘correspondent’ relationships around the world. 20 years ago, it was not unusual for UK banks to have multiple correspondent accounts with other banks in a wide range of overseas territories. Today, we are seeing that even the major banks are limiting their risk exposure by cutting down on the number of correspondent account relationships, resulting in fewer options for issuing banks to issue L/Cs through preferred UK advising banks. In such cases, exporters should consider routing L/Cs through major regional banks or financiers specialising in more challenging markets.
Trade transactions are not cheap. Our Guide to Letter of Credit Charges is precisely that – a “guide” and represents the typical fees charged by major UK based banks. Traders receiving or issuing letters of credit should be aware that banks are generally able to negotiate ‘special tariffs’ if volumes or values so justify. Don’t be afraid to ask and shop around if necessary. With regard to L/C confirmation, we have seen huge variations in the way in which banks apply their ‘risk’ fees. Many continue to apply such fees on a ‘quarterly or part thereof’ basis, whilst others will be prepared to charge monthly, weekly or even actual period! We recently saved one of our clients approximately £50,000.00 per annum on confirmation costs alone, just by looking at alternatives to a client’s main bank.
The above considerations are by no means exhaustive, but in short, we would advise any internationally trading company to not restrict themselves to one particular bank when seeking support or undertaking trade transactions. There are many banks and specialist financiers with the skills, knowledge and willingness to support and help you to grow your overseas business securely and safely.
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