It’s that time when many businesses will be reviewing training requirements and allocating the associated budget for the next financial year.

For most companies I talk to, a documentary letter of credit is a “necessary evil”, a means of securing payment and / or facilitating trade with buyers in more challenging or developing countries. If “we” can get away with “proforma” payment or open credit terms, we can reduce administration, cost and hassle, even if (in the case of the latter option) we take a greater risk of delayed or even non-payment.

In some sectors, there is a growing trend for overseas buyers to insist on the issuance of documentary L/Cs in order to satisfy central government requirements. This will happen where a country may be experiencing shortages in availability of currency and restrictions are placed in respect of the types and quantities of goods and services imported. An importer in such countries will typically be required to obtain approval (possibly by way of an import licence) following which the funds will be ‘ring fenced’ in the banking system and a letter of credit issued, stipulating the terms and conditions under which goods are shipped.

Such transactions tend to originate from a range of countries, but most commonly Asia and Africa (examples include Pakistan, Bangladesh, Algeria, Nigeria and Egypt). Consequently, exporters outside these territories are thrown at the mercy of the banking system, using documentary transactions which many view as archaic, cumbersome and expensive in our digital age.

Risks include:

  • Delays in finalising deals and receiving L/Cs
  • The banks’ willingness to handle transactions due to concerns over regulatory compliance
  • Receiving L/Cs containing unworkable terms (including requirements for buyers to issue / sign acceptance certificates)
  • Requesting and bearing the costs of amendments to L/C terms
  • Lack of in-house skills and knowledge
  • Failure to comply with terms resulting in payment delays and high bank charges (discrepancy fees)

All of the above can be overcome (or at least minimised) by raising awareness of the key personnel involved in negotiating, finalising and administering letter of credit transactions.

So why wouldn’t you invest in training?

In our experience, companies will look at bottom line ‘cost’ , often comparing the price of specialist training topics such as Customs and Tax Compliance, Incoterms and indeed, Letters of Credit to more widely available generic courses (I was once challenged as to why my heavily tailored ‘Advanced Guide to Letters of Credit Course‘ was significantly more expensive than the local one-day Introduction to Microsoft Word event at the Chamber of Commerce!)

In such cases, a HR team should discuss not only the objectives of the training with the colleagues in export sales, finance, shipping etc, but assess the actual VALUE to the business that will result. This assessment will include close scrutiny of the credentials of the training company, including (in the case of letters of credit for example):

  • Experience. Does the trainer have a background in trade finance / banking?
  • In what capacity has the trainer worked previously?
  • Does the trainer maintain close links with contacts and bodies in the banking / trade finance sector, including the ‘rule writers’ (International Chamber of Commerce)?
  • Are courses accredited or approved by industry bodies?
  • What sort of clients do they work with? Are they similar / relevant to our sector?
  • How will the trainer be able to relate their experience to our business? Will they use examples of our own L/Cs or contracts to make the training as relevant as possible?
  • Has the trainer got a strong track record of reducing costs and administration? Can they provide references?
  • Yes, how much will we have to pay? Will the potential for reduction in cost and administration justify the price? Is it truly an INVESTMENT?

Check out Mark Hayward’s training credentials

I’ll leave you with this example……

An exporting client in Wales approached us a couple of years ago for letter of credit training. At the time, they were outsourcing all document preparation / presentations to a third party and it was felt that for a variety of reasons the time was right to consider bringing this work in-house. Consequently, we designed and delivered a one day, in-depth and practical programme to a small group of (4) colleagues who would be responsible for taking on the additional work. The training included:

  • understanding how L/Cs worked, including the roles of the banks involved
  • the structure of a letter of credit
  • negotiating appropriate and workable terms
  • checking the L/Cs upon receipt (using the client’s own examples)
  • an overview of the UCP 600 rules and accompanying International Standard Banking Practice (ISBP)
  • preparing complying documents
  • how to avoid / handle discrepancies
  • action planning

Three months later, the client engaged me to deliver a separate course on Incoterms. Whilst there, I asked how things were going with L/C presentations since the previous training.

A very pleasing and satisfactory response. The company had prepared and presented documents to various banks in respect of 120 (One Hundred and Twenty!) shipments in the 3 months since the training and had experienced ZERO discrepancies!

(Now, I would not be so arrogant as to guarantee eliminating discrepancies completely (lets be practical and say ‘things’ can happen to frustrate an exporter’s contractual performance), but this feedback is quite consistent with that received from our regular clients).

Let’s just make an assumption here, that 80 of the 120 presentations of documents referred to had contained discrepancies (and documents were forwarded ‘in trust’ to respective issuing banks). The cost of discrepancies alone (based on average fees taken by banks of £150.00 per presentation of documents) could have amounted to a staggering £12,000.00. 

I can tell you now, that the cost of (or rather, investment in) a day’s training for four people was SIGNIFICANTLY LESS than the actual saving in discrepancy fees (not to mention other avoidable costs in bank amendment fees and administration time).

Of course, many companies handle significantly lower volumes of letters of credit than in the example above, but I’m sure you can see the attraction in not only reducing costs in respect of bank fees, but a potentially massive improvement in administration and time efficiencies, regardless of the numbers involved.

How much will training cost, or….. what is the cost to you of not having training?

 

Contact us to discuss your requirements

The Essential Guide to Letters of Credit for Exporters

Advanced Letters of Credit Training for Exporters