Wednesday 30 May 2012

Letter of Credit Training: The Top 5 Reasons

During the past 2 - 3 years we have seen a huge increase in demand for training in all areas of export, particularly on 'hot topics' such as basic procedures, customs compliance and Incoterms.

From my perspective, I have never been busier as large corporate organisations around the UK and Europe seek specialist training in understanding the financial risks and costs of trading internationally.

But what are the main reasons for this sudden increase in demand for training?

1. In order to spread risk, diversify and increase margins, many companies are developing business in a range of new, challenging and emerging markets where there will be a heightened awareness of payment risk, whether related to the buyer or the political / economic environment. Letters of Credit have a major role to play in mitigating these risks, so staff at all levels, from sales to finance and shipping need to be aware of how Letters of Credit work, how to minimise costs and administration and most importantly, how to present complying documents to the bank.

2. I am seeing a trend for companies who have previously outsourced the document preparation to an external supplier such as a freight forwarder or consultant, to try to reduce costs by bringing this function 'in-house'. Staff preparing Letter of Credit documents thus require intensive and professional training in order to equip them with the requisite skills to do so efficiently and confidently.

3. As I continually state throughout my blog articles, 70 - 80% of documents presented to the bank contain discrepancies, resulting in significant costs and delays in payment. Whereas previously, many companies accepted this as a 'fact of life' and trusted buyers to take up discrepant documents, in the current financial climate there is an increased awareness of potential buyer default. Finance teams in particular are anxious to generate cash as quickly as possible and it is therefore essential that every step is taken to ensure that documents comply with Letter of Credit terms.

4. The 'Doris' or 'Albert' effect, as stated in an earlier article means that companies may be heavily reliant on one or two key individuals with the experience and expertise to consistently prepare 'clean' sets of documents against Letters of Credit. There is a definite move towards upskilling a broader range of people within a business in order to mitigate the huge operational risk associated with such experience leaving, falling ill, taking a holiday or retiring.

5. Whereas I have generally trained staff involved with the administering of Letters of Credit and associated documents, there has been a significant increase in the number of sales managers attending courses. These guys are at the 'sharp end' of negotiating export deals and it is vitally important that they understand the implications to the business of requesting Letters of Credit which may contain onerous or impossible terms and conditions.

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