Magazine article Business Credit

Come on Vince, Not the Same Old "Banks Are Never to Blame" Posturing

Magazine article Business Credit

Come on Vince, Not the Same Old "Banks Are Never to Blame" Posturing

Article excerpt

Who or what is a VINCE? For this article, VINCE is a mnemonic for Very Inaccurate Narrow-minded Credit Explanation. Vincent, thanks so much for sharing your tearful reminiscences of your early trainee days 25 years or so ago at a large metropolitan bank, manning the "turndown" desk. You describe having the unenviable job of calling beneficiaries and civilly asking for instructions regarding disposition of discrepant documents. I bet I could find more than one beneficiary who took your call back then who would claim you sounded more gleeful than contrite! By the way, searching for beneficiaries' funds in drawers might be of great interest to your auditors, Vin - maybe, even the FBI! Regardless, my eyes are now beginning to dry, and I wonder how many beneficiaries out there (who can convey multiple horror stories of payments lost or delayed) would be willing or able to shed sympathy tears for you?

However, Vince, I really do appreciate your constructive comments. Unfortunately, they were few in number and hidden behind your other obfuscatory points. You claim I blamed everybody with a shotgun approach to the problem. Frankly, in any given instance, problem letters of credit might be "blamed" on any one or more parties to the transaction. (Not all letters of credit situations are as black and white as you portray them.) But, to blame the beneficiary of the credits for accepting credits they knowingly or unknowingly cannot comply with as the root of the problem with letters of credit is downright ludicrous.

It's also interesting that you loftily observe, "Any bank or banker who indulges in the above mentioned characterizations of the letter of credit process does not deserve your business and does not deserve to be in the letter of credit business." Enough with the high moral platitudes. Let us look at reality, Vince. There are a lot of banks (and importers for that matter) with widely disparate motives and objectives with respect to cash flow, risk and cost. I think you and most exporters know exactly what I mean here.

You quote "statistical" evidence, in the form of surveys conducted over the last 20 years, purportedly showing banks cannot help the process because the majority of discrepancies, such as late presentation, are caused by major errors on the part of shippers. Could you be a little more specific about the source of your empirical data? Where were the results of these surveys published? Somehow, I missed them.

With respect to the fee structure issues: Sometimes, it is not the fee but the lack of explanation that goes with the imposition of it. Admittedly, years ago, L/C customers demanded to see exactly what they were paying via so-called "unbundled pricing".

With letters of credit, banks gave it to them in spades, so that now the fees charged on many drawings present a dizzying array of apparently legitimate, but often punitive, fees. For example, fees for reimbursement taken by both the "claiming" and "paying" banks can easily total $100 or more. Typically, this is not a fee that buyers and sellers anticipated. The other issue regarding fees is the wide disparity of fees charged by banks for the same service/risk, making reconciliation of banks' fees to the amount deducted from proceeds difficult. I am not suggesting that banks adopt a uniform pricing strategy, but the frustration of exporters trying to verify the correctness of fees must be addressed. …

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