Magazine article Business Credit

Outsourcing Export Letter of Credit Document Preparation: A New Way to Improve Cash Flow

Magazine article Business Credit

Outsourcing Export Letter of Credit Document Preparation: A New Way to Improve Cash Flow

Article excerpt

SOME EXPORTERS HAVE A UNIQUE WAY OF DEALING WITH THE PROBLEM OF LETTERS OF CREDIT - BY NOT DEALING WITH THEM BECAUSE THEY DO NOT HAVE THE EXPERTISE, THE TIME OR THE EMPLOYEES NECESSARY TO DEAL WITH THE PROCESS.

The Problem

The variety of players and situations involved in exporting give rise to as many opinions as there are stars, but one opinion is universally shared: Preparing documentation for letters of credit (L/Cs) can be a headache. This is especially so if documents are to be prepared exactly according to the numerous conditions and requirements in the so-called "average letter of credit." However, relief is available. Outsourcing this task to document preparation professionals can be the pill that cures this documentary headache.

It may come as a shock to an exporter to learn that up to 80 percent of all documentary presentations contain discrepancies - shocking, but understandable. After all, the letter of credit is a complicated payment mechanism. It takes a high level of expertise to deal with all the players in a letter of credit scenario - buyers, banks and freight forwarders - who may have differing priorities, requirements and stipulations. Furthermore, each party may have preferences or suggestions on how the letter of credit documents should be prepared, which can leave the exporter even more confused than before.

Some exporters have a unique way of dealing with the problem of letters of credit - by not dealing with them - because they do not have the expertise, the time or the employees necessary to deal with the process. However, this translates into lost business opportunities, which most firms cannot ignore without eventual economic consequences. Other exporters, unwilling to let a business opportunity slip by, agree to use a letter of credit, accepting the delays and complications as part of the deal.

Until now, exporters have been faced with these two alternatives: Passing up business or attempting to coordinate the document preparation with their freight forwarders and/or other parties, accepting the fact that they are getting further behind in receivables as cash flow turns into a trickle.

A New Solution

Today, outsourcing provides a way out of the document dilemma for exporters. It allows professionals with particular expertise to prepare the documents exactly as per letter of credit requirements. The use of a third-party, professional documentation preparation service can help to reduce multiple bank fees, expedite documentation processing and accelerate cash flow.

One such service, Document Logistics, is offered by Bank One and serviced through Trade Finance Services (TFS). TFS is staffed by international banking experts who help ensure that the documents meet all banking requirements.

The benefits of outsourcing document preparation include:

* Improved cash flow and cost savings. Payment cycles are reduced from several weeks, possibly even months, to days.

* Lower discrepancy rates. Failure to comply with L/C documentation requirements puts payments at risk; using outsourcing professionals can help eliminate this risk.

* Simplified procedures. Letters of credit can be tedious and time consuming. Outsourcing simplifies the procedure for the company by leaving the document preparation to experts.

* Better service to your buyers. Enhanced compliance and timely presentation allows buyers quick access to the necessary documents to clear customs and get title of the goods.

If goods ship three or four times a week, then documents should go to the bank three or four times a week. This is an impossible task for many exporters on their own, but it is possible by outsourcing the documentation preparation.

What is Involved in Outsourcing This Function?

Outsourcing is easy to arrange:

Step 1 - The customer signs a power of attorney form, which allows for the issuance of any beneficiary documents required under the letter of credit, such as the invoices and beneficiary certificates. …

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