Staff Productivity Challenges
In today’s environment of doing less with more, overworked staff does not have time to deal with the challenges of LC document preparation. The steep learning curve, preparing documents, managing information flow and monitoring the whole LC process is often complicated and time consuming.
The Errors of Multiplicity
Each LC transaction requires coordination among many different entities. The Letter of Credit includes instructions that must be adhered to by the exporter, an insurance agency, the local chamber of commerce, an inspection company and the freight forwarder. Each group needs to document all fields in compliance with the LC. For example, the commercial invoice, packing list, insurance certificate, certificate of origin, inspection certificate and transport document must all be consistent with each other. Something as simple as five boxes verses five crates or 300 kilos verses 297 kilos will create a discrepancy and deny payment. Coordinating with multiple parties to assure the same interpretation of an LC is critical.
Follow-Up Challenges
Follow-up typically occurs between the exporter, banks and the freight forwarder. Freight forwarders and banks often have their own terminology and do not work for the exporter. The freight forwarders response time will often be slow and handling problems with the exporter is usually not a top priority. Timely movement of paperwork is not important for freight forwarders. Understanding the idiosyncrasies of freight forwarders and banks is often beyond most treasury or credit managers.
Status Update Difficulties
When a problem occurs that requires resolution, the Letter of Credit may list the name of the bank, but often does not indicate who or where to call. Because international banks are very large and have many different locations, inquiring on the payment status of an LC may be difficult. The number of potential banks that may be involved in any given Letter of Credit further complicates issues. For example, there are issuing, advising, receiving, negotiating, examining, reimbursing and paying banks. All banks charge different fees for problems and there is often no easy way to know where the LC is in the chain and which bank to contact.
The Result: Poor Cash Flow
The average LC is paid in 24 to 27 days from the ship date. A single discrepancy as minor as a typographical error may delay payments up to 45 days or more. For exporters that are shipping millions of dollars of product internationally, delayed cash flow can be a significant issue. To speed cash flow to less than 2 weeks, exporters should consider outsourcing the LC document preparation process to professionals.
In today’s environment of doing less with more, overworked staff does not have time to deal with the challenges of LC document preparation. The steep learning curve, preparing documents, managing information flow and monitoring the whole LC process is often complicated and time consuming.
The Errors of Multiplicity
Each LC transaction requires coordination among many different entities. The Letter of Credit includes instructions that must be adhered to by the exporter, an insurance agency, the local chamber of commerce, an inspection company and the freight forwarder. Each group needs to document all fields in compliance with the LC. For example, the commercial invoice, packing list, insurance certificate, certificate of origin, inspection certificate and transport document must all be consistent with each other. Something as simple as five boxes verses five crates or 300 kilos verses 297 kilos will create a discrepancy and deny payment. Coordinating with multiple parties to assure the same interpretation of an LC is critical.
Follow-Up Challenges
Follow-up typically occurs between the exporter, banks and the freight forwarder. Freight forwarders and banks often have their own terminology and do not work for the exporter. The freight forwarders response time will often be slow and handling problems with the exporter is usually not a top priority. Timely movement of paperwork is not important for freight forwarders. Understanding the idiosyncrasies of freight forwarders and banks is often beyond most treasury or credit managers.
Status Update Difficulties
When a problem occurs that requires resolution, the Letter of Credit may list the name of the bank, but often does not indicate who or where to call. Because international banks are very large and have many different locations, inquiring on the payment status of an LC may be difficult. The number of potential banks that may be involved in any given Letter of Credit further complicates issues. For example, there are issuing, advising, receiving, negotiating, examining, reimbursing and paying banks. All banks charge different fees for problems and there is often no easy way to know where the LC is in the chain and which bank to contact.
The Result: Poor Cash Flow
The average LC is paid in 24 to 27 days from the ship date. A single discrepancy as minor as a typographical error may delay payments up to 45 days or more. For exporters that are shipping millions of dollars of product internationally, delayed cash flow can be a significant issue. To speed cash flow to less than 2 weeks, exporters should consider outsourcing the LC document preparation process to professionals.