Trade Finance Intermediate

“Brilliant! Taught at the right level. Definitely worth attending”
Johannesburg, South Africa

This 4-day on-line virtual classroom intermediate level trade finance training course comprising 10 modules provides a practical in-depth analysis of the structuring and financing of import and export documentary letters of credit, and an overview of some of the special types of credit. The structuring of standby credits to mitigate risk of abuse is explained, together with an understanding of the clause structure of letters of guarantee, and an introduction to receivables finance, credit insurance, approved trade payables finance and the support provided by Export Credit Agencies.

The virtual classroom provides the engagement and participation of a physical class without leaving the home or office. Each day is structured into four separate 75 minute sessions. Case studies are discussed, and solutions formulated via delegate participation through virtual breakout syndicate rooms.

Training objectives

By attending this on-line virtual classroom training course, the delegates will:

  • Appreciate how trade finance can mitigate risk and transform working capital

  • Structure letters of credit to mitigate risk and to provide a financing solution

  • Appreciate the operation, risks, and benefits of specialist letters of credit

  • Structure demand guarantees and standby credits to mitigate risk

  • Be aware of supply chain finance solutions (trade payables and receivables finance) and when used

  • Understand the key services provided by Export Credit Agencies

PROGRAM OUTLINE (on-line virtual classroom delivery)

MODULE 10

Import letters of credit: structuring to mitigate risk (150mins)

Structuring and issuing an import letter of credit

  • Issuing bank undertaking
  • Bank credit facility: terms of credit approval
  • Application form example
  • Structuring an import letter of credit to mitigate risk:
    • Availability: sight payment, acceptance, deferred payment, and negotiation
    • Expiry date and place
    • Documents
    • Goods:
      • Control
      • Validation
      • Insurance
    • Document presentation period
    • Bank to bank reimbursement
  • Sight and term credits:
    • Contingent and actual bank engagement liability
    • Timing of debit to applicant’s account

LETTER OF CREDIT APPLICATION: EVALUATION

Bowie Imports
Examination of a completed letter of credit application form
Identification of technical issues and non-compliance with the terms of credit approval
Case study: virtual breakout syndicate          

NOTE: A good understanding of letters of credit or prior attendance on Module 7 (Introduction to Documentary Letters of Credit) will be required

MODULE 11

Export letters of credit: structuring to mitigate risk (150mins)

Handling and structuring an export letter of credit

  • Export letter of credit (example)
  • Role of the advising bank:
    • Unconfirmed credits: no financial engagement
  • Confirmation: confirming bank undertaking and risk:
    • Issuing bank and country risk
    • Issuing bank document rejection
  • Silent confirmation:
    • Third party undertaking to pay
    • Commitment to negotiate: operation, terms and conditions
  • Amendments:
    • Acceptance and rejection
  • Discrepant presentation:
    • Common discrepancies
    • Applicant discrepancy waiver
    • Issuing bank waiver rejection:
      • Decision factors in rejecting the applicant’s discrepancy waiver
  • Discrepancy risk implications to the:
    • Beneficiary
    • Confirming bank
    • Negotiating bank:
      • Importance of timely notice of rejection
  • Options for handling discrepant documents:
    • ‘Cable’ issuing bank for authority to pay/negotiate
    • Corrections/document replacement and resubmission (subject to remaining presentation period)
    • Transmission of documents in trust to the issuing bank
    • LC amendment
  • Structuring an export letter of credit to mitigate risk:
    • Availability: sight payment, acceptance, deferred payment, and negotiation
    • Expiry date and place
    • Importance of confirmation to the beneficiary:
      • Use and benefits of the ‘may add’ confirmation instruction
      • Requested confirmation party (use of SWIFT field 58a)
    • Beneficiary selection of the negotiating bank (use of freely negotiable credits):
    • Documents required for presentation:
      • Clarity and control over document issuance and timely availability
      • Exercising control over the documents of ‘title’
      • Insurance
      • Document presentation period
    • Bank to bank reimbursement

EXPORT LETTER OF CREDIT: IDENTIFICATION & MITIGATION OF RISK 

Lou Rawls Machinery
Evaluation of an export letter of credit and identification of risk for the beneficiary
Recommendations for the restructuring of LC terms to mitigate risk for the beneficiary and to facilitate financing
Case study: virtual breakout syndicate          

NOTE A good understanding of letters of credit or prior attendance on Module 7 (Introduction to Documentary Letters of Credit) will be required 

Y AND SOLUT

MODULE 12

Financing letters of credit (75mins)

Import letters of credit

  • Financing working capital using import letters of credit:
    • Usance credits
    • Usance payable at sight ‘UPAS’: maximising issuing bank income
    • Re-finance

Export letters of credit

  • Pre-shipment finance:
    • Description
    • Risk appreciation
  • Advancing funds (with recourse)
  • Discount (without recourse):
    • Description and operation
    • Calculation of discount interest (example)
  • Negotiation:
    • Description and operation
    • With recourse
    • Without recourse
    • Risk appreciation: financing implications for the negotiating bank
  • Assignment/allocation of proceeds:
    • Description and operation
    • Letter of instruction and allocation of proceeds (examples)

DISCOUNT FINANCE: CALCULATION

Calculation of the net amount payable to an LC beneficiary following a request to negotiate complying documents
Exercise

NOTE: A good understanding of letters of credit or prior attendance on Module 7 (Introduction to Documentary Letters of Credit) will be required 

MODULE 13

Introduction to transferable letters of credit (75mins)

Transferable credits

  • Description, operation, and parties:
    • First beneficiary
    • Second beneficiary
    • Transferring bank
  • When used
  • Transfer changes allowed by UCP
  • Risk appreciation:
    • Commercial divulgement (middle-party)
    • Compliance risk (bank)
  • Structuring the terms to mitigate risk

TRANSFERABLE LC: PERMITTED CHANGES ON TRANSFER

Examination of a request to transfer a letter of credit
Identification of transfer changes allowed by the UCP rules
Case study: virtual breakout syndicate       

NOTE: A good understanding of letters of credit or prior attendance on Module 7 (Introduction to Documentary Letters of Credit) will be required

MODULE 14

Standby credits: structuring to mitigate risk (150mins)

Standby credits

  • What a standby credit is and when it is used
  • Parties, and operation
  • Types: trade and facility standby credits
  • Commercial standby letter of credit (example)
  • Risk appreciation:
    • Duplicate payment
    • Unfair drawing
    • Fraud
    • Money laundering:
      • Lack of transactional visibility
      • Copy transport documents
      • Ease of claim
  • Structuring standby credits: risk mitigation for the applicant and bank:
    • Nature of claim documentation
    • Use of operative and reduction clauses to mitigate risk
    • ‘Evergreen’ clause; use, operation, and key considerations
  • Appreciation of UCP 600 and ISP 98
  • Comparison with documentary credits
  • Use of a commercial standby credit to support working capital solutions

STANDBY CREDITS: REDUCING THE RISK OF ABUSE

Lindisfarne Launderers
Consideration on the course of action resulting from a suspicious claim under a standby LC
Examination of how the terms could have been restructured to reduce the risk of abuse
Case study: virtual breakout syndicate       

NOTE: A good understanding of letters of credit or prior attendance on Module 7 (Introduction to Documentary Letters of Credit) will be required 

MODULE 15

Demand guarantees: understanding clause structure (150mins)

Key clauses

  • Amount and currency
  • Beneficiary
  • Commencement/operative clause
  • Underlying relationship
  • Undertaking
  • Demand statement:
    • Description and benefit to the applicant
    • URDG requirement
  • Claim demand: requirements and interpretation:
    • Taken as conclusive evidence
    • Independent to the underlying contract
    • Form of demand
    • Place of presentation
    • Avoidance of non-documentary conditions
  • Variation in amount: increase/decrease
  • Expiry date:
    • Automatic extension ‘evergreen’ clause
  • Assignment
  • Transfer
  • Governing law
  • Jurisdiction

DEMAND GUARANTEE: TEXT EVALUATION & MITIGATION OF RISK

Review of a private text and identification of issues
Suggestions for text amendment/clause inclusion to mitigate risk
Case study: virtual breakout syndicate       

NOTE A good understanding of letters of guarantee or prior attendance on Module 9 (Introduction to Demand Guarantees) will be required 

MODULE 16

Special types of letters of credit (150mins)

Oil credits

  • Description, operation, and risk (example):
    • Variation in amount
  • Use of the letter of indemnity ‘LOI’ (example)

Revolving credits

  • Description and operation:
    • Value/time
    • Cumulative and non-cumulative
    • Clause example
  • When used
  • Credit facility calculation (exercise)
  • Risk appreciation

Reinstateable credits

  • Description, operation, and when used:
    • Reputational risk implications
    • Clause example
  • Credit facility calculation (exercise)

Red clause credits

  • Description, operation, and when used:
    • Clause example
  • Comparison with:
    • Letters of credit allowing partial drawings
    • Green clause credits
  • Applicant risk appreciation:
    • Failure of LC beneficiary to ship goods
    • Discrepant presentation

Synthetic credits

  • Description, operation, and when used
  • Comparison with standard commercial letters of credit
  • Transaction example: identification of areas of risk

Non-bank issued credits

  • What a non-bank issued letter of credit is
  • Operation and parties
  • When used
  • Non-bank issued letter of credit example
  • Comparison with standard commercial letters of credit
  • Risk appreciation

NON BANK ISSUER LETTER OF CREDIT: RISK EVALUATION

Sparks Electrical
Examination of the terms & conditions of a ‘non-bank issuer’ letter of credit and identification of risk issues
Consideration of a request to negotiate complying documents
Case study: virtual breakout syndicate       

NOTE A good understanding of letters of credit or prior attendance on Module 7 (Introduction to Documentary Letters of Credit) will be required 

MODULE 17

A practical introduction to receivables finance (75mins)

Receivables finance

  • What receivables finance is and when it is used:
    • Description and operation
    • Sales invoice financing: post-delivery of goods to the end-buyer (debtor)
    • Acceleration of the receivable
  • Parties
  • Nature of debt and implications for finance:
    • Invoice:
      • Claim for payment under the commercial contract
      • Performance risk: nature of goods and track record of disputes and dilutions
      • Invoice debt assignment and acknowledgement (not a negotiable instrument)
    • Bill of exchange and promissory note:
      • Independent payment obligation
      • Negotiable
  • Debt purchase versus advance of funds
  • Prepayment
  • Rights of recourse
  • Types of receivables finance:
    • Disclosed and undisclosed
    • Specific debt purchase: insured and uninsured
    • Factoring:
      • Difference between factoring and confidential invoice discounting
  • Acceptable purpose or use of the receivables finance facility:
    • Working capital acceleration
    • Structured repayment of a self-liquidating trade finance loan
  • Unacceptable purpose or use of the receivables finance facility:
    • Sales to associated businesses
    • Funding losses
    • External loan repayment
    • Fixed asset purchase
    • Company acquisition
  • Benefits of receivables finance:
    • Credit enhancement for the bank:
      • Bank ownership and control of the trade receivable proceeds
      • Increased credit appetite
      • Source of repayment for a structured self-liquidating trade finance facility
    • Facilitates growth in sales for the client and increased bank revenue from open account trade:
      • Scalable form of finance
    • Balance sheet asset and liability de-recognition: improvement in client’s financial metrics:
      • Linked presentation (‘true sale’)
      • Separate presentation
  • Fraud:
    • Fictitious ‘fresh air’ invoicing
    • Pre-delivery invoicing
    • Multiple financing
    • Banking proceeds

RECEIVABLES FINANCE: SELECTING THE RIGHT SOLUTION

Selection of the correct type of receivables finance for each given scenario
Exercise    

MODULE 18

Introduction to Export Credit Agency support (75mins)

Export Credit Agency (ECA) support

  • Characteristics of export credit:
    • Medium to long term credit:
      • Credit risk exposure
      • Liquidity risk
    • Capital or semi-capital goods
  • Obligors:
    • Corporate
    • Financial institution
    • Sovereign
    • Specialised
  • Role of an ECA
  • Financing and mitigating risk with ECA support
  • Eligibility for ECA support: regulations and criteria
  • OECD Arrangement (Consensus) on Officially Supported Export Credits:
    • Members
    • Consensus country risk classification
    • Maximum term of repayment:
      • Starting point
    • Foreign content
    • Minimum cash down payment
    • Minimum interest rates (CIRRs)
    • Minimum premium rates
    • Instalment loan repayments
    • Other requirements, restrictions, and regulations
  • Types of ECA support – description and operation:
    • Supplier credit: description, parties, and operation
    • Buyer credit: description, parties, and operation
    • Lines of credit: general purpose and project specific
    • Direct lending
    • Credit insurance
    • Partial guarantees to lenders
    • Bond insurance
    • Bond support
    • Letter of credit confirmation guarantee support
  • Benefits to the:
    • Exporter
    • Overseas buyer
    • Financing bank

ECA SUPPORT: SELECTING THE RIGHT SOLUTION

Selection of the correct type of ECA support for each given scenario
Exercise    

MODULE 19

Introduction to approved trade payables finance (150mins)

Approved trade payables finance (buyer led supply chain finance)

  • Description and operation
  • When used: key decision making criteria of:
    • Buyer
    • Supplier
    • Bank
  • Key aspects:
    • Buyer-led
    • Bank appointed as buyer’s payment services provider:
      • Bank credit risk exposure on the buyer
    • Supply chain:
      • Risk mitigation on approved supplier invoices
      • Bank debt purchase of supplier invoice: supplier monetisation of approved invoices
  • Supply chain finance platforms:
    • Bank proprietary
    • Buyer managed: dynamic discounting
    • Open third party platform: multi bank ‘customer community’:
      • Use of bi-lateral contracts (CMSA, FIA, RPA)
  • Implementation: buyer:
    • Strategic considerations, objectives, and appraisal
    • Supplier selection and phasing
  • Implementation: bank:
    • Buyer credit risk appraisal and approval
    • Buyer agreement to reimburse bank for approved supplier invoice settlement
    • Legally approved assignment of approved supplier invoices
    • ‘On boarding’ suppliers:
      • KYC
      • Legally approved receivables debt purchase agreement
  • Financing: supplier invoice debt purchase and prepayment:
    • Automatic default set for finance (bank preferred)
    • Selective invoice finance (supplier option)
  • Risk implications and considerations for the:
    • Buyer:
      • Risk of debt re-characterisation (from trade debt to bank debt)
      • Commitment to pay approved supplier invoices
      • Increasing pressure for regulation and transparency
      • Sub-optimal supplier engagement
    • Supplier:
      • Criteria for buyer’s invoice approval
      • Delayed finance until invoice approval
      • Interest cost of funding increased credit period
    • Bank:
      • Buyer credit risk
      • Criteria for buyer’s invoice approval (dispute risk)
      • Perfection of electronic assignment of approved invoices
      • Remuneration: selective invoice finance discouraged
      • Enforcement of recourse to buyer (via agreement or as approved supplier invoice debt owner)
      • Legal perfection of debt purchase agreement with suppliers
      • Length of time to ‘on-board’ suppliers

SUPPLY CHAIN FINANCE: RISK & BENEFIT APPRAISAL

Stretch Capital
Identification of the key considerations of implementing an approved trade payables finance programme (supply chain finance)
Risk and benefit appraisal from the perspectives of buyer, suppliers and bank
Case study: virtual breakout syndicate