Finance & Logistics
Why chemical companies are turning to electronic shipping documents to cut costs & improve efficiency
Tom Rahder, VP product strategy at Bolero International, looks at the latest developments in trade finance processes and the potential technology offers to support payment acceleration.
BY ITS NATURE, the shipping and trade finance documentation needed in the chemical industry is extremely complex. As such, whether the product is organic or inorganic, buyers and sellers need to spend a lot of time ensuring that the correct documentation is in the right place at the right time. Hot on the heels of other commodity groups, many
manufacturers and other key players in the chemical industry are now looking to move to electronic shipping documents, rather than existing cumbersome paper- based practices. In addition to speeding-up internal processes and reducing costs,
the financial pay-off
can include reduced working capital and days sales outstanding, as well as opening up the possibility of collateralised financing and discounted pricing for savvy operators.
Getting to Grips With the Paper Problem Although sometimes regarded as complex and cumbersome, there’s no question that letters of credit still offer one of the most effective ways for exporters to ensure predictable payment. However, the major challenge in using them ultimately comes down to the need to deal with multiple paper documents, leaving the entire process wide open to error and delays.
... many manufacturers and other key players in the chemical industry are now looking to move to electronic shipping documents Until recently, the complexity and labour involved in
creating, processing and presenting essential trading documents such as letters of credit has regularly resulted in delays in delivering a full set of accurate trade finance documents to the buyer. Until all these paper documents are received by the bank and it has been confirmed that all discrepancies have been removed, the letter of credit is not compliant and the seller is unlikely to receive any payment. Here, moving to an electronic ‘ePresentation’ system
offers significant advantages in that it accelerates the process of carrying out transactions under a letter of credit by removing the need to courier original paper documents – in some cases several times over. Meanwhile, the fact that electronic presentation of trade documents is now practical for open account,
44 March 2014
collections (cash against documents) and the new Bank Payment Obligation (BPO), as well as for letter of credit transactions, is also increasing demand for their use. From a business perspective, a great deal of value in ePresentations and the underlying technology therefore comes from its ability to legally replace paper documents with ‘original’ and universally- accepted electronic ones, minimising the time they spend in transit. Crucially, the more widespread adoption of electronic
ePresentation systems which take advantage of the ICC’s already internationally-accepted eUCP standard has been extremely important. Specifically, using the technology accelerates the whole process of carrying out transactions under a letter of credit by removing the need to courier original paper documents – in some cases several times. The fact that these electronic documents, including an electronic bill of lading (eBL) are accepted by all parties and sent electronically, effectively removes the need for paper documents to be transported altogether. As such, the technology can be used not just for simple company-to-company invoices but also to carry out the type of complex letter of credit presentations and transactions frequently seen in international deals. Meanwhile, as well as accelerating the speed at
which the documents are delivered, the ability to exchange ‘machine readable’ structured data creates further opportunities for straight-through processing in both banks and corporate enterprises.
Living Up to the Promise Naturally, the full extent of the business benefits
will vary according to corporate profile, priority or business sector. In most cases however, commodity firms can expect to see increased operational efficiency, payment acceleration, less exposure to risk and, increasingly, improved payment terms. Banks and enterprises already using the technology
are reporting seeing solid results from trade finance and exporter-led solutions, which are increasingly sought after because of their potential to deliver both business efficiency and payment acceleration across trading relationships. The fact that, since 2005, ePresentations have
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