Would you credit it?

Chamber International’s documentary credit manager, Roy Broadhead, shares some insights into his team’s work.

Every year Chamber International’s documentary credit team check hundreds of Letters of Credit on behalf of exporters, Chambers of Commerce and banks throughout the country.

As most exporters know, Letters of Credit are an increasingly popular method of ensuring you get paid in full and on time by your overseas customers. But it can be a complex area fraught with all kinds of problems.
Did you know, for example, that 1 in 10 of all presentations against Letters of Credit are incorrectly rejected by the banks? As you can imagine, this causes frustration for exporters and their customers as well as cash-flow problems. It’s even more galling when the exporters are proved to be right all along.
It’s made even worse by the fact that some of the banks get it consistently wrong. The good news is that we have such good relations with the banks that they often end up deferring to our experts. We have a long track record of dealing with financial organisations and getting them to admit that they’re wrong. Personally, I bemoan the drop in the banks’ standards.

Rejections on the increase
Take the case of Advanced EasyClad, a 30-strong company specialising in producing world-class anti-microbial wall cladding for use in hospitals. The firm, founded 15 years ago, had only rudimentary export experience. So when it clinched a £25,000 test order to supply hygienic cladding for use in military hospitals in Oman, it realised that the Letter of Credit could drive it up the wall so they turned to us. It was lucky they did. After preparing and presenting all the shipping documents to the bank we were surprised to receive a rejection advice setting out 10 reasons why the presentation was discrepant.

It turned out that the bank had incorrectly queried the documents on all 10 counts. We’ve referred several cases like this to the International Chamber of Commerce’s banking commission.
Once I spoke to the bank they were quite receptive and happy to accept what we said, the staff were not as experienced as we are in document checking.
“Previously with export orders we’d demanded payment upfront,” says Advanced Easyclad’s managing director Lindsay McKenzie. “But when we got this order we had to look at a Letter of Credit. Colleagues advised us to contact Chamber International.
“Roy was very helpful indeed and guaranteed to get it right. The complexity of doing a Letter of Credit for the first time is a minefield. So we knew we had to get it right with this order.”
One company, which manufactures boilers, faced delays with a shipment to Ethiopia because the advising bank had not bothered to alert them to an instruction from the opening bank to amend the credit. This led to outright rejection of the documents. With our assistance the matter was quickly resolved.
Unfortunately, we’ve seen a dramatic increase in the numbers of Letters of Credit being rejected over the past three years. This is largely because the majority of banks are having their checking done offshore in places like the Indian sub-continent.
It means that the expertise isn’t there anymore and it’s getting impossible for businesses to discuss Letters of Credit with the checkers themselves. The standard of checking by UK supervisors often leaves a lot to be desired. Queries raised in India are supposed to be checked by supervisors back in the UK.
Only two of the principal high street banks – HSBC and Yorkshire Bank – still do their checks in the UK.
“One particularly important point is that these rejections take maybe a week to resolve. Therefore, the exporter is without his money for that time which could have a bad effect on cash-flow. Not only that, the banks charge high fees for supposedly doing a satisfactory job.

Guaranteed 24 hour service or you don’t pay
Every day our clients make use of our ‘pre-presentation’ checking service where we make sure everything is in order before documents are presented to the banks. Companies scan and email their shipping documents along with the Letter of Credit. Once received, two of our credit checkers start work immediately and independently to identify necessary amendments needed. They go through the paperwork in fine detail and file reports with our co-ordinator who compares their findings. If there’s even the most minute discrepancy both checkers are consulted until the differences are ironed out.
Normally our comprehensive report is emailed to the client within 3 or 4 hours. We guarantee a 24 hour turnaround time, charge a fixed price of £59 plus VAT and always hit the deadline (there is no charge to the exporter if we don’t).
We save companies tens of thousands of pounds every year in this way. One exporter was experiencing 1 in every 3 of their presentations being rejected. Once we took the account on we improved this to nearer 1 in every 100 and, to the relief of the exporter, picked up and dealt with all queries from their bank.
£59 is a small price to pay – compared to the alternative!

www.chamber-international.com