A few months ago, I got a call from a friend who is the Global Controller of a small Belgian multinational company. He was seeking an opinion on how to prevent one of their customers drawing on two bank guarantees for a quite significant amount, representing almost 40% of the group’s net annual income! Unfortunately, I couldn’t help him, as the wording of these advance payment and performance bonds matched the terms which should never be accepted by any issuer….
This incident, however, led me to think it would be a good idea to share some views and best practices, as experienced during my career, especially when I was confronted with a similar case a few weeks ago.
While there has always been a debate on whether or not trade finance should fall under the umbrella of treasury, I can’t see any better place. The role of treasury has evolved over the last decade and risk is now probably the most important element of the treasurer’s roles and responsibilities, and issuing a bank guarantee has become even more risky today than in the past.