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Optimise Trade Credit Lines By Streamlining Bank Workflows

Published  4 MIN READ

Despite the rise of digitisation up the corporate agenda, many businesses are still clinging to antiquated paper processes. This post examines how digitising trade documents will ‘consign pain points and inefficiences to the history books’.

The pandemic exposed the pressures faced by corporate treasury departments that are responsible for managing transactions and credit facilities with banks and insurance providers across many large organisations.

Treasurers are finding it exceedingly difficult to continue to use manual and, in some cases, multiple complex workflows that involve a web of systems and points of contact. This is especially true in the management and optimisation of credit lines and important instruments such as bank guarantees, letters of credit (LCs) and standby letters of credit (SBLCs).

To date, digitising and consolidating communication between treasuries and banks in trade has been painfully slow, mainly because workflows between trade parties historically and persistently rely on manual processes and the transfer of paper documents or, at best, the use of multiple bank portals.

Yet by streamlining workflows and communications with banks, it is possible for treasurers to optimise their transaction management and credit-line utilisation, and begin leveraging their banks’ advancing trade digitisation programmes.

New drivers

In the past year, the adoption of new technologies in the trade space has become increasingly evident, the pandemic having put tremendous strains on supply chains. However, only a small minority of corporates are currently fully leveraging efficient and robust solutions to manage their transactions across the supply chain. In doing so, these pioneering firms are able to reconcile all their transactions, streamline communications with their banks, and consolidate their guarantees on a regional and even global scale.

Despite the advantages of digitisation, and the banks rapidly transitioning to digital variants of bank guarantees and LCs, the International Chamber of Commerce (ICC) reports that most treasury departments are still relying on slow and cumbersome paper-based processes.

In industry and construction, huge volumes of performance and warranty bonds are still being passed between banks and treasuries using every form of communication available. In international trade, lost or delayed documents spanning different continents still are a normal, day-to-day occurrence.

These very documents and processes are susceptible to forgery and need to be safely stored and manually reconciled. At issuance of these documents, the process is also burdensome for corporates, and any delays mean that they are not effectively ‘open for business’. With the pandemic serving to further expose the interruptions and inefficiencies of manual work, the need for corporates to transition to solutions capable of enabling multiple bank workflows is evident.

Top priority

An advanced IT infrastructure, along with the adoption of digital tools, should now be a priority for corporates looking to equip themselves to adapt to the post-pandemic trading environment. They need far-reaching digital solutions capable of providing reconciled and consolidated views of their credit lines, LCs and bank guarantees for every bank they deal with.

Yet speaking to many of the biggest corporates, reticence to adopt digital technologies persists. The common objection is that such projects introduce lengthy and costly integrations that may not present clear and tangible benefits relative to their cost.

As a result of this perception, it is now vital for vendors in this space to provide and promote user-friendly solutions that enable easy adoption and a rapid plug-in to an extensive network of banks to keep on top of credit facilities, transactions, and bank guarantees.

From a single interface, treasury departments need to be able to manage and edit their LCs, bank guarantees and electronic presentations. This is particularly important for large, multinational corporates with subsidiaries or treasuries distributed across the globe. They need greater visibility across borders and organisational boundaries to deliver efficiencies at scale in their use of credit lines, working capital and transaction management.

Move on

With the ongoing roll-out of digital trade finance solutions by banks across the globe, as well as the improving interoperability between these solutions, corporates taking this pathway will be able to communicate with all their banks more easily, and finally start moving away from antiquated paper processes and multiple communication channels.

I believe that we are witnessing a golden age in trade digitisation, in part spurred on by the impacts of the pandemic. Yet treasuries are spending vast amounts of time manually managing credit lines with multiple banks because too many remain firmly wed to Excel spreadsheets and their over-complex error-prone manual processes. There is no need.

The technological landscape for trade and treasury has moved forward at pace. By digitising trade documents and reconciling all transactions in one place, then building open communication channels with financial institutions, all current inefficiencies and pain points can be consigned to the history books.

Indeed, with working habits changing, and remote working becoming the norm, the adoption of multi-banking trade finance solutions will enable treasuries to manage and optimise their LCs, bank guarantees and credit-line relationships with their banks with an ease and efficiency that has previously been impossible but is arguably now essential.