By Simon Streat, VP Product Strategy, Bolero International
In the world of international trade, managing guarantees and credit lines from several banks provides a range of challenges that large corporates must overcome.
The highest hurdle for most will be the rising costs and fees that often occur as well as the loss of central visibility and control over the thousands of instruments used due to mounting processes and proprietary systems. These problems are further amplified when trading internationally with many credit lines and thousands of guarantees open around the world at any one time.
Keeping them updated and managing them to avoid unnecessary bank fees, costs and duplication becomes extremely difficult in the absence of a consolidated overview provided by a single platform interfacing with all required banks.
There are however many valid reasons for having multiple bank relationships.
Firstly, banks have different areas of expertise, whether in products, trading zones or particular countries and home jurisdictions, which corporates need to make use of. Secondly, having commercial relationships with several banks gives a corporate the opportunity to negotiate the optimum terms and conditions for a transaction. Thirdly, the involvement of several banks spreads the risk and reduces premiums when financing high-value transactions.
These are the advantages – but the distinct disadvantages of dealing with banks through traditional methods are now very apparent.
For a start, each bank will have its own distinct IT system, requiring corporate customers to go through the tedious, time-consuming and potentially confusing process of logging into a different portal and going through security checks and passwords in each case.
More significantly, when there are thousands of documentary credits and guarantees, it becomes incredibly difficult for a corporate to keep on top of every instrument – to be able to see them and ensure they are updated and employed in the most cost-effective manner possible.
A large organisation, for example, may have local offices or subsidiaries that obtain their own bank guarantees, which makes it very difficult for treasuries to see and manage centrally.
It is still the case that in many corporates, spreadsheets are employed for this function to operate effectively. Yet even where organisations have their own treasury management systems, reconciliation and establishing degrees of exposure can be very problematic when there may be so many instruments behind deals worth billions of pounds. Interfacing with bank systems is fraught with difficulty and can be very manual and time-consuming.
However, corporates are increasingly consolidating their handling of all these processes and instruments on a single third-party platform, handing themselves huge gains in man-hours, visibility and importantly – substantial savings in bank fees and costs.
Vastly increased visibility of credit lines, documentary credits and guarantees on a web-based platform gives a consistent view regardless of location. The result is the more efficient use of credit lines and big savings, to a degree that can never be achieved by any other means.
It gives a treasury the chance to call down credit much earlier, potentially benefiting the organisation by 10 or 20 basis-points – a significant saving on large numbers. The clear level of visibility provided by a multi-bank platform also means existing credit lines can be utilised without all the fees and processes required to set up new ones.
Full or even partial integration with back-office systems, seamless communication with panel banks and an effective system of alerts, all make the single multi-bank platform the future for hard-pressed treasuries toiling to improve cash-flow management and the efficient deployment of working capital.
As the global banking network expands, the treasury of any successful corporate involved in major trade transactions will have to shift to a single, multi-bank platform built and supplied by a third-party provider with an established reputation for total reliability, security and efficiency in international trade finance and banking.
The advantages in a globalised world of round-the-clock operations are simply going to be too obvious to ignore.