Would you credit it?

Each year Chamber International’s documentary credit manager, Roy Broadhead,  and his team check hundreds of Letters of Credit on behalf of exporters, Chambers of Commerce and banks. Here he comments on a recent trend.

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.

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 always there anymore and it’s getting impossible for businesses to discuss Letters of Credit with the checkers themselves. 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." Contact Roy on 0845 032 7200 or email royb@chamber-international.com.