Many sellers using letters of credit (L/C) as a payment instrument have often faced that presented documents are not L/C compliant. It has been estimated that almost 70% of all L/C documents globally presented are not compliant at their first presentation. As a result issuing banks are not obliged to pay and ultimately it is ony the buyer, that is the applicant, who can accept documents with discrepancies and as such enabling the issuing bank to pay.

Discrepancies, more or less spurious, threaten to undermine the value of the L/C as a secure payment instrument. It takes a high level of expertise to deal with all the parties involved in a L/C scenario - buyers, banks and carriers - who may have differing priorities, requirements and stipulations. Furthermore, each party may have preferences or suggestions on how L/C documents should be prepared, which can leave the seller even more confused.

Some sellers may decide not to accept L/C because they do not have the expertise, the time or the employees necessary to deal with the process. However, this translates into lost business opportunities, which most firms cannot ignore without possible economic consequences. Other sellers, unwilling to let a business opportunity slip by, agree to use L/C, accepting the time consuming task of compliance and negotiation as part of the deal.

Until now, sellers have been faced with these two alternatives: passing up business or attempting to coordinate the document preparation with the various parties, accepting the fact that they are getting further behind in receivables as cash flow turns into a trickle.

Outsourcing, if made available by the banking industry, provides a way out of the document dilemma for sellers. It allows professionals with particular expertise to prepare the documents exactly as per L/C requirements. The use of a third-party, professional documentation preparation service can help to reduce multiple bank fees, expedite documentation processing and accelerate cash flow. The benefits of outsourcing document preparation include:

• Better working capital management and prudent risk management due to higher accuracy and cost savings. Accelerated days sales outstanding, reduced from several weeks, possibly even months, to days, because discrepancies are reduced or removed and time spent on document handling is minimized.
• Offers the sellers to change L/C document processing costs from fixed to variable one, as FTE’s can be released at the seller’s end.
• Pre-checking of L/C to ensure compliance is possible before shipment. Some exporters accept L/C without realizing that some of the conditions may be impossible or not beneficial to comply with.

As a natural conclusion – who else is better in providing the above service than banks handling L/C on daily basis with decades of experience? To give full consideration, I would appreciate if you could share with me your expectations/comments you have on the above topic.

Sven Kööp