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The Treasurer’s Guide to Trade Finance PDF

316 Pages·2013·8.16 MB·English
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The Treasurer’s Guide to Trade Finance Second edition Sponsored by WorldWideCountryProfiles® 90233838.indd 18 02/10/2012 13:38 Generated at: Tue Oct 2 13:46:43 2012 The Treasurer’s Guide to Trade Finance Second edition WorldWideCountryProfiles Sponsored by WWCP © The Association of Corporate Treasurers and WWCP Limited (except the articles and case studies supplied by The Royal Bank of Scotland plc) - 2013. The Association of Corporate Treasurers WWCP Limited 51 Moorgate 6, Church Road London Sherington EC2R 6BH Milton Keynes MK16 9PB Tel: +44 (0)20 7848 2540 Britain E-mail: [email protected] Web: www.treasurers.org Tel: +44 (0) 7855 853 851 E-mail: [email protected] Web: www.wwcp.net ISBN 978 1 899518 38 8 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the ACT and WWCP Limited. © For articles and case studies. The Royal Bank of Scotland plc - 2013. All rights reserved. No part of these articles or case studies may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of The Royal Bank of Scotland plc. The daisy device logo, RBS, and The Royal Bank of Scotland are trade marks of The Royal Bank of Scotland Group plc. Designed and typeset by M-J-P, Ashbourne, Derbyshire, UK Printed and bound in the UK by Spellman Walker Ltd, Bradford The information contained in this publication (the “Information”) may have been obtained from sources believed to be reliable, but it has not been independently verified. The author and publisher (The Association of Corporate Treasurers (ACT) and WWCP Limited) and sponsor (The Royal Bank of Scotland plc) make no guarantees, representations, warranties or assurances of any kind, express or implied, as to the accuracy or completeness of the Information, accept no responsibility or liability for its accuracy or completeness and have no obligation to update or correct any of the Information. Expressions of opinion are those of the author and publisher (The ACT and WWCP Limited) and sponsor (The Royal Bank of Scotland plc), respectively, and are subject to change without notice. Any forecast, projection or target given is indicative only and is in no way guaranteed or likely to occur. The author and publisher (The ACT and WWCP Limited) and sponsor (The Royal Bank of Scotland plc) accept no liability for any failure. The Royal Bank of Scotland plc (Registered in Scotland with No. 90312 and its Registered Office at 36 St Andrew Square, Edinburgh EH2 2YB) is authorised and regulated in the United Kingdom by the Financial Services Authority. This document and the information is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment or service. This document and the information is intended for discussion purposes only and does not constitute advice. This document and the information does not purport to be all inclusive or constitute any form of recommendation or be an analysis of all potentially material issues and is not to be taken as a substitute for readers exercising their own judgment or seeking their own advice. The Royal Bank of Scotland plc shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages (including loss of profits) arising in any way from this document or the Information. For some of the RBS articles and case studies, the following Risk warning applies: Security may be required. Product fees may apply. Over 18s only. Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it. Contents Foreword v Acknowledgements vi Introduction 1 A Global View on Trade Finance 3 Anand Pande, Global Head of Trade Finance, RBS Trade Trends in Asia 6 Manfred Schmoelz, Head of Transaction Services, Asia-Pacific, RBS Trade Trends in Europe, the Middle East and Africa 8 Paul G. Geerts, Head of EMEA Trade Finance Advisory, RBS The Role of Trade Finance in Working Capital 11 Chapter 1 Introduction: the treasury’s role in managing working capital 13 Chapter 2 Understanding working capital management 18 Chapter 3 Understanding trade 31 Chapter 4 Integrating cash and trade 43 Chapter 5 Future developments 67 European Union Payments: the next steps Simon Newstead, Head of Transaction Services Market Engagement, Markets and International Banking, RBS 70 A Reference Guide to Trade Finance Techniques 79 Chapter 6 The use of documents in trade 81 Chapter 7 Trade financing techniques 104 Appendices 145 Country Profiles Argentina 146 Australia 149 Austria 152 Kingdom of Bahrain 154 Belgium 156 Brazil 158 Canada 161 Chile 163 People’s Republic of China 165 Colombia 168 Czech Republic 171 Denmark 173 Egypt 175 Finland 177 France 179 Germany 181 Greece 183 The Treasurer’s Guide to Trade Finance iii Contents Hong Kong 185 Hungary 187 India 189 Indonesia 192 Iraq 195 Ireland 197 Italy 199 Japan 201 Kazakhstan 203 Republic of Korea 206 Libya 208 Luxembourg 210 Malaysia 212 Mexico 215 Myanmar 218 Netherlands 221 New Zealand 223 Norway 226 Pakistan 228 Philippines 231 Poland 234 Portugal 236 Qatar 238 Romania 240 Russian Federation 242 Saudi Arabia 244 Singapore 246 Slovak Republic 248 South Africa 250 Spain 253 Sweden 255 Switzerland 257 Taiwan 259 Thailand 261 Turkey 263 Ukraine 265 United Arab Emirates 268 United Kingdom 270 United States of America 272 Uzbekistan 275 Venezuela 277 Vietnam 280 Vietnam 281 Common calculations 283 Glossary 288 About RBS 301 About the authors 304 Re-order form 306 iv The Treasurer’s Guide to Trade Finance Foreword The global economic downturn has focused treasurers’ minds on fundamentals. Companies have been seeking to improve liquidity within their own working capital cycles because less is available following the upheaval in the banking sector. The more forward-looking are trying to inject liquidity into their wider supply chains, as suppliers have come under pressure. Companies also increasingly need to manage counterparty, bank and country risk. Using technology to provide efficiency and information-sharing along supply chains has resulted in better trading relationships. The ever-changing regulatory environment is also altering the cost and complexity of transacting business, particularly internationally. Many governments have revamped their support for exports, in a bid to underpin economic growth. This had led to a number of innovations, for which the banks are now able to provide solutions in conjunction with organisations such as UK Export Finance. In this context, many treasurers are taking the opportunity to focus on managing working capital as efficiently as possible. They are also looking to traditional trade techniques that offer the opportunity to both provide funding and mitigate risk. The Treasurer’s Guide to Trade Finance examines trade finance’s traditional role of facilitating transactions. It assesses how technology is making it possible for treasurers to integrate trade and cash, providing the opportunity to unlock working capital and reduce costs. The guide also considers how traditional trade techniques can be used to support and finance activity along a supply chain. This guide is designed to support treasurers who are new to the subject, or those wanting to take a fresh look, by showing how traditional techniques can be used in new and imaginative ways. The ACT is delighted to work with RBS once again to produce this comprehensive guide to help the professional treasurer consolidate their influence in their organisations – in particular in the boardroom – offering their skills, technical knowledge and professional discretion to shape and drive their organisations. To ensure that tomorrow’s treasurers are capable of taking on these responsibilities, we need to support the growth of high-potential, well-rewarded, skilled and experienced treasury professionals who use their knowledge to unlock the full growth potential of their businesses. Amongst other things, this means the ACT must continually develop its range of support products to ensure that they are up to date, in demand and deliver what our customers want. The invaluable support of RBS in producing this book is an example of the treasury community working together for everyone’s benefit. Transaction Services, RBS Colin Tyler, Chief Executive, The Association of Corporate Treasurers The Treasurer’s Guide to Trade Finance v Acknowledgements I would like to thank the many people who helped me in the production of this book. Steve Hinch (Cambridge Glasshouse), Kevin Deery (Kingspan) and Andrew Coulson (London Borough of Camden) all agreed to share experiences at their respective organisations. Martin O’Donovan, Assistant Director, Policy and Technical, the Association of Corporate Treasurers, and Mark Ling, Head of Trade & Supply Chain Origination, Transaction Services UK, RBS, provided much constructive and insightful advice, as well as invaluable comment on the main body of the text. A vital contribution has been made by the sponsors of the book: Royal Bank of Scotland. Colleagues have explained how their customers around the world use trade finance techniques. Mike Regan, Manoj Menosh, Kenneth Tan, Arthur Sun and Jonathan Jiang provided comment on some of the text. Moreover, the unstinting support, coordination and advice provided by Mark Ling and Esther Chan at Royal Bank of Scotland, and Peter Matza, Engagement Director, the Association of Corporate Treasurers, has been a crucial part of the production process. On behalf of WWCP, I would like to extend our thanks to all of the above. Guy Voizey Editor April 2013 vi The Treasurer’s Guide to Trade Finance Introduction During the three years following the Chapter 1 is a general introduction to the publication of the first edition of this book, concepts involved in the book. It explains the global economic outlook has remained how treasurers are now increasingly involved uncertain. Some countries, notably those in supporting trade activity and managing the in North America and Europe, have been in wider working capital of the company. and out of recession. Other countries have Chapter 2 explains the core elements of been more fortunate, and have enjoyed the working capital cycle, breaking this down some growth. Even so, all continue to be into three distinct processes: a company’s affected by the fragile nature of the global procurement process (purchase-to-pay), economy. There remains no clear consensus its sales process (order-to-cash), and its on when, or whether, a period of sustained production process (order-to-delivery, or growth will return. In this context, external forecast-to-fulfil). The chapter explains how opportunities for company growth may be these physical activities link to the financial limited. Consequently, companies are being supply chain, and shows how treasurers can forced to focus on achieving efficiencies, both become involved in managing working capital internally and along their supply chains, to across the company’s activities. generate growth for their shareholders. Chapter 3 highlights the different payment Companies are looking to enhance terms used in international trade, and liquidity within their businesses and to explains how these terms expose buyers/ mitigate risk as far as appropriate. Despite a importers and sellers/exporters to different trend in trade towards open account trading levels of risk, depending on the terms used. and away from the use of letters of credit and Chapter 4 looks at how companies are documentary collections, traditional trade beginning to integrate their trade and cash finance techniques are increasingly being management activities to focus on more viewed by finance directors and treasurers as efficient use of working capital. It identifies tools which support these objectives. This is three core objectives for companies when the background in which this book has been managing working capital: to improve researched and written. liquidity, to mitigate risk, and to enhance The main objective of the book is to sales. It shows how a more integrated position the role of trade finance in the approach to both cash and trade can result context of improving efficiency in the financial in improved working capital management supply chain, in order to manage working and help companies meet some or all of capital more effectively. The core text has these objectives. been written with the corporate treasurer and Although it is impossible to predict with finance director in mind, although it will be any accuracy how the trade market might of equal benefit to those in companies of all develop in future years, Chapter 5 highlights sizes with day-to-day responsibility for trade. a number of the trends which are evident Although most references are to companies at the time of writing and which seem likely trading goods, the analysis is equally to develop over the next couple of years. applicable to companies trading services. It concludes with a discussion of how The book is divided into two core sections. e-invoicing and P-cards can be used to make The first consists of five main chapters. supply chain finance more efficient. The Treasurer’s Guide to Trade Finance 1 Introduction The second major section is designed to disadvantages of the technique are examined be a reference guide. in detail. Chapter 6 provides a detailed explanation The book concludes with three of core trade concepts and instruments. appendices. The first is a series of country This includes an analysis of important trade profiles, being a particularly useful reference documents, such as invoices, bills of lading source that gathers together information and insurance documents. The four core outlining the main issues affecting trade in 59 trade payment terms (open account trading, countries. Topics covered include currency documentary collections, documentary and exchange controls, documentation and credits and payment in advance) are all licence requirements for imports and exports, explained in detail. and the application of taxes and tariffs on Chapter 7 sets out explanations of all the imports and exports. The second appendix various techniques available for financing is a guide to the most commonly used trade and working capital. These range calculations in trade finance. The last is a from the use of overdrafts and bank loans, glossary of trade finance terms. through invoice discounting and factoring, We hope you enjoy reading the guide, and to structured trade finance arrangements. that you find the work as a whole to be a very In each case, the advantages and useful addition to the treasury library. 2 The Treasurer’s Guide to Trade Finance

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