The Treasurer’s Guide to Trade Finance

316 Pages·2013·8.16 MB·English

The Treasurer’s
Guide to
Trade Finance
Second edition
Sponsored by
WorldWideCountryProfiles®
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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.
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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