Trade Finance Solutions

Course Objectives

The focus is on understanding the working capital cycle of a business, identifying financing needs, and structuring solutions to meet client need, whilst appropriately managing the risks in order to recommend optimal trade finance solutions.

Specifically, participants will be equipped to:

• Apply a structured approach to identifying the key risks to which importers and exporters are exposed and match trade finance solutions
• Understand the key drivers of cash generation and use throughout a company's business cycle and how this changes as a result of economic and commodity cycles, organic and acquired growth, and company-specific strategic initiatives
• Distinguish the main features, benefits and risks mitigation characteristics inherent in a wide range of structured and trade finance products
• Recognise the accounting, cash flow and capital requirement implications of trade finance products
• Structure trade finance transactions to meet client need and minimise risk to the Bank.

Target Audience

Credit and risk officers, relationship bankers, transaction banking sales and product specialists, and professionals working in trade, export and commodity finance.

Content

I. ANALYTIC APPROACH TO BUSINESS DEVELOPMENT

The goal of this section is to provide a structured approach to assessing a company's cash flow and identifying trade finance requirements.

Working Capital and cash from operations

• Impact of profits and working capital on core cash flow
• Examining working capital objectives and implications from a Treasurer's perspective
• Differentiating between seasonal, permanent and growing working capital funding needs
• Distinguishing between a retailer's chain vs. manufacturing operation supply chain vs. trading house.

Financing and Investing Activities

• Investment decisions and impact on longer term credit standing of the company
• Financing needs (short term revolving vs. long term amortising), debt repayment capacity and refinancing.

Funding strategies

• Criteria which drive decision making:
  • Access to various forms of trade finance: parties involved, trade flows and supply chain, costs and benefits, local regulatory provisions
  • Alternative funding sources: traditional credit products, market imperfections allowing pricing arbitrage
  • Balance sheet implications (including off-balance sheet)
• Potential product solutions: cost and management systems needed for end-to-end deal execution to support their choice.

II. FRAMEWORK FOR RISK IDENTIFICATION

The goal of this section is to use a framework for identifying how and when risks can arise in trade finance transactions in order to begin considering the most appropriate products and risk mitigation strategies.

Purpose

• Who is the borrower (Buyer or Seller):
  • Where does the borrower stand in the supply chain?
  • Forms of trade finance vehicles
  • Track record in settling trade payments
  • Which stage of the business cycle is being financed?

Payback

• Four sources of payback : asset conversion, refinance, cash-flow and external support
• Prioritising analytic focus when multiple sources of payback are available.

Risks

• Evaluating the risks to repayment: analysis of the external environment, including the jurisdiction, sector, and of the Buyer and Seller specifically.

Structure

• Profile: amount, currency, term and repayment
• Security: the use of collateral
• Legal safeguards (late payments, commercial disputes)
• Mitigation of double financing of the same trade asset.

III. TRADE FINANCE SOLUTIONS: MATCHING PRODUCTS TO CLIENT NEEDS

The goal of this section is to ensure that participants understand the key differentiating features of the main product types and the impact each product might have on the Buyer and Seller's cash flow management. This section will be taught using a series of short exercises and examples built around "client scenarios" which the participants will be asked to work on individually and/or in small groups. The scenarios will be based upon products most prevalent in the market.

For each scenario:

• Use the cash flow statement and business cycle to identify and quantify the need for trade finance
• Sample client scenario: a brief description of company specific need or challenge
• Trade finance solutions: recommend most appropriate product(s) and explain benefits (and drawbacks) from the Buyer's & Seller's perspective, impact on cash flow, and comparison to possible alternative solutions.

Documentary Letters of Credit

• Identifying and quantifying trade finance needs for facilitating trade flows and managing underlying exposures
• Sample client scenario: a company with a purchase or sale contract with limited knowledge of counterpart's creditworthiness and track record
• Product solutions: structure and pricing differences between irrevocable, confirmed and revolving credits.

Back-to-back and transferable credits

• Identifying and quantifying trade finance needs for facilitating trade flows with several players in the chain
• Sample client scenario: a trading company sourcing commodities from one Seller and onward selling the same to an unrelated Buyer with the objective of preventing disclosure of either to the other party
• Product solutions: structure and pricing differences between back-to-back and transferable credits.

Bank guarantees, SBLCs and bonds

• Identifying and quantifying trade finance needs for facilitating potential infrastructure projects or long-term contracts
• Sample client scenario: a company with a long-term off-take contract for coal
• Product solutions: structure and pricing differences between guarantees, SBLCs, bid & performance bonds.

Forfaiting / invoice discounting / factoring, pre-export, finance red clause LC

• Identifying and quantifying trade finance needs for minimising capital implications and providing working capital to the counterpart where credit may be constrained
• Sample client scenario: a Buyer sourcing its raw materials under a long-term contract from a weak Seller in an emerging market
• Product solutions. Structure and pricing differences between various alternative products
• Identifying warning signals: unhedged exposures, excessive risk taking, lack of transparency, performance risk, recourse on Seller.

IV. STRUCTURING TRANSACTIONS

The goal of this section is to structure trade finance transactions in order to ensure they both meet Buyer and Seller needs and achieve an adequate risk reward profile for the bank.

Buyer / Seller relationship considerations

• Differences arising from language, culture, business practices, time zones, currencies
• IncoTerms of Sale - FOB, CIF, C and F
• UCP 600 provisions
• Goal: to avoid disputes/litigation, define Buyer's vs. Seller's respective roles and responsibilities, reduce financial risks and ensure payment settlement.

Documentation

• Key documents: Contract to cover scope, Buyer/Seller identification, quantity, quality assurance, delivery and shipping details, price, payment terms, duration, force majeure, applicable law, termination, arbitration
• Regulatory considerations
• General structure of the agreements
• Key credit issues to be considering in negotiating documentation.

Risk mitigation and credit challenges

• Political and macroeconomic risks - currency transfer plus inconvertibility, interest rates
• Counterparty risk - making sure Seller gets paid
• Operational and Logistics risks
• Risk mitigation techniques: Risk Distribution, Insurance/Guarantees, ECAs, Multilaterals, Collateral
• Early warning signs of potential contract frustration and payment default.

Workshop Times

Below are typical timings for our courses; upon registration we shall advise you if these have changed.

Breakfast: 8.30am
Course Start: 9.00am
Course End: Between 5.00pm and 5.30pm

Lunch starts between 12.30pm and 1.00pm, and lasts no longer than 1 hour.
Short breaks of 10 - 15 minutes are taken mid morning and mid afternoon.