Case Study 1
Trade Finance Intelligence
The following case study details our experience in helping a UK manufacturing company to successfully secure post shipment finance against a Documentary Letter of Credit from a buyer in Oman.
The company designs, manufactures and distributes emergency lighting and control gear to clients in the UK, Europe, Middle East and Africa. The company, our client, had secured a contract to supply light fittings to a buyer in Oman. Payment terms were 60 days from shipment.
Introduction
Day to day working capital requirements were provided via an Invoice Finance facility, however the funder was unable to provide funding against Letters of Credit, nor did they have an appetite to fund debtors in Oman on an ‘Open Account’ basis.
The client required ‘post shipment’ finance against the Letter of Credit where documents had been ‘accepted’ by the ‘Issuing Bank’ in Oman and a payment date had been advised.
Challenges
We reviewed the terms of the Letter of Credit and noted that the terms did not provide instructions to the ‘Advising Bank’ in London to add their ‘Confirmation’ (payment guarantee) to the Letter of Credit. This meant that the client would be required to wait until the payment date for receipt of funds from Oman.
We noted that the terms of the Letter of Credit allowed the ‘Advising Bank’ to ‘Negotiate’ (give value) against a compliant presentation of documents and advised the client to contact the ‘Advising Bank’ and ask them to provide a ‘post shipment’ finance facility. Whilst the initial response was negative, using their in-depth knowledge of Letters of Credit, Working Capital Intelligence challenged the Advising Bank and a facility was provided.
The client has been advised to consider requiring future Letters of Credit to be ‘Confirmed’ by a UK Bank and to request a draft of each new Letter of Credit for review prior to issuance, which will ensure that post shipment finance can be provided against compliant presentations of documents.
