Winfried M. Blasius, sales director of Surecomp, discusses the complexities of trade finance systems.
This headline was also the title of a presentation given earlier this year at the Surecomp European User Conference
to an audience of banks and corporates. It was well received and appeared to be a topic relevant to both parties.
Comments received from the banks suggested that it helped them to better understand the processes of their clients, while the corporates were interested to hear why big enterprises had chosen a multi-bank trade finance system.
What does multi-bank mean?
Very generically, the multi-bank feature of a trade finance application provides corporations with the possibility of exchanging structured trade finance messages with – theoretically – an unlimited number of banks. These structured message types are provided by SWIFT, Bolero or DTA. This context has been subject to countless presentations and panel discussions at trade finance conferences over the past few years. However, putting the emphasis on multi-bank is, in a way, misleading as the main drivers for a corporate to invest go far beyond communication with the banks.
The blue print enterprise
Corporates using a multi-bank trade finance system exhibit the following characteristics: They have an international/global footprint (typically more than 20 corporate units reside on different continents); and they have 15 and above banks to handle their trade finance business, which in many cases goes significantly beyond 5,000 business cases per year. Processes and reporting have to be compliant with different national regulators. In other words, the situation is highly complex. Having said that, it appears somewhat strange that the most established tool to handle this is still Excel.
Let us take a look at the pain points and the expectations that make corporates look for a powerful trade finance application.
- Process consistency and control
In a multinational organisation, you find diverse conventions to process trade finance transactions.
In many cases, a variety of supporting systems is used. Every corporate unit has its specific organisational approach and is following a dedicated set of rules
often based on local regulatory requirements.
Given these conditions, consistency and control remains a dream. Once they begin to look for a professional trade finance system, corporates start to define their expectations. New systems (or any system, for that matter) have to allow the implementation of a master process for the entire corporation, while allowing for necessary exceptions. The trade finance application is supposed to ensure that the process is performed correctly in terms of deadlines and completeness. Complementary systems have to be supplied with data like treasury or accounting without human interaction, or vice versa.
- Data consistency
Huge corporations often have a variety of trade finance tools and applications in operation with different methods and rules to compile trade finance data coming from different sources. Any consolidation is, ipso facto, a compilation of inconsistent data and thus by default, unreliable.
Opting for a corporate-wide uniform trade finance system is often driven by the expectation that this is the only way to achieve data consistency for both static and transaction data, with one single data pool and a set of rules as to how the data is treated throughout the corporation.
- Transparent credit line management
Multinational corporations maintain relationships with many banks to handle the trade finance transaction. Often one finds multiple credit lines per bank for dedicated purposes. Reality shows that credit line agreements are often arranged locally and it is difficult to create one single view on the overall credit line utilisation at a group level. As a result, the aggregated credit lines are in many cases too high and so is the related cost.
An important goal that corporates try to achieve with a professional trade finance application is central and consistent management of the banks and credit lines. The transparency thus achieved is used to leverage credit facilities across the corporation. Mid-term, the credit line volume is reduced, as is the number of strategic banks.
- Garbage in – garbage out: questionable reporting
Most of the existing procedures are unable to deliver reliable reporting. Spreadsheets supplied by the different corporate units are based on inhomogeneous methods to compile such data and are taking the data from unsynchronised data pools. After finalising the aggregation at headquarter level, one thing is sure: the end result is highly questionable. Besides, any faults this reports are typically too late. As for ad-hoc reporting, this is virtually impossible.
Given the complexity of an organisation as described as the blue print enterprise, earlier reporting is a frequent and painful exercise consuming terrific resources for questionable results. The expectation of a professional trade finance system is that the application produces reports based on one single data pool; the content and structure of the reports is freely selectable; the design requires fewer man-days of work supplied by the system vendor; production of single reports should require just a few mouse clicks; and the regular (monthly, quarterly, etc) production and distribution of reports should not require human interaction but run automatically.
- Reduction of “non-value-added tasks”
Professional trade finance people cannot be found around any corner. The job requires very specific knowledge and expertise. Corporate managers find it annoying to see their trade finance experts spending hours and hours with what they call “non-value-added tasks” such as controlling the bank charges, issuing intra-company cross charges, checking document consistency, creating reports and more.
The expectation against a corporate-wide uniform trade finance application is that the application itself handles such tasks and thus makes human resources available for strategic activities, such as managing the relation to the banks or working with customers on advanced financing models.
Ready for audit?
Auditor visits do not happen that frequently, but once they show up it is often described as a nightmare. These kinds of people are not satisfied even after checking the correctness of the different spreadsheets. Auditors like to drill down on single numbers and like to look at the processes as a basis of numbers and reports.
With a corporate-wide trade finance application, the processes are well defined even though there might be specific arrangements for individual corporate units. The application is able to historise the data and look at the status of a trade finance instrument across its entire life cycle.
Trade finance managers are happy to shorten the time spent with the auditors as they typically define this as “non-value-added task”.
Collaboration across time zones
The organisational flow of a trade finance instrument often crosses many time zones, which makes the collaboration between the people concerned difficult. Personal contact between them is limited and replaced by the unstructured exchange of emails or similar means. This type of communication is only visible to a limited number of people. The documents reside in individual e-mail accounts or on individual computers and are not available throughout the creation process of the instrument.
Investing in a professional trade finance system raises the expectation that this type of communication, including all the relevant documents, resides in a central place available and visible to everybody involved – at any time.
A personal remark at the end: Instead of speaking generically about professional trade finance systems
I could as well have said “COR-TF”.
COR-TF is the leading corporate trade finance solution from Surecomp, running a tremendous complexity of processes and impressive volumes of transactions in medium to very large global enterprises.