Day 1

Trade finance – its essential role in trade and revenue growth

• Conflicting requirements of seller and buyer 
• The importance and implications of trade credit: 
  - Need for credit 
  - Credit risk exposure
  - Liquidity risk 
• Working capital optimisation: 
  - Cash conversion cycle 
  - Identifying the funding gap 
  - Importance of DSO and DPO ratios 
      - Calculation
• The essential role of trade finance: 
  - Benefits to corporate and bank 
  

Exercise; calculation of DSO & DPO ratios and assessment

Incoterms® rules 2010

• Their relevance and importance to trade finance
• Examination of the most commonly used Incoterms®
• Importance of Incoterms® from a trade financing perspective

Exercise; evaluation of the needs of the seller, buyer and financier in a case study and listing the Incoterms® rules in order of preference from a control and risk mitigation perspective


Commercial contracts and trade documentation

• Key aspects of the commercial contract: 
  - Its importance to the financier 
  

Case study: examination of a commercial contract and identification of areas of risk for the seller and financier and the required amendments to mitigate risk

Trade documentation; its importance to trade finance [examples provided in delegate pack] 

Bill of lading:

• Function and key features 
• Taking control of the goods: 
  - The requirement for original clean shipped on board bills of lading 
  - Importance of consignee/negotiable status 
•  Taking title to the goods: 
  - Possessory documents: pledge and trust receipt 
•  Other types of bill of lading 
  - Air waybill 
•  Taking control of the goods: 
  - Consignee 
  - Practical issues 
•  Other transport documents and risk implications 
•  Cargo insurance; key aspects and considerations 
•  Inspection certification; basis of inspection and its importance to risk mitigation

Trade and credit risk evaluation 


Identifying and managing trade risk: 

•  Financial; buyer credit risk, country and transfer risk 
•  Political risk; contract and/or payment frustration 
•  Commercial risk: debt instrument, method of payment, commercial terms, sales leverage 
•  Performance; supply chain, nature of goods, delivery, dispute 
•  Documentary; trade instrument performance, export and import clearance 
•  Legal risk; impact on ICC rules, trade products, control of goods, debt recovery 
•  Regulatory compliance risk; AML, CFT, sanctions and fraud

Methods of payment 

• The payment “risk ladder”; key risk considerations for importer and exporter

Exercise: the delegates will be asked to assume the roles of buyer and seller in order to determine and to negotiate key commercial aspects of a trade transaction in order to mitigate risk 

Day 2 

Documentary collections 

• What a collection is:
   - Description 
• Bank responsibility:
   - Compliance with instructions
   - No undertaking to honour or pay (unless bank aval)
   - Document disclaimer; numerical count only 
• Parties 
• Types
   - Documents against payment (DP/CAD)
   - Documents against acceptance (DA) 
• Operation 
• Collection schedule of instruction (example) 
• Risk and control features 
• Protest 
• When collections should be used 
• Financing; advance against collections 
• ICC URC 522 rules; appreciation 
• Advantages and disadvantages

Bank Aval 

• What avalisation is and when it should be used 
• Risk and benefit features:
   - Seller
   - Buyer
   - Avalising bank
   - Financing bank 
• Financing opportunities

Exercise; the delegates will be asked to identify missing information in a collection schedule of instructions 

Documentary letters of credit 

• What a letter of credit is:
   - Description 
• Key aspects:
   - Bank liability
   - Irrevocable
   - Independence
   - Conditional undertaking to pay
   - Banks deal only in documents ‘on their face’:
       Document disclaimer 
• Parties 
• Structure:
  - Sight and term
  - Availability by:
       Sight payment
       Acceptance
       Deferred payment
       Negotiation
   - Expiry date and place
   - Documentary presentation period
   - Bank to bank reimbursement

Exercise: calculation of the letter of credit facility requirement for an importer 

Confirmation: 

• Unconfirmed credits; risk implications to the beneficiary 
• Confirming bank liability:
   - Without recourse financing
   - Documentary risk 
• Silent confirmation
   - Operation and terms of a ‘commitment to negotiate’ 
• Letter of credit process 
• Letter of credit example 
• Amendments:
   - Acceptance and rejection 
• Risk appreciation: structuring the letter of credit to protect the:
   - Applicant
   - Issuing bank
   - Beneficiary

Exercise: examination of an import letter of credit application form and identification of technical issues and whether the application complies with the terms of credit sanction 

Day 3 

Documentary letters of credit 

Importance of documentation: standard for examination 

• Complying presentation:
   - Obligation to honour/pay:
   - Exceptions to the payment principle 
• Discrepancy waiver:
  - Applicant discrepancy waiver
  - Applicant discrepancy rejection
  - Issuing bank discrepancy waiver rejection
• Discrepant presentation; risk implications to the:
  - Beneficiary
  - Confirming bank
  - Negotiating bank
• Financing:
  - Pre-shipment finance
  - Discount/negotiation (example)
  - With and without recourse
  - Refinancing
• Usance payable at sight:
  - Maximising issuing bank revenue
  - When letters of credit should be used
  - ICC UCP 600, ISBP 745, URR 725 rules; appreciation
  - Letters of credit: advantages and disadvantages

Case study: the delegates will be required to consider whether an export letter of credit is suitable for the beneficiary’s manufacture and shipment of a machine. The delegates will be required to identify technical issues and beneficiary risk exposure and provide advice to a letter of credit beneficiary on its suitability and make proposals for amendments to mitigate risk exposure and to facilitate financing 


Other forms of letters of credit 

• Operation, risk appreciation and use of:
   - Transferable letters of credit

Case study: examination of a request to transfer a letter of credit and identification of changes which are allowed under UCP 600 

• Back to back letters of credit 
• Revolving letters of credit

Standby credits 

• What a standby credit is 
• The operation of standby credits 
• Commercial standby letter of credit (working example) 
• Structuring standby credits; risk appreciation and mitigation 
• The use of UCP 600 and ISP 98 
• How a standby credit differs from a documentary credit and letter of guarantee

Case study: assessment of the risk profile of a client request for a standby letter of credit in respect of the purchase of pre-sold goods. Construction of the trade cycle timelines, and formulation of an import and export trade financing structure to mitigate risk for the bank and distributor and calculation of the facility requirement 


Bonds & guarantees 

• What on demand bank guarantees are 
• Key aspects: 
   - Irrevocable
   - Independent
   - Unconditional undertaking to pay
           Exceptions to the payment principle 
•    Banks deal in documents only
   - Ease of claim (beneficiary claim documentation) 
• Direct guarantees; operation and parties 
• Indirect guarantees; operation and parties:
   - Nature, role and risk implications of the counter-guarantee (example) 
• Types; Bid, performance, advance payment, payment, letter of indemnity 
• Text wordings (examples)
   - Bank’s own standard wording 
•    Private text (and requirement for approval) 
• Key clauses; guarantee text construction 
• Claim demand:
   - Demand requirements: 
       Claim demand statement
   - Separateness of each demand 
   - Period for examination 
• Risk appreciation:
   - Unjustified claim (unfair calling)
   - Fair calling (political)
   - Extend or pay notice
   - Foreign laws and usage
   -Cancellation 
• Risk management; structuring guarantees:
  - Operative clauses
   - Variation in amount 
• URDG 758: appreciation and use

Day 4 

Case study; consideration of a request to issue an advance payment guarantee, identification of the risks and formulation of a proposal to mitigate risk exposure 

Forfaiting 

• What forfaiting is and when it is used 
• Description, parties and operation 
• Without recourse finance: 
• Events of recourse 
• Primary and secondary purchase 
• Risk appreciation and due diligence 
• ICC URF 800; appreciation

Case study: consideration of a request to purchase an avalised bill of exchange and identification of the risk features and further information required to assess the proposition 

Structured trade finance; exercising control 

• The self-liquidating facility; primary source of repayment 
• When and why deal structuring should be used:
   - Requirement to transfer the primary source of repayment away from the borrower 
• Exercising control; ‘follow the goods, documentation and the money’ 
• Facility structuring; key controls:
   - Linkage of payment and/or finance to trade documentation
   - Use and application of finance
   - Establishing an identifiable and reliable source of repayment:
       Credit quality
       Nature of the debt instrument
       Dependencies; performance risk and allowable dilutions
       Controlling the source of repayment; ring fencing, ownership and capture 
• Structuring each stage of the trade cycle: controlling the nature of risk exposure 
• Funding alignment; trade loans linked to the trade cycle:
   - Use of labelled/descriptive trade loans
   - Managing risk exposure aligned to facility sub-limit
      Drawn down documentation
      Duration; identifiable date set for repayment aligned to the trade cycle 
• Reality of title and control: liquidation of goods

Proposition assessment: gathering key information 

• Key questions to identify and evaluate transactional risk:
   - Trade proposition evaluation checklist (delegate pack) 
• Understanding and evaluating the trade cycle:
   - Key stages; risk profile of each
   - Plotting the time flow of goods, documentation and money
   - Identification of the funding gap
   - Determining the right form of finance
   - Calculating the facility quantum and period

Exercise: identification of the funding gap and calculation of the facility requirement 


Short term credit insurance 

• What credit insurance is and when it should be used 
• Working with and evaluating a credit insurance policy:
   - Assessing the extent of cover
   - Financier endorsement; joint insured Vs loss payee 
• Risk appreciation; adherence to policy terms and conditions

Receivables finance 

• Financing open account transactions:
   - What receivables finance is and when it is used 
• Accelerating the receivable; improving the DSO ratio 
• Nature of debt and implications for finance:
   - Invoice (example):
   - Assignment of debt
   - Bill of exchange and promissory note (examples)
   - Negotiability 
• Proof of delivery (relevance of Incoterms® rule) 
• Disclosed and undisclosed facilities: 
• Risk implications 
• Recourse and re-purchase events 
• Risk assessment:
   - Seller:
   - Ability to perform
   - ‘Going concern status’
        Debtor:
    - Ability to pay and transfer risk
    - Willingness to pay
          Nature of goods; specification and quality
          Timeliness of delivery
          Post-delivery performance obligations
   - Trade credit term
   - Collectability of debt; legal right to recovery 
• Prepayment; debt purchase at a discount to face value:
   - Determining the amount to finance (prepay); dilutions and retentions 
• Types of receivables finance:
   - Specific debt purchase:
        Insured
        Uninsured
   - Factoring
   - Difference between factoring and confidential invoice discounting 
• The use of invoice finance and factoring in trade finance

Case study: assessment of the risk profile and structuring of an insured receivables finance solution for the sale of vehicles to a buyer in Africa on three years trade credit 

Day 5 

Pre-shipment finance (supplier led) 

• Description and operation 
• Risk appreciation and structuring:
   - Identifiable and reliable transactional source of repayment
   - Importance of performance risk
   - Trade loans; aligned to the trade cycle

 
Approved trade payables finance (buyer led) 

• Description and operation
   - Risk appreciation

Export Credit Agency support (ECA) 

• The role of an ECA 
• Financing and mitigating risk with ECA support:
   - Credit insurance; commercial and political risk
   - Loan guarantee to lenders
   - Direct support/lending (in qualifying buyer credit transactions) 
• Parties 
• Eligibility for ECA support; regulations and criteria 
• Types of ECA support; description, parties and operation:
   - Supplier credit
   - Buyer credit
   - Lines of credit; general purpose and project specific
   - Partial guarantees to lenders
   - Bond support
   - Letter of credit confirmation support
   - Credit insurance cover

Commodities trade financing 

• What structured commodity finance is and when it should be used
   - Using structured commodity finance to look beyond the balance sheet 
• Typical commodities 
• An appreciation of the key risk characteristics of commodity financing:
   - Inherent risk characteristics of the commodity to be financed 
    - Market risk
    - Transactional risk
   - Control of the goods and receivable throughout the commodity trade cycle
        Source of repayment; identifiable and reliable? 
• Financing the commodity trader:
   - Risk appreciation, evaluation and mitigation 
• Key methods of commodity financing:
   - Pre-export/pre-payment:
        Risk appreciation and mitigation

Case study: assessment of the risks of the pre-export finance of coffee crop and the structuring of a solution to mitigate risk 

• Warehouse financing: 
  - Control of goods; warehouse receipt, warrant, letter of attornment: 
• Negotiable status? 
• Legal implications “lex situs” to ownership and sale 
  - Financing ratio 
  - Risk appreciation and mitigation 
• Role of collateral managers 
• Receivables 
  - Structural enhancement: 
• Use of off shore collection accounts 
• Debt reserve and service accounts 
• Top up and acceleration provision 
• Borrowing base 
  - Operation 
  - Risk appreciation

Case study; identification of the risks and construction of a trade financing solution across the commodity cycle for a copper transaction 

The abuse of trade finance 

• Key types of abuse 
• Why trade finance carries high compliance risk 
• An introduction to trade based money laundering:
   - Common methods

Case study; consideration of a request to issue a letter of credit which is not in the ordinary course of business of the applicant and identification of the nature of the underlying transaction 

Recent developments and trends 

• Latest market trends: 
   - Increasing role of open account trade in import and export financing 
• Results of the latest ICC market survey; trade finance default risk 
• Bank Payment Obligation; operation and market constraints 
• Blockchain finance; potential application in the trade finance market

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