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LCV: What is the problem
in the LC world that necessitated the Bolero solution?
Claire: It
is estimated that in the top Fortune 500, over US$81 billion in working
capital is locked up in the financial supply chain. The move to Global
sourcing in pursuit of lower supply costs has generally increased the
working capital required, introduced additional bottlenecks and
potential inefficiencies in the global supply chain, increasing the
headaches for both the CFO and for Supply Chain executives, regardless
of the size of company. If you take into account that around 30% of
world trade is settled through Letters of Credit, a significant amount
of money is locked up in the financial supply chain due to
inefficiencies in Letters of Credit processes.
Confronted with inefficiencies impacting the bottom line, corporates are
turning to automation to fix the problem With respect to Letters of
Credit however, that is a major challenge as it is an instrument
requiring many pieces of paper to be pushed around and processed.
Due to
an innovative, yet extremely simple solution, Bolero has opened the
avenue to unlocking real value in the processing of Letters of Credits.
Indeed, a lot can still be achieved in automating the “external
processes” between corporates and banks. More precisely in the area of
applying for Import LC’s and being advised of Export LC’s.
The
degree to which the external processes are automated will directly
determine the degree to which visibility of credit lines can be
integrated with the overall “treasury” position of the corporate,
leading to reductions in working capital. It will also determine the
degree to which downstream processes such as Document Preparation can be
automated, leading in turn to a shorter order to cash cycle.
Let us
first look at what the issues are with respect to the “external
processes” of import and export LC’s. Then we will focus on how Bolero
resolves these issues with its innovative BoleroApply and BoleroAdvise
solutions.
Issues with Import and Export LC’s
·
Multiple infrastructures: Corporates from
small to large have multiple bank relationships that enable them to
select products and services at the best terms and from the appropriate
bank, relative to a particular instrument or market. However, this
leads to corporates also having to maintain multiple communications
channels with their banks: from letters and faxes, through courier &
messenger-delivered documents, to e-mails and electronic transmissions
from proprietary e-banking portals.
The
maintenance of multiple communication channels bares a potentially huge
direct cost of many tens or even hundreds of thousands of dollars
(dependant on company size) that is, at a minimum, much more significant
than the presence of only one infrastructure. In addition, there is also
a significant indirect cost in, for example, the need to train several
staff members in a variety of communications means.
It is
estimated that by simply replacing paper with electronic advices that a
reduction in the order to cash cycle can by obtained by as much as up to
seven days. Moving to a single infrastructure and format can accelerate
this further.
·
Multiple formats: The
LC Applications and Advices also come in a variety of different formats
causing confusion over terminology, information to fill out etc. This
often causes inconsistencies between documents, and delays and errors
are introduced due to manual intervention and document re-keying.
SITPRO
cite that between 50 and 60 per cent of the Letters of Credit presented
to a bank are rejected at first time of presentation. This of course
leads to further delays and can be a source of significant frustration,
potentially leading to disputes between trading partners and banks due
to inaccurate or missing data.
·
Visibility and cash position:
Given that information is spread across the various communication
channels, it is time consuming at best to get an overall picture of your
credit position. Customers have told us that in certain circumstances
it can take up to two days to assemble all the information required to
calculate a company wide position. By the time that you have calculated
that figure, it is already out of date with new advices having been
received and amendments having been made to existing LC’s.
This
overall lack of transparency means that most companies have to fund
un-necessary working capital because they simply don’t have a clear view
of what’s in their supply chain at any given time.
·
Integration with related business processes:
Even structured information is problematic if it comes from different
sources. Unstructured information, or information on paper (e.g. fax)
cannot be integrated with other business processes unless it is
re-keyed. Examples are the calculation of treasury positions, the
preparation of documents for negotiation of the LC and the integration
of this data with such systems as ERP and Cash Management.
·
Security: LC’s are
credit instruments and as such highly security sensitive, increasingly
so in today’s “compliance” climate. This is in stark contrast with some
of the communication vehicles being used today, particularly when it
comes to fax, paper, courier etc. Even in those places where security
mechanisms are in place, they are likely different per infrastructure
used, increasing again the overall cost of an already labour intensive
process
·
Compliance: It is
commonly accepted that the processing of LC’s falls under the compliance
requirements relative to operational control. This means that processes
need to be documented and applied consistently. In addition, they need
to reflect best practice and that means that the processes need to be in
line with de facto regulation for LC’s, i.e., the ICC UCP Rules. In
addition to compliance being important, proof of compliance is equally
important.
LCV: What is the
solution - what is a Bolero electronic LC?
Claire:
Automation of the LC process is complex because it requires buy-in and
cooperation from both the corporate and the bank. In fact, this mutual
co-operation is fundamental to the success of any such initiative
because not only must it deliver efficiency and automation to the
corporate, but it must also be designed to interoperate with the bank’s
internal processes and systems, in a manner which meets their strict
need for compliance, security and independence.
Until
now, most e-commerce initiatives for financial trade services, such as
Letters of Credit, have failed to provide a platform to handle this
overall complexity. Typically these initiatives have been bank centric
solutions, which have not provided for the automation and process
integration needs of their corporate customers. Moreover, due to the
proprietary nature of many of these platforms, customers are expected to
maintain multiple links with all their banking partners. More recently
there have been corporate centric platforms, and although they provide
automation of parts of the LC process from the corporate side, they
completely disregard or trivialize the need to integrate into the bank’s
processes and back office systems, leaving the corporate with a
potentially valuable solution, but no agreement from its banks to
participate.
Now,
however, there is a real alternative.
With its
powerful online Letter of Credit platform, Bolero can provide corporates
with a simple to implement, browser-based, fast and efficient way to
apply for Import LC’s and Guarantees and be advised of Export LC’s and
Guarantees with all their banks.
These
solutions are workflow supported which means that processes are always
applied consistently. This is very important in the current compliance
environment where consistent application of processes is key to
maintaining operational control.
Additionally, for every transaction, the Bolero Trade Platform checks
the identity of the parties that are involved as well as the integrity
of the transaction data itself. And should a dispute arise, Bolero as a
Trusted Third Party will provide a full audit trail. LC’s are credit
instruments and as such fall under strict rules and regulations relative
to illicit financing (e.g., money laundering, “know your customer”,
terrorism financing).
By
removing the traditional paper-based mail and fax communications used
today, Bolero customers benefit from the efficiency and accuracy of
electronic processing – saving both time and money – and, for the first
time, gaining a single, unified view of all their outstanding Import
LC’s as well as Export LC’s and Guarantees.
By
having a single view of all outstanding Import and Export LC’s,
corporates are in a far better position to work with their banks to
manage credit lines and improve cash positions by reducing the
requirement for working capital.
The
introduction of structured, computer readable information helps to
reduce the likelihood of rejection of Letters of Credit during the
negotiation and settlement processes. An Automated LC Application means
that computer readable information is introduced early in the
transaction chain. Hence it is an excellent basis for the automatic
creation of “downstream” documents such as the Issue of an LC.
Likewise, a structured LC Advice can be used as the basis for the
preparation of documents that will be used in the negotiation of the
LC.
The
streamlining of trade finance processes and the elimination of the
inaccuracies and delays associated with manual entry, play a key part in
reducing the order-to-cash cycle.
LCV:
How does LC Automation work with BoleroApply and BoleroAdvise?
Claire: BoleroApply: BoleroApply is a multi-banking
service that enables corporates to apply for Import LC’s and
Applicant-side Guarantees on the same platform, in the same format,
regardless of the identity of the Issuing Bank.
BoleroApply covers the Applications as well as the Advices coming back
from the Issuing Bank. Furthermore, it also addresses the amendment
process. Finally, the application can be used for any type of LC,
including Stand-By’s.
That
means that BoleroApply helps to bring all the information together
relative to Import LC’s and Applicant-side Guarantees, which in turn
enables the Corporates to establish the overall picture of outstanding
LC’s.
To
ensure interoperability with other business processes and compliance
with industry best practice, BoleroApply is designed to be fully
interoperable and compliant with the ICC’s UCP and eUCP 500 and with
Swift’s Category 7 Standards.
BoleroAdvise:
BoleroAdvise is a multi-banking service that enables Corporates to view,
print and download their Export LC Advices and Beneficiary-side
Guarantees, on the same platform, in the same format, regardless of the
identity of the Advising Bank. It also addresses the amendments process
and caters for all types of LC’s, including Stand-By’s.
That
means that BoleroAdvise helps to bring all the information together
relative to Export LC’s and Beneficiary-side Guarantees, which in turn
enables the Corporates to establish the overall picture of outstanding
LC’s.
BoleroAdvise can be complemented with Document Preparation. This
solution helps you with the preparation of the documentation that will
need to be presented during the negotiation of the LC. The Document
Preparation Solution not only facilitates the creation of internal
documents (e.g., invoice, shipping instruction), it also enables the
creation of external documents in a collaborative process with relevant
parties (e.g., Bill of Lading, Inspection Certificates).
Like
BoleroApply, BoleroAdvise is also designed to be fully interoperable
and compliant with the ICC’s UCP and eUCP 500 and with Swift’s
Category 7 Standards.
LCV: How much it costs?
Claire:
Bolero is extremely affordable and provides excellent returns on
investment to banks, importers and exporters. Today
we are
increasingly working with banks, importers and exporters of all shapes
and sizes and across all geographies.
LCV: How it benefits?
Claire: The benefits are many and varied dependant on the
organisation. The main benefits are mentioned in the text above.
LCV: Who benefits?
Claire:
Everyone, bank, importer and exporter.
LCV: How is it good
alternative to labor-intensive LC working - does it reduce costs,
discrepancies, delays, disputes?
Claire:
Bolero has released two solutions into the market that help importers
and exporters work with Letters of Credit.
Our LC based solutions work the same way for everyone at a
global level for every kind of LC due to the fact that it follows
standard agreed business processes that are entirely interoperable with
the ICC's UCP rules. The Bolero LC solutions automate LC processing and
hence significantly reduce risk of errors and associated delays. For
example, we support the electronic creation of documents, which vastly
reduces errors made by human input, the electronic communication of
documents significantly reducing the time it otherwise takes to move
them manually (from days to seconds). Fully implemented, these solutions
eliminate most of the potential for discrepant documents and time delays
through a combination of automation, data inheritance and electronic
pre-checking.
LCV: What is the market
response to the solution?
Claire:
Bolero's overall mission is to work at a
global level and of course this includes all geographies across the
globe. Our
worldwide customer base is equally distributed across Europe, the
Americas, Asia and the Middle East.
As a centrally
hosted technology platform, Bolero's solutions are available through the
public Internet, this means that we do not require any electronic
messaging infrastructure to be present in a specific region or country,
nor do we require any software installation on premises. This gives us
extensive global range and reach.
LCV: How is it helpful
in economic development through trade development strategy?
Claire: Bolero
believes that the solutions are as valid in the developed world as well
as that of emerging markets. Due to the fact that this is a hosted
solution there is no requirement to investment in infrastructure or
costly hardware – in its simplest form, the only requirement to access
BoleroApply and Advise is a PC capable of accessing the Internet and
membership of the Bolero Platform. For banks in emerging markets this
provides them with the capability to access 21st century technology
without the cost and time involved in developing a proprietary system.
For organizations it provides them with human and computer readable LC
Advises at their fingertips all in one place in a manageable and easy to
understand format.
For further
information on Bolero, visit
www.bolero.net
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