The Costs of Doing it Wrong - Paper Way -vs- @GlobalTrade Way

Scenario 1

In the case of a presentation for $250,000.00 errors in documentation in some banks would be subject to a discrepancy fee of $75.00. But what of the not-so-obvious costs? If the documents are fixable, this means sending documents back and forth to the bank, most likely via courier. The process of fixing the documents can take several days or longer, so the cost of funds must also be included:

	Paper Way	@GlobalTrade Way
Typical processing time*	5 days	1 day
Discrepancy fee	$    75.00	$    60.00
Courier costs	$    35.00	$      0.00
Cost of funds at 7% p.a. (360 day / yr)	$  243.00	$    49.00
Total cost	$  353.00	$    109.00

                        * processing time is reduced to one day due to electronic submission of documents

Scenario 2

What if the documents are not fixable?  In that case, an exporter can expect to pay a discrepancy fee from the buyer's bank as well.  The exporter's bank contacts the issuing bank, advising the bank of discrepancies and awaits its and the buyer's acceptance.  This can often take a few weeks, which means that the cost of funds element should be considered here, too.

                        * processing time is reduced to five days due to electronic submission of documents

                                ** discrepancy fees are reduced due to centralized documentary processing centre

Annual Costs

Assuming the exporter ships four times a week, with $250,000.00 as the average shipment value, under the scenarios above the annual costs would be:

However, this does not take into account other hidden costs such as employee time, phone calls, etc.  Furthermore, what if acceptance of discrepancies is not received for weeks, or what if discrepancies are never accepted?

The following table can be used to calculate the annual opportunity cost of accelerated export L/C payments.

Cost Calculator (What is the dollar value of your annual L/C shipments?)

Reprinted with permission from Business Credit Magazine
The magazine of the National Association of Credit Managers