School of Trade Finance

Learn essential techniques on buy and sell-side with our comprehensive school

This highly interactive 5 day Euromoney Learning virtual classroom training course provides practical, in-depth coverage of international trade and commodity finance. The conflicting needs of buyer and seller are identified and how trade finance provides risk mitigation and working capital solutions for both exporter and importer.

The training covers the importance of Incoterms® rules, the nature of trade documentation, how to maintain control over the goods, the risks faced by exporters, importers and banks, and detailed coverage of the key documentary trade and open account supply chain finance products to include the parties, mechanics, risk mitigating features, optimal structuring techniques, and funding solutions.

Emphasis is placed upon risk assessment, problem solving techniques and deal structuring, through a clear understanding of a corporate’s trade cycle. Great attention is paid to the effective and appropriate use of structured financing techniques in meeting the corporate’s needs for optimal working capital solutions, whilst satisfying the bank’s requirement for controlled lending and credit support.

The course uses extensive case studies1 and exercises to develop the understanding of participants in a practical and engaging way across a range of scenarios on the identification of risk, risk mitigation, structuring techniques, and optimal working capital solutions.

This highly interactive practical virtual training course is conducted via Zoom comprising 20 separate training sessions (4 per day). Each session is of either 75 or 90 minutes duration. Training is delivered via presentational slides, interactive discussion, exercises, and case studies (risk appraisal and solution framing via virtual breakout syndicate sessions). Multiple choice polling is used throughout the programme to aid the learning process.

1The case studies and exercises described are provided for indicative purposes only. The trainer reserves the right of discretion to vary the selection of case studies covered in the classroom depending upon the background, experience, and key learning objectives of the participants in attendance and virtual classroom time availability.

Objectives

By attending this training course, the delegates will:

• Appreciate the working capital needs of an importer and exporter.
• Identify trade risk and how this can be mitigated.
• Structure documentary credits, standby credits, and letters of guarantee to mitigate risk.
• Construct a trade cycle timeline to evaluate type, amount, and duration of trade finance.
• Structure a self-liquidating trade finance facility.
• Appreciate why structured trade finance is an alternative to traditional lending assessment.
• Understand the key aspects and structuring techniques of receivables finance.
• Be aware of the key payables and supply chain finance solutions and when they should be used.
• Appreciate the structures, products, and risk management in commodity trade finance.

Agenda

Day 1

Session 1

Key client drivers

• Conflicting requirements of seller and buyer
• Importance and implications of trade credit: credit risk, liquidity risk
• Working capital optimisation: cash conversion cycle, importance of DSO and DPO ratios

Exercise: Calculation of DSO & DPO ratios and assessment

Need for trade finance

• Description of trade finance
• Why trade finance is required: risk mitigation, finance, facility increase
• Key benefits of trade finance solutions to the corporate and bank

The trade cycle

• Key stages: risk profile of each
• Plotting the time flow of goods, documentation, and money

Session 2

Trade documentation: its importance to trade finance

• Important role of trade documentation in trade finance
• Bill of lading (working example): control and possession (shipping guarantee example)
• Other modes of transport (document examples) and implications for control
• Cargo insurance (example): key aspects and considerations for the financier
• Inspection certification (example): mitigating risk of dispute
• Negotiable documents: function and importance

Exercise: Review of a bill of lading and identification of key areas of risk and control for the financier

Session 3

Trade transactional risk evaluation - identifying and managing trade risk

• Financial: buyer credit risk, country, and transfer risk
• Performance: supply chain, nature of goods, delivery, dispute
• Liquidity: fulfilment of the purchase order
• Political risk: contract and/or payment frustration
• Commercial risk: debt instrument, method of payment, trade credit terms, currency, Incoterms®, contractual terms, sales leverage, quality management, goods rejection, dilutions
• Documentary: trade instrument, export and import clearance
• Legal risk: impact on ICC rules, trade products, control of goods, debt recovery

Transactional risk evaluation (structured finance)

• Transactional source of repayment: nature, quality, dependencies to payment
• Seller risk appraisal: going concern, performance risk, supply chain
• Goods risk appraisal: nature of goods, dispute risk, quality management, secondary market

Session 4

Case Study and Solution: Risk appraisal on the funding requirement of a company for the manufacture and export of a machine (Part 1)

Day 2

Session 5

Incoterms® rules 2020

• Their relevance and importance to risk management
• Examination of the most commonly used Incoterms®
• Key differences to Incoterms® 2010

Case Study and Solution: Evaluation of the needs of the seller, buyer and financier prioritising the Incoterms® rules in order of preference from a control and risk mitigation perspective

Session 6

Methods of payment

• Payment “risk ladder” overview: key risk considerations for importer and exporter

Documentary collections (import & export)

• What a collection is: description, parties, when used, operation
• An appreciation of ICC rules URC 522
• Bank responsibility
• Types: DP/CAD, DA
• Bills of exchange (drafts) and promissory note (working examples)
• Schedule of instructions (working example)
• Risk, benefit, and control features
• Dishonour: protest (protest example)
• Financing collections
• Advantages and disadvantages

Session 7

Case Study and Solution: Consideration of the risks and benefits of an advance against collections financing facility compared with bank overdraft

Session 8

Bank aval & forfaiting

• What a bank aval is: description, parties, when used, operation
• Avalising bank liability: bank requirements
• Form of bank aval (working example)
• Risk appreciation and benefit features
• Financing avalised bills
• Forfaiting: description, key characteristics, process

Case Study and Solution: Consideration of a request to purchase an avalised bill of exchange, identification of the risk features and further information required to evaluate the proposition

Day 3

Session 9

Letters of credit (introduction)

• What a letter of credit is: description, parties, when used, operation
• Key aspects
• ICC UCP 600, ISBP 745, URR 725 rules appreciation
• Importance of documentation: standard for examination

Import letters of credit

• Issuing a letter of credit: bank undertaking, facility requirement, terms of sanction
• Application form (working example): key bank terms & conditions
• Availability: sight payment, acceptance, deferred payment, negotiation
• Risk, benefit & control: goods, inspection, insurance
• Sight and term credits: liability (contingent & actual), timing of debit to applicant’s account
• Import letter of credit (working example)

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

• Discrepant presentation: risk implications
• Discrepancy waiver and rejection: importance of timely notice of rejection
• Structuring an import letter of credit: mitigation of risk

Session 10

Exercise: Examination of a completed import letter of credit application form and identification of technical issues and non-compliance with the terms of credit approval

Session 11

Export letters of credit

• Export letter of credit (working example)
• Role of the advising bank (advising letter example)
• Confirmation: description, risks, operation, bank liability
• Silent confirmation: third party, commitment to negotiate, terms & conditions
• Amendments (example): operation
• Complying presentation: obligation to honour (example payment advice)
• Exceptions to the payment principle
• Discrepant presentation: risk implications
• Options for handling discrepant documents (discrepancy notice example)
• Risk appreciation: structuring the export letter of credit
• Advantages and disadvantages of letters of credit

Financing letters of credit

• Financing import letters of credit: usance payable at sight (clause example), re-finance
• Financing export letters of credit: discounting & negotiating (with & without recourse)
• Assignment/allocation of proceeds (working example)

Exercise: Calculation of the net amount payable to an LC beneficiary on discounting a bank accepted bill of exchange pursuant to a complying presentation of documents

Session 12

Case Study and Solution: Evaluation of an export letter of credit and identification of risk for the beneficiary. Recommendations will be made for the restructuring of LC terms to mitigate risk for the manufacturer and to facilitate financing (Part 2)

Day 4

Session 13

Other forms of letters of credit

• Oil credits: key aspects, use of LOI (clause & LOI examples)
• Transferable letters of credit (working example): transfer request (example)
• Back to back letters of credit
• Revolving letters of credit: (clause example)

Session 14

Standby credits

• What a standby credit is: description, parties, when used, operation
• Commercial standby letter of credit (working example)
• Structuring standby credits (clause examples): risk appreciation and mitigation
• UCP 600 and ISP 98 rule appreciation
• Use of a commercial standby credit to support a working capital solution (case example)
• How a standby credit differs from a documentary credit and demand guarantee

Demand guarantees

• What a demand guarantee is: description, when used
• Key aspects
• URDG 758: appreciation and use
• Application form (example): key bank terms & conditions
• Direct and indirect guarantees: parties and operation
• Counter guarantee (example): nature, role, and risk implications
• Types: bid, advance payment, performance, and payment
• Text wordings: APG (working example)
• Key clauses: guarantee text construction
• Claim demand: operation, bank responsibility
• Risk appreciation
• Risk management: structuring guarantees (clause examples)

Session 15

Case Study: Assessment of the risk profile of a middle-party’s request for a standby letter of credit and an increase in their overdraft in respect of the purchase of pre-sold goods. Construction of the trade cycle timeline, calculation of the facility requirement and formulation of an import and export trade financing structure to mitigate risk for the bank and middle-party

Session 16

Structured trade finance

• When and why deal structuring should be used: bridging the ‘credit gap’
• Key aspects of credit assessment in structured trade finance
• Relevance of financial statement analysis in structured trade finance
• Taking security over the goods: pledge, trust receipt, ‘lex situs’
• Types of structure: self-liquidating, partially structured
• Exercising control: goods, documentation, money
• Trade loans: draw down documentation, labelling, determining due date for repayment
• Managing risk exposure: identify exposures (by risk category), use of facility sub-limits

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

Payables finance

• What payables finance is and when it should be used
• Advance payment/prepayment to the supplier
• Pre-shipment finance
• Risk appreciation and structuring

Day 5

Session 17

Approved trade payables finance (buyer-led supply chain finance)

• What approved trade payables finance is: description, parties, when used, operation
• Key aspects
• Supply chain finance platforms: proprietary, third party (multi-funder)
• Dynamic discounting
• Implementation: onboarding, buyer agreement, supplier debt purchase agreement
• Financing (supplier invoice debt purchase and prepayment)
• Risk and benefit appreciation

Receivables finance

• What receivables finance is: description, parties, when used, operation
• Nature of debt and implications for finance
• Invoice: debt assignment (clause example)
• Debt purchase versus advance
• Importance of the Incoterms rule®: proof of delivery
• Disclosed and undisclosed facilities
• Recourse and re-purchase events
• Risk assessment
• Prepayment: determining the prepayment amount
• Credit insurance: use, evaluation (schedule working example), joint insured, loss payee
• Types of receivables finance: specific purchase (insured, uninsured), pool purchase, factoring

Discussion: Structuring of an insured receivables finance solution for the sale of vehicles to a buyer in Africa on three years trade credit

Session 18

Case Study and Solution: Structuring of a payables funding solution for the manufacturer of a machine which mitigates the risks identified in the earlier session (Part 3)

Session 19

Commodity trade finance

• What commodity finance is: description, when used, parties
• Using structured commodity finance to look beyond the balance sheet
• Key characteristics
• Pre-export and prepayment: risk appreciation and mitigation
• Warehouse financing: risk appreciation and mitigation
• Control of goods: warehouse receipt (working example), warrant, deed of attornment
• Financing ratio
• Role of collateral managers
• Borrowing base: operation, risk appreciation

Session 20

Case Study and Solution: Construction of a trade financing solution across the commodity cycle to include pre-shipment payment, financing goods held in a warehouse and receivables finance on goods call-off

Summary and close