Let’s open the Floodgate again

If security is required we simply decline the business!

Having had experience with the LoC process in a number of different contexts, our customer has had a disproportional number of problems with these documents. In particular, considering the small volume of business they conducted with counterparties requiring LoCs.

The problem was that as soon as something changes that is not foreseen in the schedule the existence of the LoC leads to delays in settling the transaction. In some occasions entangling a transaction that was put on hold due to discrepancies in the documentation, (small) delays, or procedural issues raised by one of the banks involved, required too much time and effort and on average made these transactions unprofitable. 

Having had this experience management decided to decline all business where clients asked for LoCs, or where they felt they needed security. This involved keeping their customer-base tight and only trade with our longstanding relationships or through solid referrals.

So, the question we needed to solve is how to speed the expansion of our client universe without having to set up a larger infrastructure to deal with LoCs.

We introduced them to ‘Mercurion Trade Services’, who offered an alternative based on the principle behind an exchange: ‘settlement against delivery’. Effectively an escrow service conducted through a user-friendly cloud-based platform; easily accessible for everyone, globally. Any monies to settle a transaction prior to delivery are held by Baltic Exchange, an institution involved in the business of trade for over 300 years with offices around the world. Being part of Singapore Exchange their security is very solid. The group has a first class record in providing security and settling transactions.

Having discovered Mercurion they were able to open the ‘flood gates’ a bit more and placate our sales force. All in all the implementation of Mercurion’s offering solved some organisational behaviour problems in tandem with our more straight-forward objective to increase profitability. A risk management tool without the complications of the LoC, which is embedded in a state of the art platform providing a very clear and user-friendly interface, really is a no-brainer!