World Trade - September 2008 - (Page 40) COVER STORY streamline documentation that is absolutely necessary to approve payment. It does nothing to streamline customs clearance. When companies do not use Letters of Credit as a payment method with their suppliers, the connection to the bank is lost. They are no longer outsourcing documentation management to banks. This is where it can become an internal administrative burden for corporates with hundreds, if not thousands, of suppliers. Moving to open account from L/C involves replicat- ing features inherent in the L/C, including: • How to dispute invoices that don’t reconcile? • How to ensure proper documentation for customs? • Who to conduct financial conditions management? • How to reconcile vendor payments? Costs involved in complying with government regulations From my discussions with Treasurers, there continues to be a lack of awareness around their risk exposure and the necessary controls required to be in compliance with regulatory requirements when dealing with not only overseas suppliers, but the myriad of agents that are involved in the process. For example, when commissions are paid to third parties, they need to track the money flow to those parties. Compliance and risk requires an increased involvement of the treasurer. Companies must recognize that they need to incorporate U.S. rules globally. Not being adequately aware of risk exposure, not establishing necessary controls and procedures, or overlooking regulatory requirements, can expose the enterprise to potential fines and penalties. Compliance involves both technology and people. In our work, we found training is recognized as the biggest investment required, particularly of sales staff. As to technology, most companies should do restricted party screening at the time the customer does a Request for Quote (RFQ). The important thing is to be able to follow the order from RFQ to shipment. If an export license is required on an order, smart companies will not build or accept an order until they start processing an export license. In summary, it is important to understand how a company forms their policy around payment terms, who oversees it and how often it is reviewed and is there a formal process to review it. It is these questions that provide a foundation for best practices around treasury and credit management policies. WT David Gustin is Managing Partner of Global Business Intelligence (www.globalbanking.com), which will be hosting a conference on credit and trade in November. He can be reached at dgustin@globalbanking.com. For reprints of this article, please contact Cindy Williams at williamsc@bnpmedia. com or 610-436-4220 ext. 8516. WTM09084Mult.indd 1 40 WORLD TRADE SEPTEMBER 2008 8/12/08 11:14:41 AM http://www.globalbanking.com http://www.multisorb.com http://www.multisorb.com
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