Global Logistics and Supply Chain Strategies - May 2008 - (Page 45)

tured information and turn the payment into an automated payment, versus having someone call us and tell us to send $10,000 to a supplier in Vietnam, which is how it worked before.” QuestaWeb, Westfield, N.J., a provider of Web-based global trade and logistics management solutions, recently introduced an application designed specifically to automate trade settlements financed with letters of credit. Letters of credit still are a preferred means of financing for a lot of companies, particularly those doing business in unfamiliar countries with buyers or sellers they don’t know, explains QuestaWeb COO Felix Pekar. “Letters of credit provide assurance to suppliers that they will be paid for goods when delivered and to buyers that the goods they ordered will be received in conformance with specified business terms,” he says. However, “the reconciliation process can be staggering, especially for firms receiving hundreds of invoices per week.” This is because purchase orders often have multiple lines and each line may be associated with a separate letter of credit and a separate commercial invoice. “QuestaWeb’s letter of credit feature allows importers to truly manage and control the process from start to finish,” Pekar says. Embedded as part of the TradeMaster Global Trade Management System, the feature automatically performs all financial and compliance reconciliations, issues and transmits any amendments made to the letter of credit—a common occurrence—and alerts parties of missing documents or business terms not satisfied. Further, the system maintains running totals of amounts remaining on each letter of credit after each transaction. “Thus, the system not only contains a complete history of every change, but also a real-time record of how a company’s money is being dispersed globally,” says Pekar. Because everything is automated, errors are eliminated, which results in savings from reduced personnel time, bank fees and avoided penalties. “One QuestaWeb customer, a major global trading firm, has increased its productivity three to four times using our letter of credit feature. We believe that other companies will experience similar results,” Pekar says. Automation also opens the door to more advanced supply chain finance strategies, says Greg Johnson, co-founder and president of GT Nexus, Alameda, Calif. GT Nexus operates an on-demand global trade & logistics portal with more than 40,000 registered users, including such companies as Xerox, American Eagle Outfitters, Procter & Gamble, Weyerhaeuser and The Home Depot. “Completely automating trade documents and the procure-to-pay process creates a much more transparent and much less risky environment for lenders, which facilitates financing, says Johnson. “Once a company has created this automated flow, it is in a very good position to start changing the structure of its financial arrangements way to pay suppliers faster or to mitigate the risk of the supply chain so suppliers can borrow at lower rates, they can reduce cost of goods sold.” This becomes particularly important as many company move away from letters of credit in favor of open accounts, says Heuser. Previously, suppliers could use the guaranteed nature of letters of credit to get loans from local banks, he explains. Without that guarantee it becomes more difficult for them. “This is where early payment programs really make a difference,” he says. Companies can initiate such programs and influencing the cash position that its suppliers enjoy.” Access to cheap capital is a key challenge for suppliers in developing countries, says Pieri. “Oftentimes they are leveraging personal assets or borrowing at credit card rates, which ultimately results in a higher product cost,” he says. “If buyers can find a themselves by agreeing to pay suppliers early, typically 10 days after receipt of an invoice, in exchange for a discount, often 2 percent. Most companies, however, would rather hold onto their cash for a longer period. “Buyers, even large and successful ones, often are trying to extend terms of payment beyond 30 days to be able better use GLOBAL LOGISTICS & SUPPLY CHAIN STRATEGIES 45

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Global Logistics and Supply Chain Strategies - May 2008

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