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Tuesday, September 9, 2014

Ode to LCs past and BPOs to come

Do you have BPO?
What's BPO?
I'll take that as a NO
BPO replaces SBLCs
BPO-Plus replaces DocLCs
BPO Reduces Costs
Improves Working Capital!

Why haven't I heard of BPO?
'Cause your TF Banker is afraid
Afraid to spill the beans.
Why?
'Cause it threatens his/her job
Oh, I shall find another bank
a BPO friendly bank

Where can I find a list?
A BPO ready bank list?
At SWIFT.com you'll find a list
A BPO ready bank list :o)

I can't find the list
The BPO ready bank list
It's hidden on SWIFT.com
Search for 'BPO Market Adoption SWIFT’
To find the BPO ready bank list

Monday, September 1, 2014

Bank Payment Obligations (BPOs) – Basics for Corporates

Whether you are a Seller or Buyer of goods this article provides the basic information you need in order to start replacing Standby Letters of Credit and/or Documentary Letters of Credit (LCs) with the BPO or BPO-Plus process respectively.

You can download a copy of this article by clicking here.

Why bother to make the change?
Companies that adopt the BPO and/or BPO-Plus processes are able to capture a number of benefits from the BPO system; for example:
• Improved cash flow management based on certainty as to when invoice payments will be credited.
• Reduced document handling – whether paper or electronic – since purchase orders and invoices are keyed into the system and communicated automatically; via one or two banks in nanoseconds. The SWIFT system is exceptionally secure and reliable, and covers more than 10,000 financial institutions and corporations in 210 countries
• Reduced information discrepancies and/or reduced time involved in identifying and correcting mismatched data. The BPO system automatically matches buyer and seller data against the Purchase Order/Contract baseline and provides various reports
• Better payment protection (for the seller) compared to a Standby or Documentary Letter of Credit; with reduced costs and handling required on both sides of a transaction
• Access to financing options is improved for both buyer and seller

According to an article that you can find with this link.

“This process (the BPO & BPO-Plus) results in a fully electronic alternative to the letter of credit (LC), which will enable efficiency gains, working capital reduction and cost saving. This electronic alternative can be processed in a much shorter time than traditional, paper-based LCs – estimates are as low as 10-15 days. Reduced processing times result in significant cost savings: Brazilian mining company Vale estimates that a combination of electronic bills of lading and BPOs is saving it $37 million per year on its exports of iron ore to China alone.”

The BPO Train is leaving the station, so you better hurry to catch it… or risk being left in the LC dust by your competitors…

It is understandable that many Trade Finance Bankers will resist the switch to BPO and BPO-Plus but it would be preferable for them to accept that BPO related changes are unstoppable. The sooner Bankers accept that and start to make the necessary changes in their careers the better, delay will only mean more painful and difficult changes will have to be made later.

In 2000 Gary Hamel wrote in his book ‘Leading the Revolution’: …”change has changed. No longer is it additive. No longer does it move in a straight line. In the twenty-first century, change is discontinuous, abrupt, and seditious. We now stand on the threshold of a new age – the age of revolution. In our minds we know the new age has already arrived; in our bellies, we’re not sure we like it. For we know it is going to be an age of upheaval, of tumult, of fortunes made and unmade at head-snapping speed.”

In fact it was in 2000 that TradeCard brought its solution to market, a product that BPO more than resembles, it virtually mirrors. Admittedly it has taken 14 years for the BPO to become a globally viable LC alternative but the challenges overcome in terms of proving the technologies involved, agreeing standards and putting in place internationally accepted rules have been formidable.

The prize for banks and users (exporters/sellers, importers/buyers and traders) is significant.

On the other hand there will inevitably be losers, mainly those who have built a career on the basis of UCP expertise; bankers, consultants, trainers and academics. The losers’ whose ‘cheese is being moved’ can denounce this development, and try to derail or delay the transition, but like blowing against the wind such efforts to maintain the status quo will prove fruitless in the end.

Today one can be a Kodak strategist until one’s world falls apart when the ‘digital camera producers’ destroy the business and associated jobs, or one can recognise the signs and start searching for ‘new cheese’. As Lynda Gratton wrote in ‘The Shift – The Future of Work is Already Here’: “In a world of more and more complex technology, it is the highly skilled, or what I call those with serial mastery, who will always find work.”

Those who do not notice their 'cheese' disappearing and do not set out to find ‘new cheese’ (a new expert occupation) will, I’m afraid, find it difficult to maintain their current standard of living.

William Gibson in 1993 famously said: “The future is already here — it's just not very evenly distributed.”

Ron Wells

Friday, August 22, 2014

The BPO & Friends have a Stranglehold on the LC and will soon finally lay it to rest…

Read why every business that accepts Standby Letters of Credit as collateral cover (security) for its sales transactions should switch to requiring Bank Payment Obligations (BPOs).

Discover how the BPO-Plus (BPO & Friends) will gradually but inexorably replace transaction related Documentary LCs over the next five years or less. The considerable rewards intrinsic to using BPO and electronic documents in combination are available to every trading partnership today; you should be benefiting.

To read the full article click here.

Ron Wells

Ron Wells is a B2B counterparty credit risk and trade finance practitioner and author of “Credit Risk Management – The Novel (Part One)”. This is not a text book, it is a story that follows the day to day work of a credit risk management team as they face and overcome various challenges. You are invited to ‘listen in’ to their conversations and read the outline of the solutions they employ. There is a parallel story that follows the adventures of James E Cricket, providing and undercurrent of twists and turns.

Ron also wrote “Global Credit Management – an Executive Summary” published by John Wiley & Sons. His books are sold by Amazon.com and other retail outlets.

Tuesday, July 22, 2014

Forcing Banks to increase Capital is driving them to take on more risk, sowing the seeds of the next crises.

GARP (the Global Association of Risk Professionals) today forwarded members the following link to a Bloomberg report that notes the “Fed’s Bubble Busting in Junk Loans Seen Failing as Sales Surge” see: http://www.garp.org/risk-news-and-resources/risk-headlines/story.aspx?newsid=114766

While the article includes various explanations as to why Financial Institutions (FIs) are taking on highly risky assets at an alarming rate, and why regulators seem impotent to reign in this dangerous trend, one important underlying cause is not mentioned – the Capital Paradox.

Karamjeet Paul, in his important book ‘Managing Extreme Financial Risk’ describes the Capital Paradox thus:

“If (a Financial Institution) adds capital, then it needs to generate higher earnings to cover the cost of incremental capital. The quest for higher earnings requires the institution to take on more risk to generate these earnings, as risk management primarily drives the current revenue model. In turn, higher risk creates the need for more capital. Therefore, the industry’s dependency on increased capital to maintain the current revenue engine is not sustainable.” Chapter 11 at 11.2

In fact herein lies a dual paradox; since FI executives are measured by return on capital, increasing the capital drives, even licences, the executives to buy and invent more risky financial assets.

Regulators are driving FIs to increase their capital in order to strengthen their ability to survive the next crises, which will be driven by a tail-risk event (occurrence of a negative Black Swan event) a phenomenon Mr Paul calls an Unquantifiable Uncertainty.

Since Banks/FIs changed their revenue model from one based on intermediating loans to one of intermediating risk, they have become risk traders rather than lenders. Funding is provided by ‘the market’ so banks merely underwrite the investment risks, and then trade away risk they cannot afford to hold. This is the revenue model that led to the development of the subprime mortgage market and related complex products. In brief, FIs no longer invest in real businesses directly, they invest in financial instruments.

Unfortunately for the world at large FI Regulators still focus their post 2008 risk management strategies on Quantifiable Uncertainties; those uncertainties (risks) that can be quantified with 99% confidence by use of VaR (Value at Risk) models. Such models ignore the ‘outliers’, the risk instances that occur beyond the third standard deviation. FIs and Regulators are so star-struck by the precision of these models and the multiple academic degrees in quantum physics held by the builders of these models that they tend to forget that the models all contain one dangerous assumption.

The assumption that the future will resemble the past and nothing that has not occurred in the past will occur in the future; however Unknown Unknowns have occurred frequently in the past four decades with devastating financial impact globally.

In his book Karamjeet Paul offers a practical approach to managing an FI’s Tail Risk associated with Unquantifiable Uncertainty, which is well worth serious consideration.

As a reviewer of Mr Paul’s book notes on the jacket; “Managing Extreme Financial Risk should be required reading for regulators, board members, CEOs, and CFOs of large financial institutions.”

In closing it is depressing to think that the words of Henry Ford who said; “A Business that makes nothing but money is a poor kind of business,” so aptly describe the role adopted by too many of today’s global FIs. So many talented and dedicated individuals work hard in those FIs but essentially participate in producing nothing of value, nothing real.

BarrettWells

Sunday, June 29, 2014

Welcome to the beginning of the Machine Age – How will you and your 8.2bn neighbours be gainfully employed?

“Organisations will always strive to replace replaceable elements with cheaper substitutes.

I (Seth Godin) grew up in a world where people did what they were told, followed instructions, found a job, made a living and that was that. Now we live in a world where all the joy and profit have been squeezed out of following the rules. Outsourcing and automation and the new marketing punish anyone who is merely good, merely obedient, and merely reliable. It doesn’t matter if you’re a wedding photographer or an insurance broker; there’s no longer a clear path to satisfaction in working for the man. The factory – that system where organised labour meets patient capital, productivity-improving devices, and leverage – has fallen apart.” (Seth Godin, Linchpin: How to drive your career and create a remarkable future.)

“Just having a job in the future will be a challenge, as machines take over more and more menial work. The key to having a job in the future is to be able to do something machines can’t do.” (Gerd Leonhard, Presentation at Fort Collins Start-up Week, Reported by Steve Porter of InnovatioNews)

Machines have taken over jobs for over 150 years, what’s different now?

To learn the answer watch a 15 minute TED Talk by Andrew McAfee, titled ‘What will future jobs look like?’ via this link: http://on.ted.com/j0JVk

How will the mass of people be gainfully employed in 2025 and beyond?

If people are not earning money they will not be able to buy goods and services, so all the efficient production by machines will not find a market. Who will have a job, and how can we ensure that we are in that group?

Lynda Gratton in her book ‘The Shift: The Future of Work is Already Here’ published in 2011 notes:

“In a world of more and more complex technology, it is the highly skilled employees, or what I will call those with mastery, who will always find work.”

Writing about the year 2025 she continues later, “With the emergence of mega-cities, instead of connected parts the suburbs are increasingly becoming slums. Far from claiming their own purpose and identity, these concentrated areas of ‘surplus humanity’ exhibit intense poverty and little direction. This disconnection has been exacerbated by vast urbanisation that has seen millions of people leave the land, hoping for a better life in the cities. As the slums around Mumbai or Johannesburg will attest, these hopes are rarely realised.”

SURPLUS HUMANITY!

The term ‘surplus humanity’ is jarring; although taken from the ‘downside’ 2025 scenarios presented by Lynda Gratton it is nevertheless a ‘wake-up call’.

It is clear that having a general skill in future will increasingly mean competing for employment with five billion equally capable and equally connected people, as well as robots and computers. Therefore the need to cultivate mastery – the ability to add value that no one else can match – in a series of fields over a career will be essential.

A career will likely span, not 35 years but up to 50 years, as life expectancy lengthens towards 100. Certainly the days of starting a first job with a corporation and leaving your career to the corporation to decide, then retiring on an adequate pension at 60 or 65 ended more than 20 years ago.

Sadly many companies still see the advantages of having employees think that that is the contract; at the same time corporations have no intention to return such ‘loyalty’. When it no longer suits the next quarter results to retain an employee, or indeed a whole division or business line an unceremonious parting swiftly ensues. In any event the half-life of a successful business model is now three to five years. Therefore most will fail and put all employees out of work well before retirement. Unfortunately the majority of corporate leaders are too busy managing their personal financial affairs and internal politics to focus on continuously transforming the business to ensure survival.

Lynda Gratton’s book gives the reader an opportunity to imagine what a work-day in 2025 could be like. Also provided is guidance as to how to prepare in order to ensure a positive rather than a negative future in work. See: http://www.lyndagratton.com

William Gibson was inspired in 1993 when he said, “The future is already here — it's just not very evenly distributed.”

Look around, see what is already happening and position yourself and those you care about to ensure the best possible future outcome.

BarrettWells

Wednesday, May 7, 2014

Global Credit Management receives 5 Star Reader Rating

On 27 April 2014 a reader awarded Global Credit Management an Executive Summary, published by John Wiley & Sons and written by Ron Wells, a Five Star Rating and commented:
Good book, easy to read and very useful.

The book is a very good addition to my current study in credit management and I would recommend it to any credit manager or professional who wants to become credit manager. The book is written in a nice way and the subjects are short, but concise, which makes it easy for a study.
The review appears on the Amazon.co.uk website.

Wednesday, November 13, 2013

Many businesses will not survive the 3D Printing revolution – start adapting now!

So-called 3D Printing describes the manufacture of a three dimensional object from raw material inputs by a machine, as directed by a design program. That is without the intervention of human labour, except to set up the machine and ensure the raw material is supplied.

The term is used because the operation is similar to the type of printing with which we are familiar. To print a document (a two dimensional product) we set up a machine (printer) with paper and ink, and then send it a computer generated program (software code) based on a document we have designed on-screen. The result is a physical output produced from a design input, albeit in two dimensions. 3D Printing works on the same principle.

The future is already here — it's just not very evenly distributed. (William Ford Gibson)

By way of a quick introduction to this aspect of the future please view the concluding three minutes of the BBC Hard Talk interview with Ms Fu Ping via this link….

Ping Fu: 3D Printing is 'as big as the internet'
http://news.bbc.co.uk/1/hi/programmes/hardtalk/9788066.stm

In the linked article Arnold Geelhoed discusses what 3D Printing will mean for some of the industries likely to be affected. His comments should alert Credit Executives everywhere to the significant implications this disruptive technology will have for credit risk assessment.

The article is made available with the kind permission of the National Association of Credit Management (NACM), via this link: http://www.barrettwells.co.uk/3DPrintingBCJulAug13AGeelhoed.pdf

The industries that Mr Geelhoed highlights in the article are listed below with a brief paraphrase of his comments under each heading.

Transport and Packaging:
When printing (manufacturing) products at home or at a nearby specialised facility becomes commonplace, the packaging and transportation of many finished products will no longer be required. Only the bulk delivery of raw materials, such as chemicals or metals, will be required.

Waste Processing and Disposal:
Production of product that is subsequently not purchased will be avoided; hence fewer wasted finished products will be produced. Used and discarded printed products will be easily recycled to provide raw material for new product to be printed.

Retail and Distribution:
Product designs will be produced and made available through on-line outlets such as Amazon, to be downloaded directly into the printer and manufactured immediately. Therefore the wholesale distribution and retail sectors will be seriously negatively affected; a large portion will disappear.

Warehouses:
The demand for warehouse space will shrink dramatically.

Manufacturing:
Massive job losses will be incurred, vast quantities of machinery will be idled, and many hectares of manufacturing building and real estate will lie fallow or have to be redeployed.

Marketing and Advertising:
Designers will advertise direct to the consumer via the internet.

Designers, Chemists and Nano-Technologists:
Creators, innovators and engineers will be ‘the new heroes’ (as Mr Geelhoed describes) providing the designs and the materials required to make 3D Printing (local manufacturing of single items) a cost effective and practical reality for many millions of people. The branch of Nano-Technology that is referred to here is that which involves the creation of new materials by manipulating the atomic structure of existing substances, such as carbon.

Mr Geelhoed concludes:

“I believe that this new technology is going to dramatically change the world in many and varied ways. It could mean a cleaner environment, due to less fuel required to transport goods …, as well as less waste from packaging. ….whole chains between manufacturer and consumer will disappear.

Working in credit management will be very exciting, challenging and will require a lot of adjustment in order to monitor the new risks…”

A brief survey of other 3D Printing developments indicates that the implications are much more widespread. Other industries will be affected; employment patterns will be significantly disrupted even in the construction sector. Please view the 12 minute linked presentation to learn about machines being developed to manufacture homes in 20 hours without the need for plumbers, electricians, bricklayers, stonemasons and general low skilled labourers.

3D Printer can build a house in 20 hours
http://www.youtube.com/watch?v=ehnzfGP6sq4

The following article published by the Mail Online is also relevant:

3D Printed Room looks like the beautiful interior of a Cathedral
http://www.dailymail.co.uk/sciencetech/article-2425446/3D-printed-ROOM-looks-like-beautiful-interior-cathedral.html

These reports may also be of interest:

‘US space agency NASA announces it will launch a 3D Printer into space next year to test the feasibility of making spare parts in zero-gravity.’ BBC News – Technology Report on September 30, 2013:

NASA plans first 3D Printer space launch in 2014
http://www.bbc.co.uk/news/technology-24329296


Bastian Schaefer: A 3D-Printed jumbo jet? (six minutes)
http://www.youtube.com/watch?v=7oQY0uC52jY


To conclude on a lighter note, watch this video presentation:

3D Food Printer Will Start with Pizza (three minutes)
http://www.youtube.com/watch?v=Qva7uOjbWrQ


BarrettWells