Credit Risk Management in Trade Finance

3 days 23-25 May 2017, London UK £3,645.00 + VAT* Download brochure Add to basket

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Overview

The course will explore the nature, requirement and implications of trade credit from a risk and cash flow perspective and the range of receivables finance solutions that can be used to mitigate both credit and liquidity risk.

The key structures and risks associated with receivables finance will be covered in order that the delegates can select and structure the optimum financing solution.

The course uses extensive case studies to develop the understanding of delegates in a practical and engaging way across a range of scenarios.

Each delegate will receive a workbook containing the presentational slides and supporting material

How this course will assist the delegates

By attending this training course the delegates will be able to:

  • Identify credit and other associated risks in commercial trade transactions
  • Appreciate the key aspects of the commercial contract and determine what Incoterms® rules to apply from a risk and financing perspective
  • Formulate and implement credit risk policy and debt collection procedures
  • Determine the appropriate method and terms of payment
  • Achieve risk mitigation through credit insurance, letters of credit, bank aval or guarantee
  • Appreciate the terms and conditions of credit insurance cover
  • Manage and monitor trade transactions and operate a sales ledger effectively
  • Retain control over the goods until payment can be secured
  • Use the trade cycle timeline to determine the transactional risk profile, amount, duration and type of financing required
  • Select and structure the optimum trade receivable finance solution

Who should attend

  • Bank credit risk officers
  • Staff within credit and risk management functions
  • Bank corporate relationship managers
  • Senior finance personnel
  • Trade and export finance executives
  • Middle office trade operations personnel
  • Lawyers and staff involved in the legal aspects of international trade
  • Credit insurers

Instructors

We work with a series of expert instructors, please select the course location of interest to review the credentials of who will be delivering the programme.

London
Stephen Jones

Stephen Jones is a highly experienced trade finance practitioner with over 40 years of trade finance expertise (35 of which was gained in the corporate banking environment). He has held senior trade positions in Lloyds Bank, NatWest and RBS.

Stephen was the first in NatWest Corporate to win, structure and execute a multi-million pound limited recourse receivables finance structure for a new to bank major client. The structure used a syndicate of private insurers to transfer buyer and political risk. This resulted in the successful provision of 3 years trade credit to a buyer in Africa and off balance sheet receivables finance to the exporter

During his time as Regional Head of International Trade, Stephen overviewed and structured his team’s trade finance submissions to the credit department achieving a 97% credit approval success rate over a 4 year period

Stephen continues to work as a trade finance practitioner and consultant advisor handling trade transactions and letters of credit thus enabling him to deliver training material relevant to today’s market

Venue

London

Central London Hotel Venue

All courses are held at four or five star venues in Central London, Zone 1. We strive to provide you with a training environment of the highest quality, to ensure that the whole learning experience exceeds your expectations.

Your training venue will be confirmed by one of our course administrators approximately 3-4 weeks before the course start date.

Related Courses

Inhouse


 

Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company's exact requirements? If you'd like to do either of these, we can bring this course to your company's office. You could even save up to 50% on the cost of sending delegates to a public course.

To find out more about running this course in-house:





Our Tailored Learning Offering

If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

We produce learning solutions that are completely unique to your business. We'll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.



We can offer any of our public courses delivered at your office or we can devise completely tailored solutions:


Read more about our offering or complete a call back request to speak to a learning specialist.

 

Agenda

Day 1

The nature of credit risk from a trade perspective

The conflicting requirements of seller and buyer
Nature, role and implications of trade credit
Defining credit risk and its causes
Appreciation of risk from the differing perspectives of seller, buyer and financier
Key risks - identification and evaluation:

  • Commercial
  • Credit
  • Political
  • Transfer
  • Currency
  • Performance
  • Documentary
  • Operational
  • Market
  • Reputational
  • Legal and compliance
  • Fraud

Working capital and liquidity risk:

  • Determining the length of trade credit; defining the credit term
  • Implications to cash flow
  • The importance of DSO
  • Balance sheet considerations


Incoterms® rules 2010

Their relevance and importance to risk
Examination of the most commonly used Incoterms®
Importance of Incoterms® from a financing perspective

Exercise; the delegates will be asked to list the Incoterms® rules in order of preference from a seller’s, and bank’s risk mitigation and control perspective

Commercial contracts; their importance to risk mitigation

Key risk aspects of the commercial contract
The importance of the terms and conditions of sale and purchase
Review of trade documents and their importance to risk mitigation:

  • The risk profile and reliability of the debt instrument; invoice, bill of exchange, promissory note
  • Control of the goods; the bill of lading
  • Other transport documents and implications for control
  • Inspection/analysis certification; mitigating risk of dispute

Case study; the delegates will examine a commercial contract and identify areas of risk for the seller and financier

Credit risk assessment

The buyer’s or borrower’s ability to pay;

  • Credit risk analysis:
    - Interpreting financial accounts
    - Credit ratings
    - Non-financial analysis
    - Risk categories
  • Determining probability of default “PD” and loss given default “LGD”
  • Political and transfer risk
  • Dispute risk; the buyer’s willingness to pay
    - Nature, specification and quality of the goods or service
    - Delivery and timeliness of delivery
  • Sales leverage; USP, strategic or price driven
  • Determining probability of default “PD” and loss given default “LGD”

Case study; delegates will be required to undertake a financial and non-financial credit risk appraisal from a seller’s and financier’s perspective

  • Implementation of credit and risk control procedures:
  • Risk philosophy and credit risk appetite
  • Collection of trade debts
  • Monitoring credit risk; debtor analysis and management
  • Warning signs

Day 2

Methods of payment; risk appreciation and mitigation

Payment in advance

  • The risk implications of advance payment guarantees
    - The use of operative/reduction clauses

Letters of credit:

  • The independence principle
  • Risk appreciation for buyer, issuing bank, seller and financier
  • Documentary risk

Case study; the delegates will be required to identify risk issues with a letter of credit and propose a solution

  • Other types of letter of credit; risk appreciation:
    - Revolving
    - Transferable
    - Back to back

Exercise; the delegates will calculate the facility requirement of a revolving letter of credit and consider the risk implications

Documentary collections;

  • Risk and control features:
    - Documents against payment “DP” and cash against documents “CAD”
    - Documents against acceptance “DA”
    - Documents against bank aval

Open account;

  • Sales invoice
    - Key elements
    - Risk appreciation
  • Bill of exchange
  • Promissory note

Case study; delegates will be required to identify credit risk and provide a method of payment and financing solution to mitigate risk

The use of guarantees to mitigate risk

Standby letters of credit:

  • Operation and use
  • The independence principle
  • Commercial standby letter of credit (working example)
  • Typical claim documentation
  • Risk appreciation

Case study; the delegates will assess the risk profile of a standby letter of credit

“On demand” bonds and guarantees:

  • Operation and use
  • The independence principle
  • Bid, performance, advance payment and retention bonds
  • Direct and indirect guarantees
  • The risk implications of:
    - “On demand” unconditional guarantees
    -  Pay or extend notices
    - Legal jurisdiction and expiry dates
    - The counter indemnity and counter guarantee
  • The use of operative and reduction clauses to mitigate risk

Case study; the delegates will assess the risk profile of a demand guarantee requirement and formulate a proposal to mitigate risk and minimise exposure and identify related funding and credit risk implications in respect of the underlying transaction

Other forms of guarantee:

  • Conditional guarantees; legal arbitration
  • Surety bonds
  • Personal guarantees
  • Third party guarantees

Short term credit insurance

The use, benefits and limitations of credit insurance
Types and features of credit insurance policies
Evaluating the nature and extent of cover:

  • Nature of cover
  • Insured indemnity
  • Approved territories
  • Insured buyer limits
  • Payment/debt instrument
  • Maximum terms of payment
  • Maximum extension period
  • Insured events
  • Maximum liability
  • Uninsured events
  • Pre delivery cover
  • Policy exclusions
  • Reporting and declarations
  • Policy excess
  • Period of cover
  • ROT
  • Premium

Performance risk; adherence to policy terms and conditions
Voiding of cover;

  • The proposal form
  • Declaration of material information
  • Declarations and overdue reporting
  • Concept of acting as a prudent “uninsured”
  • The legal doctrine of “uberrimae fidei”

Using credit insurance as a financing tool:

  • Assessing the extent of cover from a financier’s perspective
  • Joint insured and loss payee endorsements
  • Risk appreciation; to what extent can credit insurance be relied upon?

Claims and recoveries

  • Cause of loss
  • Claims process; clams waiting period
  • Debt recovery
  • Salvage and recoveries
  • Subrogation

Case study; the delegates will review a schedule of insurance and identify key aspects of cover from a seller’s and financier’s perspective.

Security and credit risk enhancement:
 

What is security and its rationale
Tangible and intangible security
Assets over which security is taken:

  • Goods (constructive and actual possession)
  • Trade receivable
  • Cargo insurance
  • Credit insurance
  • Personal guarantee
  • Payment guarantee
  • Performance guarantee

Common types of trade related security

  • Pledge; possessory security
  • Trust receipt
  • Documents of title; bills of lading; warehouse receipt
  • Coverage ratio; top up; acceleration
  • Covenants

RECEIVABLES FINANCE

Bank obligations

Bank acceptances
Deferred payment undertakings
Usance payable at sight letters of credit
Negotiation of letters of credit:

  • The nature of recourse
  • The concept of “true sale”
  • Asset/liability de-recognition

Trade receivables:

  • Bills of exchange; trade acceptances
    - The independence principle
    - Protest
  • Promissory notes
  • Sales invoices; key risk aspects and considerations

Receivables financing; key risk considerations

The concept of the self-liquidating facility
The quality and reliability of the source of repayment
The fundamental importance of performance risk
The importance of the aged debtor and creditor listings of the borrower
Assignment of debts
Disclosed and non-disclosed facilities; risk implications
The use of credit insurance and credit protection
Determining the prepayment amount
Risk assessment:

  • Debt instrument
  • Tenor
  • Currency
  • Nature of goods
  • Performance
  • Dilutions
  • Disputed debt
  • Concentration
  • Counterclaim and set-off
  • Encumbrances

Credit note evaluation
Debt turn
Eligible and ineligible debts
Recourse and re-purchase events
Retention of title
Documentation; proof of delivery (the relevance of Incoterms® rules)
Collection of debts and the Dunning cycle
Ring fencing and capturing the receivable;

  • Trust and collection accounts

The debt purchase agreement;

  • Key clauses
  • Representations, warranties and undertakings

Fraud; “fresh air” invoicing, “pre-delivery” invoicing and banking of funds

  • The significance of the “breach letter”

Audit

Case study; the delegates will be required to formulate a credit insured receivables finance facility for an automotive manufacturer exporting vehicles on extended trade credit

Forms of receivables finance:

Full factoring

Nature, operation and client profile
Services:

  • Working capital financing
  • Credit risk protection
  • Sales ledger management
  • Collection services

International factoring; different structures

Confidential invoice discounting

  • Nature, operation and client profile
  • Key differences to factoring

Select insured receivables finance

  • Nature, operation and client profile
  • The tripartite agreement

Forfaiting

  • Characteristics of a forfaiting transaction
  • The debt obligation
  • Primary and secondary purchase
  • Risk appreciation and due diligence
  • Responsibility of the forfaiter
  • Without recourse; recourse events
  • Forfaiting agreement

Case study; the delegates will be required to consider a request to purchase an avalised bill of exchange and identify the risk features and further information required to assess the proposition

Export credit agency (ECA) support:

  • The role of ECAs
  • Transactional eligibility; short and medium term support
  • The OECD Consensus Agreement
  • Risk mitigation; the use of credit insurance and guarantees
  • Typical products offered by ECAs in support of risk mitigation and financing of export credit

Approved payables finance (supply chain finance):

  • Operation and client profile
  • Risk appreciation

Case study; the delegates will be required to restructure the trade facilities of a wholesale distributor in order to minimise credit exposure and to accelerate trade receivables.

End of Course

Why us


We have a combined experience of over 60 years providing learning solutions to the world’s major organisations and are privileged to have contributed to their success. We view our clients as partners and focus on understanding the needs of each organisation we work with to tailor learning solutions to specific requirements.

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