Advanced Trade Finance Masterclass

Advanced Trade Finance Course - Day One Content

The Current Marketplace

• The impact of an unpredictable US trade policy

• The impact of global conflicts

• The current market

• Global supply chains

• The challenge of emerging markets

• The dominance of the USA through the US dollar

• China - is "diplomacy by loan" working

• Geopolitical challenges, especially protectionism in the USA

• The traditional three bands of clients: Global and Large Corporate, MMEs, and the rest!

• Understanding trade finance at a fundamental level

• Typical users of Trade Finance products and services

Financial Crime Compliance & Sanctions – A Continuing High Priority For Regulators

• Why does this matter? Why is trade finance considered high-risk?

• Understanding the risk-based approach

• TI CPI, FATF, Wolfsberg, ICC, OFAC, and other influencers

• Advanced trade finance courses at Redcliffe explore CDD and the need to obtain a clear line of sight across the value chain

• Money laundering methodologies – how is it done?

• Documentary fraud

• PEPS

• Sanctions overview

• Case Study: Delegates will be asked to consider a real case to identify FCC risks and suggest how they may have been managed and mitigated

Traditional Risks – The Critical Issues For Experienced Practitioners

• Understanding, identifying, and managing the additional risks

• Credit risk, market risk, and operational risk

• Sovereign, Political / Country risk

• Institutional risk / Bank risk

• Corporate and other critical risks

• Importer and exporter’s risk

• Other risks in the transaction and how to mitigate them (transport risk, warehousing, force majeure, etc.)

• Risk mitigation, management, and transfer

• Case Study: An example using three different payment methods. Delegates will be asked to identify and explain what type of client would choose one in preference to the other two, and why, to illustrate risks in reality

Review of Key Products – A High-Level Review

• How does the customer analyse their risk?

• Which products do they use and why?

• Payment in advance

• Open Account

• Collections – Outward & Inward / Clean & Documentary

• Letters of Credit (covered in more detail below)

• Risks and opportunities

• Control possibilities

• Case Study: Shows how clients sometimes see the world of risk differently than bankers

Supply Chain Management & Finance

• The Origins of SCM and what does it mean in practice?

• Understanding the issues in SCM – “the tug of war” between supplier and buyer

• Bringing about a 'balance' between parties for effective processing

• Understanding the movement of ‘information’, ’goods’, and ‘cash’

• Supply Chain Finance Main SCF models: accounts payable - centric, accounts receivable, BPO

• Reviewing the risk aspects of SCF

• Case  Study: Showing how Reverse Factoring works and how both buyer-centric and seller-centric models are being employed

Advanced Letters of Credit (L/Cs)

• Traditional L/C’s and the four contract concept

• Confirmations

• Red Clause

• Green clause

• Revolving L/Cs

• Evergreen

• Transferable L/Cs

• Back-to-Back L/C structures

• Case Study: Showing how different types of LCs are used, why this is the case, and what difference it makes to the risk profile

Standby Letters of Credit (Advanced)

• History and origin

• The dominant trade finance product

• Uses

• Risk management

• Issue and assessment

• Pricing

• Understanding the applicability of ISP98 and UCP 600 for standbys

• Fraud and unfair calling

• Case Study: Using a standby in practice

Export Finance Issues

• Looking at the big picture

• Understanding the purpose of borrowing

• Country risk issues

• The reality of title and control

• Negotiation under letters of credit

• Discounting of deferred payment L/C, acceptance credits (with or without recourse)

• Case Study: Delegates are asked to consider how to fund an export order using different contract arrangements

Controlling Credit Exposure – Formulating a Limit

• Redcliffe's advanced trade courses help you understand and explain the trade cycle

• The use of timelines

• Assessing and appreciating funding gaps

• Case Study: Using timelines and facility plotting to spot double finance and identify the actual funding gaps and customer needs

Advanced Trade Finance Course - Day Two Content

Innovations

• Reverse Factoring

• Seller Centric Solutions

• UPAS

• Repo's

• Asset-Based Lending

• Case Study: An example of Reverse Factoring

Structuring Finance for the Trader

• Analysing the trade flows

• Assessing facility size and structure

• Specific lending with identifiable maturity dates

• Appreciating and controlling sources of repayment

• Case Study: An example of a medium-sized business using structured finance

Effective Use of Collections for Short-Term Finance

• Using collections as financing opportunities

• Identifying and mitigating risks

• Maintaining control

Supporting the Trader

• Using the goods as collateral

• Assessing the value of goods

• The value of pledges and trust receipts

• The need for structured lending

• Case Study: How to use goods as security for a trade deal

Warehousing of Goods

• Warehouse location

• Management assessment

• Legal frameworks

• Obtaining and retaining title and control

• Risks and Responsibilities of Collateral Managers

• Cost versus control

• Case Study: Warehousing in practice using a real example

International Demand and Contract Guarantees / Bonds

• Scope and Application – an introduction (suretyship v. demand guarantee)

• Indemnities versus guarantees

• Different types - Bid, Performance, Advance payment, Warranty, and Retention bonds

• The rules governing guarantees and bonds

• Legal jurisdiction and expiry date issues

• Value of using URDG 758 – ICC Rules for demand guarantees

• Impact of non-bank competitors – COFACE, Euler Hermes

• Case Study: Using these in practice

Receivables Financing

• Advanced trade finance courses also ensure that the mechanics of Factoring and Invoice Discounting are explored

• Forfaiting – an important adjunct to the TF mechanism

• The role of credit insurance

• Mechanics of Securitisation

• FCC risks

• Case Study: A real example showing how this makes a huge difference to working capital

The Commodity Sector and Its Players

• The history and origins of the commodity industry

• Understanding the nature of ’commodities’

• Analysing the players – growers/producers, traders, and end-users

• Financing of commodities

• Looking beyond the balance sheet

• Available documentation – taking and retaining the title

• Commodity futures, options, and derivatives

• Hedging – a critical process in commodity finance

• Role and function of the exchanges

• The main risks in the commodity trade (market, fraudulent practices, legal issues, and recent legal cases)

• Case study: A large-scale commodity deal and how it can be funded at an acceptable level of risk

Countertrade

• An overview – when to use

• Pitfalls and complications

• Possible structures and Time management

Syndications

• When to syndicate

• Lead or participant role

• The completion from capital markets – high-yield bonds

• Selling down exposure

• Impact of quasi-governmental agencies

• Risk/reward analysis

• Case Study: A syndicated deal

Advanced trade finance courses conclude with a review and feedback

Training Objectives

• Understand what is happening in the current global trade finance market and how institutions are responding

• Learn how to become a better practitioner

• To demonstrate how trade finance works at an advanced level that goes beyond just a list of payment methods and their features

• How customers perceive risk and the paradoxes this can create

• Understand why open account trading dominates global trade despite the textbook definition of it being the most risky for the seller

• Appreciate why the letter of credit payment mechanism refuses to die, despite numerous predictions to the contrary

• Recognise that FCC & AML have placed significant burdens on trade finance as it is recognised – rightly – as being high risk for money laundering, especially layering

• Understand that when done well, trade finance is normally very low risk for credit losses and is usually very profitable

• The trade finance cycle, including break-even analysis

• Learn why sanctions are now mainstream considerations

• The risk-based approach and its impact on trade finance

• Advanced trade finance courses look at DDD, FATF, TI, CPI, and their impact

• Understand and identify the traditional risks

• Review the key products and how the customer analyses their risk

• Master an understanding of supply chain management and finance

• Learn about the traditional letters of credit and the four contract concepts

• Explore standby letters of credit that dominate bank-supported trade

• Learn about exporting finance issues and controlling credit exposure

• The effective use of collections for short-term finance

• Get to grips with the international demand and contact guarantees/bonds

Training Course Summary

Delegates are invited to consider how trade is financed from their client's perspective in the non-textbook real world. This will help you understand the way the market works in practice. This holistic approach (which doesn’t ignore or undervalue the key analytics) helps you to better understand the key trading client’s actual funding and other needs, enabling delegates to serve them more efficiently and hopefully profitably.

For example, 85% of global trade by volume is conducted on open account terms, which the textbook indicates carries the highest risk for the seller. Most sellers are content to live with this risk – this advanced trade finance course explains why and how. Another example is confirmation of L/C’s. Many confirmations are now used to short-circuit the payment cycle rather than only for covering issuing bank risk. This course explains why.

The major challenge to trade finance in recent times has been the impact of Financial Crime Compliance and Sanctions. Whilst credit losses and credit risk are low, FCC risk is very high because of the increasing tendency for global trade to pass through more than one country, use different modes of transport and currencies, and transit through some regions where money laundering controls are not as strong as in others. This makes the audit trail very challenging. Unlike other courses that cover trade finance, this is not a course about FCC. But as trade finance is reckoned to be the main driver for money laundering, it needs to be understood.