Trade Credit Allows Sellers and Buyers to Manage Business Risk

(World Bank)

A new working paper by Leora Klapper, Luc Laeven and Raghuram Rajan shows how suppliers and buyers use trade credit as a competitive gesture and risk-management tool. The authors draw on data from nearly 30,000 supplier contracts for 56 large buyers and more than 24,000 suppliers in Europe and North America, all of varying size, investment grade and sector.

The evidence points to four important — and not mutually exclusive — ways trade credit helps to manage risk: as a method of financing, as a means of price discrimination, as a bond assuring buyers of product quality, and as a screening mechanism to gauge buyer default risk.

In particular, the largest and most creditworthy buyers receive contracts with the longest maturities (as measured by net days) from smaller, investment-grade suppliers. By contrast, early-payment discounts seem to be used as a risk management tool to limit the potential nonpayment risk of trade credit. Early payment discounts are generally offered to smaller, non-investment grade buyers. The results suggest that contract terms are jointly determined by supplier and buyer characteristics.

Download the World Bank Policy Research Working Paper 5328 here.

ACI eManifest Roll-Out Delayed Again

(Deanna Pagnan – Canadian Trucking Alliance)

Implementation postponed by one month to Oct. 31

The Canada Border Services Agency (CBSA) has announced that it is again delaying the implementation of the ACI eManifest program for the highway mode, this time by one month from September 30th to October 31st, 2010. ACI eManifest was initially slated to roll out in June of this year, but was pushed to September to allow CBSA to ensure the integrity of the program given the volumes of data being transmitted by highway carriers. According to CBSA the reason for the most recent delay is related to the software of other commercial programs, not ACI.

According to Jason Proceviat, CBSA’s eManifest Director, “While ACI is ready to go, we bundle some commercial programs together, and there are a few delays from other areas that need to be addressed before we can go live.”

Canadian Trucking Alliance (CTA) CEO David Bradley said "the trucking industry understands the challenges involved in implementing such a complex program, but we are frustrated by the latest delay.” He said he hopes CBSA will meet the new implementation date. “Carriers are seeking improved efficiencies at the border,” he said. “This includes electronic transmission of data through ACI, and we are looking forward to implementation sooner rather than later. We want to avoid the stop-start pattern that characterized implementation of the ACE eManifest program in the US.”

There is a keen interest from the trucking industry in getting the program rolled out. Carriers have been preparing for ACI eManifest for a number of years now. In fact, close to a hundred carriers approached CBSA just to participate in the early testing of ACI. CTA has been working closely on the development of the program and believes it will have a beneficial impact on cross-border efficiency.

BMO Capital Markets Named Best Trade Bank in Canada

(MarketWire)

BMO Capital Markets, the investment and corporate banking arm of BMO Financial has been named the Best Trade Bank in Canada by Trade Finance magazine

BMO’s accomplishment will be highlighted in the July edition of Trade Finance.

"Congratulations to BMO for being recognized as a leading provider of trade finance especially in uncertain economic times," said Oliver O’Connell, Editor, Trade Finance magazine. "What voters are saying is that BMO has in-depth knowledge of global markets and is dedicated to providing the right advice and solutions to companies looking to expand their international trade networks."

The annual survey encompasses industry votes and feedback from Canadian participants, as well as input from the magazine’s editorial team. Manufacturers, exporters, importers, traders, government, multilateral agencies, and other clients and industry partners selected BMO as the No. 1 Canadian bank to help businesses conduct global trade in a fast-changing regulatory environment. Read more here.

World Business Group ICC Revises Trade Rules

(Journal of Commerce Online – Peter T. Leach)

Revised rules to promote uniform practices in trade finance

The International Chamber of Commerce on Thursday unveiled an extensively revised version of the Uniform Rules for Demand Guarantees that it said will be instrumental in adopting uniform practices in trade finance. The revised rules, which were first adopted by ICC in 1992, reflect international practice in the use of demand guarantees and provide safeguards against abuse in the calling of such guarantees.

In 28 articles, the URDG set out the liabilities and responsibilities of the parties; the nature of a demand; the expiry circumstances; and the governing law jurisdiction for the guarantee or counter-guarantee. Read more here.

Managing Financial Risk in International Trade, Montreal, May 13, 2009

Expert advice in trying times. Come learn from and challenge our financial panel at this interactive half-day meeting.

Christian Martin, Experts LCG-ADM Inc
Bank lines of credit and safeguards offered in relation to international business operations.

Pierre Donato, Laurentian Bank
Importing and the “marginalization” of letters of credit.

Harold Riley, Export Development Canada
Exporter guarantee programs.

Normand Faubert, OptionDevises
The real challenge of foreign exchange – How to optimize through the sound management of foreign cash flows, the profitability of import/export operations.

Carl Gravel, Business Development Bank of Canada
Partner your growth – Overview of services offered.

More information and registration form available here (PDF)