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Management Controls

Three basic principles of exporting are:

• Until you get payment in your hand, selling and shipping your goods is merely making your customer a gift of them.

• Late payment and non-payment are closely related.

• Once you have parted with your goods in a foreign location, having them returned (even at a loss) will be a major achievement.

The exporter may sometimes be one major source of his own problems…

• If either the exporter or his customer do not respond to queries early enough, problems follow.

• If either the exporter or his customer gives unclear instructions to their respective banks, problems follow.

• Non-payment frequently results from incorrect documentation or a lack of care in document preparation.

• If either the exporter or his customer fails to understand sales contract terms (including Incoterms), they will have different ideas of the sale, and problems may follow.

• If an exporter reads a documentary Credit carelessly when he first gets it, problems will follow.

A strong system of internal controls will help to overcome some of these problems.

Working with the Bank

Recent surveys show that fewer than 40 per cent of small- and medium-sized exporters seek advice from their banks. In fact, the exporter needs close and informal relationships with his bank at least on two levels:

• At a senior management level in respect of the grant of facilities and any on-going needs, all of which encompass the relationship of the exporter with the bank, and

•  At an operational level with bank staff actually involved in day-to-day transactions.

Both levels of contact are essential, but internal management controls cannot be exercised without the second level of contact. Even the exporter's most junior staff should be on first-name terms with operational staff at the bank:

•  When Credits are received, the exporter's staff must be encouraged to seek the necessary explanations from the bank's operational staff.

•  Similarly, when the exporter's staff prepare export documents, the bank's informal advice should be sought.

An exporter should use his bank as a constant source of advice and help.

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Chasing progress

When the exporter has presented documents to the bank, whether on collection or under Credit, his staff should make forward notes in the diary to phone the bank and find out what has happened…

• Have the documents been received?

• Are there any snags?

• Have they been sent on?

If documents have been despatched, the staff should make forward notes in the diary to follow up:

• For goods despatched by air or truck, say 10 days after despatch of documents, and

• For goods sent by sea, say 25 days after despatch of documents.

This kind of routine enables the exporter to protect his position as developments take place.

• If bills remain unpaid or unaccepted after such intervals, he may wish to ask the transport agent, to whom the goods were entrusted, to find out their whereabouts.

• If the goods have been inadvertently delivered to the buyer without payment or acceptance, it may be possible to exert pressure through the formal banking channels for appropriate settlement.
  

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Transport documents and control of goods

The exporter must always protect his position by retaining “constructive” (if not physical) control of the goods until the buyer pays. In some methods of trading – open account trading, clean collections, and documentary collections, documents against acceptance (D/A) – the exporter consciously decides to let the buyer have possession of the goods pending payment. By contrast, however, in documentary collections, documents against payment (D/P), the buyer gets the necessary export documents only after payment. This enables the exporter to keep control of the goods until the last moment.

In documentary Credits, the exporter relies less on the goods and more on the Issuing Bank’s (and where applicable the Confirming Bank’s) irrevocable undertaking to pay against:

• The presentation of stipulated documents, and

• Compliance with the terms and conditions of the Credit.

However, the security of the exporter's position is somewhat constrained by the nature and character of different transport documents:

• Marine/ocean bill of lading

1. Negotiable.

2. Title to goods.

3. Carrier will deliver against an original negotiable bill of lading.

• Non-negotiable sea waybill

1. Non-negotiable.

2. No title to goods.

3. Carrier will deliver to a named consignee.

• Charter party bill of lading

1. Negotiable document subject to charter party.

2. Title subject to charter party.

3. Carrier will deliver according to charter party.

• Multimodal transport document (document covering two or more transport modes)

1. If last mode by sea: negotiable, with title to goods, carrier will deliver against original B/L

2. Otherwise: non-negotiable, with no title to goods, carrier will deliver to consignee

• Air transport document

1. No title to goods.

2. Carrier will deliver to named consignee.

• Road, rail or inland waterway transport documents

1. No title to goods.

2. Carrier will deliver to named consignee.

• Courier and post receipts

1. No title to goods.

2. Carrier will deliver to named addressee.

These characteristics affect constructive control of the goods in the following ways:

• Multimodal transport documents in which the last mode of transport is by sea and ocean marine bills of lading both allow the exporter to have “constructive” control of the goods, provided that all originals of such documents are held by the bank authorised to obtain payment in respect of a collection on D/P terms, or to settle a documentary Credit transaction.

• Non-negotiable sea waybills, by contrast, allow goods to be delivered to the consignee without the need for surrendering the original waybill. The exporter can exercise constructive control only if (with the authorised bank's agreement) the waybill shows that bank as consignee. Similarly (and with the bank's agreement), an air waybill that shows the authorised bank as consignee makes it possible to exercise some control.

• In all other cases, such as the transport of goods by truck, inland waterway, courier and post,  delivery is made to the named consignee of the goods without reference to any other party.

The exporter’s prospects for retaining constructive control of the goods before payment are limited, so he should not voluntarily give away any control that he is able to exercise. Above all, the exporter must resist any attempt by the buyer to have the goods delivered directly to himself. Buyers may try to achieve this in the sales contract or the Credit (or both) either:

•  By requiring one of the original bills of lading to be sent to him directly, or

•  By allowing the buyer’s name to appear as consignee on bills of lading or air waybills.

If the exporter allows such tactics, the buyer can take physical possession of the goods, and he will have no inducement to pay up.

Managing credit insurance

Insurers require the terms and conditions of their policies to be followed. This may mean providing information with regard to each transaction from time to time. In addition, banks may be required to protest bills for non-acceptance or non-payment. All advices of non-payment must be advised to the insurer, including other problems arising that may affect the insurer's interests.

Outstanding amounts under each buyer's limit must be scrupulously observed. They should be advised at the required intervals to the insurer. An exporter must be constantly aware that any excess over authorised limits will not be covered by insurance; the exporter will be liable instead.