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Open Account Trade – a Standard Chartered solution

By Krishnakumar Duraiswam y, Director -Transaction Banking ,
Regional Trade Product Management Standard Chartered Bank

Many businesses have cash flow that varies considerably. A business might have a relatively large cash flow in one period, and a relatively small one in another. Because of this, firms find it necessary to maintain a cash balance on hand, and to use working capital finance to enable coverage of short term cash needs in periods when they exceed the amount of cash flow.

Each business must decide how much it wants to depend on working capital finance to cover short falls in cash, and how large a cash balance it wants to maintain in order to ensure it has enough cash on hand during periods of low cash flow.

 Generally, variability in the cash flow will determine the size of the cash balance a particular business will hold, as well as the extent to which it may have to depend on such financial mechanisms as: invoice financing, post-dated cheque discounting; bill discounting; factoring, etc. Cash flow variability is directly related to two factors: the first, the extent to which cash flow can change and the second, the length of time cash flow can remain at a below average level.

If cash flows decrease drastically, the business will find it needs large amounts of cash from either existing cash balances or from a bank to cover its obligations during this period of time.

Likewise, the longer a relatively low cash flow lasts, the more cash is needed from another source (cash balances or a bank) to cover obligations during this time.

As international and domestic trades are increasingly conducted on open account terms, there is a corresponding need to offer financing solutions to cash flow problems encountered by sellers who trade on open account. Standard Chartered Bank offers various solutions for open account finance requirements. One of the popular and effective solutions has been receivable services products.

Standard Chartered Bank offers various with and without recourse solutions under the receivable services products.

 Factoring is fast-gaining acceptance among exporters and is being offered as a valuable financial product among banks and major financial institutions. The 2008 global factoring volume has almost doubled to $2 trillion since 2002 and is growing at a healthy 15% year on year [1] as compared to the growth rate of world merchandised trade of 8% year on year in 2007[2].

By leveraging on Standard Chartered Bank’s global network, we are able to provide open account trade products, which are comprehensive working capital solutions that provide funding, credit protection, sales ledgering and collections services to clients.

The open account trade product offering by Standard Chartered Bank consists of receivables services (with and without recourse); portfolio receivable services with recourse; correspondent factoring through Factors Chain International (import and export) as well as invoice financing (import and export).

Factoring in UAE has been growing at a phenomenal pace, especially in the last 18 months when traditional working capital finance is difficult to come through with banks posing various hurdles for sellers to avail financing facilities.

 What is unique in Standard Chartered Bank’s offering is that we are able to leverage on the global network and provide credit cover on buyers who are banking within our network. Exporters who are based in the UAE and export to US , Europe and the Asia-pacific region, as well as within the GCC, are able to use the Bank’s services covering credit cover on the buyers, collection services and sales ledgering.

The provision of all services under this working capital tool makes it attractive to sellers who are able to focus on their sales, especially in atmospheres such as the current global one, where cash is all important for the business.

As the majority of trade in the UAE is either local or within the GCC, Standard Chartered Bank is able to deliver receivable services covering markets like Bahrain, Oman, Qatar, Jordan, Lebanon and Pakistan in the Middle East and North Africa (MENA ) region.

Standard Chartered Bank offers this service across all segments from oil and gas in the energy sector to companies trading in foodstuffs and items such as electronics.

The services are used by global corporates and large local corporates right through to middle markets, as Standard Chartered Bank is able to customise offerings on an individual need basis.

With no immediate signs of global economic recovery on the horizon, customers are looking to mitigate risks in their receivables at an affordable cost and Standard Chartered Bank’s world class solutions helps sellers address this risk.

[1] Factors Chain International ( )
[2] International Trade Statistics 2007, World Trade Organization, ( )

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