International Trade, being a vast and specialized area in banking with a major emphasis on the financing of import and export trade processes, allows for different modes of payment. Most traders are tilting towards Letters of Credit (LC) as a means of securing payments in the international market. For a confirmed LC, an importer can opt for using the bank’s offshore line as against providing cash, thereby assuming the obligation of bearing offshore confirmation line charge (Pre-Negotiation Charge) and Interest on Post- Shipment Loan (Post-Negotiation) if applicable.
The offshore confirmation line charge (Pre-Negotiation Charge) is a daily charge that runs until complying shipping documents are presented, cash is provided by the importer or the associated LC expires. This charge is debited to the importer’s bank (Issuing Bank) and then subsequently passed to the importer’s account.
The importer’s bank is majorly saddled with the responsibility of monitoring and maintaining their customer’s use of the offshore bank’s line. The bank, therefore, keeps track of the customers’ exposure, the bank’s exposure to their offshore bank, charges due to their customer and the bank’s payables to the correspondent bank respectively.
Customers are expected to provide funds in their account before the payment due date, therefore, banks are obliged to notify their customers on or before the due date of the Pre-Negotiation charge collection. Debit advice detailing the breakdown of these charges should also be sent after the debit is passed.
Today most of these processes are manually done, thereby creating challenges such as income leakage, erroneous overcharging/undercharging of a customer account, tedious reconciliation, record keeping and reporting.
Kachasi, an International Trade Finance Solution from Union Systems has addressed these pain points. Kachasi helps banks process their customers’ confirmation line LCs from the point of issuance to the start of the pre-negotiation charge, realization of the charges from customers, as well as settling the payables to the offshore bank. Realization of these pre-negotiation charges from the customers has been made easy and flexible using Kachasi. Reports such as Customer Outstanding Obligations, Bank and Customer exposure, and Interest breakdown are readily available on Kachasi and also contribute to the ease of use.
Another Key feature that comes with Kachasi is the ability to reduce the amount which the pre-negotiation charge is running on (Automatic Principal Reduction); either when the presentation is done for the full or partial amount, or when cash is provided for the full or partial amount. These features completely eliminate herculean manual processing, while improving the bank’s processing turnaround time and guaranteeing income assurance.
For Post- Shipment Loan (Post-Negotiation), banks are faced with the challenges of identifying and monitoring their loan interest accruals (expense and receivables), delinquency management, amendment and backdating of rates, restructuring or refinancing of loans and generation of reports for proper analysis and decision making amongst others.
With Kachasi, these challenges have been fully addressed by automating the related processes. Kachasi helps monitor and gives a consolidated display of the bank’s daily expenses, receivables and all customers’ trade-related loans, provides the capability to extend loans either at maturity, before or after maturity, eliminates the manual generation of swift messages related to the loan repayment from silo systems and provides notifications in advance to customers of their loan details, charges and obligations.
To learn more about how Kachasi simplifies these and other trade processes, please contact us for a demo.
This article is brought to you by Union Systems Limited: Africa’s leading financial software company. For more information or a demo of how the Kachasi Trade Finance Software works, Click here. Subscribe for more insights here
About Union Systems
Union Systems Limited (USL) is one of Africa’s leading financial software companies. For over 20 years, the company has been delivering future-thinking financial software solutions to banks and corporates in Africa to achieve full automation and digitization of their financial operations. Our software solutions deliver growth, profitability, and regulatory compliance to banks and corporates.
With headquarters in Lagos, Nigeria, the company has a deep understanding of the African market and a team of highly qualified consultants with real-world experience in the delivery of complex software solutions. In recognition of its innovation and excellence, Union Systems has won, for three (3) consecutive times the Trade Finance Software Solutions Provider of the year, since 2020, at the BusinessDay Bank, and other financial institutions (BAFI) Awards.