Bill of Exchange in the new interconnected World

The import & export business can get pretty complicated when it comes to payment and/or receiving the goods/services. This is specially the case in trades that involve parties who dont know each other to well or at all. Many stories of 30/70% TT-trades (Telegraphic Transfer also known as Wire Transfer), where buyers are left empty handed or with a container full of defect goods after paying 30% in advance to start production by the seller, leave small/medium-size companies and start-ups with bitter loses that in some cases jeopardize their whole business.

Specially with a world more and more connected - where big companies who can easily adopt new business ideas in the fastest pace - the need to minimize risks and initial costs for small/medium sized companies and start-ups is essential for market penetration and competitiveness.

In this case, one aspect to be reviewed when trading internationally or nationally is the methods of payments and their costs and risks. Most of the trading (money - goods) between companies is done with just a few trade-finance solutions: Cash-in-Advance, Letters of Credit, Documentary Collections, Open Accounts, Bill of Exchange and Consignment. The US Department of Commerce recently analysed this methods of payments based on their payment risk for both buyers and sellers:

Source: Trade Finance Guide 2012

Somehow they left Bill of Exchange out of the diagram, but put into perspective it can be the tool with the most consensus between both seller and buyer. Unlike Documentary Collections, Bill of Exchange offers the Seller a legal way to be protected (Bill of Exchange Act) while creating the possibility for the buyer to transfer its debt through endorsement. This way, it narrows down the gap in payment risk between buyer and seller even more. A new approach called Billex or iBillex that has started in Canada is a developing solution that thrives to take this even further. Somehow it combines the classical Bill of Exchange with new IT technology. Can customization and online - therefor global registration and verification of BoEs be the final tool that closes the Payment Risk Gap between buyers and sellers?

One thing is for sure, in a more and more globalized, interconnected and competitive world, methods of payments with potential to strengthen the trust between buyer and seller; importer and exporter, adapted to the new global business & technology conditions, will have a high demand. And maybe eliminate the 30/70 rookies mistake from the trading market once and for all.

Bern Roemer, HSBC Consultant, Nov. 2012