24 February 2009

Step To Mitigate Trade Risks

Since the establishment of the UCP, it has never been intentionally to address or mitigate issues on fraud. The primary purpose of formulating the UCP is to provide a set of uniformity governing the conduct of trade activity in commerce. It is aimed at ensuring smooth transition of goods, services and payment. As the life blood of commerce, money, regardless of currency is what the protection needed the most and not be compromised at any cost.

Article 4 and article 5 of UCP 600 formed what is known as the principle of autonomy where it is solely to protect the integrity of payment obligation by banks. In other words, it means the letter of credit only guarantees the payment provided that the terms and conditions of the credit are complied with.

But, what about the integrity of the beneficiary or seller? How does buyer establish the performance capability of the seller, credit standing, business history and other important aspects related to trade?

This is an issue which is not covered in the UCP and there are no official guidelines on how to go about in establishing the integrity of the seller especially when the seller is domiciled in different country.

The buyer is always advised to conduct independent checking through Chamber of Commerce or by obtaining confirmation letter from the seller’s bank before concluding any agreement. This method however, is not favourable by most traders as the turn around time to get a reply is considerably long and in most cases it is viewed as not practical. Not only time, but the genuineness and precision of information are also very important to buyers in making business decision especially in establishing a first time trade relationship. Replies received from banks in most cases are not helping the buyer in making business decision.

A reputable third party private company, American Heritage is a good source of obtaining information on companies registered in the United States. Buyers may easily access to millions of active company through their marketing list. Information like owner of the company, business type, branches, number of employees and others can be easily obtained from their mailing leads. Financial information on the other hand is available from their mortgage mailing list.

Although this may not provide a guarantee but, it gives a very good overview of who the buyer is dealing with and what is the next course of action to be taken.

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