(16 September 2009 – Australia) The financing needs of trading businesses vary considerably according to businesses size, calling for tailored trade finance services.In particular, small trading businesses are heavily reliant on letters of
credit to fund their trade activities, while larger businesses have continued to
shift their trade business to open account terms.
These findings come from East & Partners’ Australian Trade Finance Markets
research program. The latest report is based on direct interviews with 1,800
trading businesses turning over more than A$5 million per year.
Speaking about the August 2009 Trade Finance report, East & Partners’ financial
markets analyst Zoran Knezevic said business size is an important determinant of
the way businesses fund their trade activities.
“For SME businesses turning over between A$5 and 20 million, as much as 63.1
percent of trade is financed using letters of credit,” Mr Knezevic said.
“Letters of credit are a well established method of obtaining trade finance and
there is generally a high degree of comfort in using this as a means of
finance.”
“But letters of credit can also be document intensive and are sometimes seen as
a less efficient method of funding trade transactions,” he added.
This is partly confirmed by the continued migration of larger businesses away
from letters of credit and to more direct open account terms.
“Our data shows that as almost three quarters of the Top 500 trading businesses
conduct their trade on open account terms, while less than 20 percent of trade
is done using letters of credit,” Mr Knezevic said.
“This appears to be a reflection of the relatively more established
relationships these businesses have with their international trading partners
but also their greater commitment to streamlining the trade process using latest
transaction tracking and documentation technology,” he added.
“In other words, the pursuit of supply chain efficiencies among larger
businesses is an important factor in encouraging their preference for open
account trading.”
“Ultimately, these results suggest that trade finance should be flexible and
that financiers will benefit by adapting product and service offerings to the
needs of customers in different segments,” he concluded.
About East & Partners’ Australian Trade Finance Markets Program
Australian Trade Finance Markets is East’s ongoing six-monthly research service
focusing on the Top 500 institutions and a structured sample of the Corporate
businesses with annual turnover between A$20 and 340 million. From August 2008,
the program has also included full coverage of the SME ($A5 to 20 million annual
turnover) market segment.
Each analysis report covers a range of metrics including market share, share of
wallet, product penetration, export/import regions, supplier share of mind and
customer satisfaction with service performance.
For more information, please contact:
Brett Williamson
Chief Operating Officer
East & Partners
t: 02-9004 7848
m: 0403 499 844
e: brett.w@eastandpartners.com