Document discrepancies can cripple a particular Letter of Credit transaction, but the effects of chronic payment delays on the business as a whole can be far worse. Over time, several costly effects will become apparent:

• Competitive advantages will be lost to competitors who obtain faster export payments.

This is possibly the most damaging effect. Competitors who receive payments for goods sooner obtain the use of those funds sooner. Even if those funds aren't immediately applied to operations, that money can be parked in an account that earns interest. Either way, other things equal, firms suffering from chronically late export payments find themselves at a competitive disadvantage.

• Lost earnings will result from cash not yet available to fund operations or earn interest.

To an exporter, each day that a bank withholds payment on a letter of credit means wasted money. Period. The value of the use of that money turns into an unrecoverable sunk cost: once it's gone, it's gone for good.

Many firms with otherwise first-rate cost accounting controls seem blinded to this cash drain.Week after week, the same companies who wouldn't tolerate budget overruns on important projects, or waste and abuse elsewhere, put up with delayed export payments. Why?

• Money will be wasted because of the opportunity costs, inefficiencies, and lost productivity that arise when non-specialists attempt to manage complex international financial transactions, instead of concentrating on more productive tasks.

Simply put, resources spent on Letter of Credit collections can't be spent on more productive tasks. Each hour spent recovering an LC payment means an hour not spent on projects of equal or greater importance--and productivity.

In the old days—a decade ago or longer—it might have been possible to justify administrative time devoted to releasing an export payment from a bank. But times have changed. These transactions have grown so complex that they are no longer jobs for anyone but experienced professionals with an arsenal of e-commerce software tools. And such efficient systems and expertise aren't available in-house. It can take weeks for an inexperienced generalist to recover the same payment that professionals can recover in days, and sometimes even hours, at far less cost.
• The businesses will lose control of export sales.
In most situations, discrepancies void an "obligation to pay" clause normally part of Letter of Credit terms. This action returns control of the transaction to the buyer, because the bank now requires the buyer's authorization to release payment to the exporter. That authorization requirement defeats the exporter's purpose for using a letter of credit in the first place: to maintain control of payment.

• The business will end up wasting a significant proportion of Letter of Credit costs on avoidable bank fees.

Each time the bank finds a discrepancy, there's a "charge," which is really a penalty. And in a document with multiple discrepancies, these punitive bank charges can quickly mount. In the preceding situation, a bank fee of $300 and above is common, and the bank fees for even the most inconsequential discrepancies start at $75 and go up from there.

• Top management will lose confidence in managers of export credit arrangements.

This might be an uncomfortable topic for many credit managers. Nevertheless, a series of delayed or postponed overseas payments can without question affect a manager's career advancement.

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