Worked Example: A EUR 180,000 Machinery Export and a EUR 12,000 Spare Parts Collection

Harbour Bank in Hamburg acts for the exporter, a machinery maker called Rheinwerk GmbH, and Meridian Bank in Warsaw acts for the importer, a factory called PolTech Sp. z o.o. PolTech orders a packaging line worth EUR 180,000, and the two firms agree on a documentary credit, because it is their first deal and neither side wants to take the full risk. PolTech asks Meridian Bank to issue the credit, Meridian Bank sends an MT700 to Harbour Bank and asks it to add confirmation, and Harbour Bank confirms the credit after checking its limits and charging a confirmation fee of EUR 900. Rheinwerk ships the packaging line, prepares the bill of lading, the commercial invoice, the packing list and the certificate of origin, and presents them to Harbour Bank. Harbour Bank checks the documents against the credit terms under UCP 600. The bill of lading shows shipment from Hamburg to Gdansk, the invoice amount is EUR 180,000, the packing list matches the invoice, and the certificate of origin is present, so the documents comply. Harbour Bank, as confirming bank, pays Rheinwerk EUR 180,000 at once, debiting its own trade finance account and crediting the Rheinwerk current account. It then sends the documents to Meridian Bank with a claim for reimbursement, and Meridian Bank checks the documents, debits the PolTech account for EUR 180,000 plus its own charges, and reimburses Harbour Bank. Meridian Bank releases the documents to PolTech, which collects the packaging line from the port in Gdansk and installs it in its factory. The second deal is simpler. Rheinwerk also sells EUR 12,000 of spare parts to PolTech, and because the relationship is now established and the amount is small, the two firms agree on a simple collection. Rheinwerk draws a bill of exchange for EUR 12,000 on PolTech, payable at 30 days, and gives it to Harbour Bank with a collection instruction. Harbour Bank sends the bill to Meridian Bank by MT400, Meridian Bank presents it to PolTech, and PolTech accepts it, becoming liable to pay EUR 12,000 in 30 days. On the due date, Meridian Bank debits PolTech for EUR 12,000 and remits the funds to Harbour Bank, which credits Rheinwerk. No shipping documents are involved, and no bank promised to pay, so the cost is a small collection fee instead of a confirmation fee. Cash management for Rheinwerk ties the two flows together, and it is where the trade finance matters for the business. The EUR 180,000 confirmed credit gave Rheinwerk certainty, so it could pay its own suppliers and its workers on time, even though the buyer was new. The EUR 12,000 collection gave it a 30 day receivable, which it tracked in its receivables ledger and discounted with Harbour Bank for early cash when it needed to buy steel. A business analyst should note that the trade system must show both deals in one customer view, with the credit status, the bill maturity date, and the expected cash date for each. A product owner should note that the exporter cares about when the money arrives, not about the instrument name, and a tester should check that the maturity alert fires, the discount is calculated correctly.