We are a company that manufactures and exports production lines (specialist machinery for a whole host of manufacturers, including the car industry). The high-tech infrastructure for the plants we develop takes time to manufacture and is worth (USD) millions, if not tens of millions. For this reason one of our absolute priorities is to manage the risk of potential non-payment. As we ship many products at any one time, the administrative burden that this involves can be considerable. We are always looking at improving our operational processes. The confirmation of LoCs issued by the house banks of our clients, in particular, can cause problems in this regard. Apart from the common issues involving LoCs, such as conditionality and mistakes in the documentation itself, we often lose time due to delays on the ‘Know-Your-Customer’ side, the clearing of the compliance process. We feel many of the counterparty banks are not very well set-up to deal with the requirements of our own banks. The lack of user-friendly communication channels in some kind of standardised format creates long delays.
Having done some digging and having established that the retail market in China uses an Escrow process to securely settle transactions domestically, we decided to try something different. Escrow entails that funds are kept with an active third party and only released when the goods have arrived at the agreed place of destination. Mercurion is a company that operates a platform that offers an on-line Escrow process provided by the Baltic Exchange. The reason we really liked the company when we came across it for the first time was that the KYC process via the platform was much more transparent, better organised and hence much faster than what the banks were able to achieve (completion within 48hrs). The ease, with which buyer and seller can communicate with each other through the platform, makes it a much more efficient route to settle transactions, in particular, with new customers.
The overriding argument for using Mercurion, however, is safety. When a counterparty fails to pay in Escrow the cargo will simply not be shipped. If there are doubts about this during the production process seller can negotiate mile-stone payments, even before the production process has been completed. All payments will, of course, be held in Escrow. If, in turn, the delivery is not in line with the trade agreement the seller will not receive any payment. For this reason we managed to convince the buyer that the Escrow process, facilitated by Mercurion and executed by the Baltic Exchange, is very safe. In the end, if things really go wrong the funds can be returned and the transaction reversed. Any fees due will be paid by the party that fails to adhere to the agreement.