Unlocking Financial Potential: The Power of electronic bills of lading for CFOs

Introduction: After speaking with numerous individuals in the trading industry over the past three years, it has become apparent that there is a widespread misconception regarding electronic bills of lading (eBL). Many view this technology as a means to save pennies on couriering fees, but the reality is that eBLs can have a profound impact on both the top and bottom lines of every trading house.??

Let’s consider a hypothetical scenario where a company is trading physical commodities, committing $20 million of its own cash annually and leveraging $80 million of uncommitted credit lines. With an average sales cycle of 65 days, the company generates approximately 5.6 annual working capital turns, resulting in a gross Return on Equity (ROE) of 109%. This calculation assumes a monthly cost of capital (all in) of 1.5% and 10% gross earnings per trade. While these figures may vary based on different factors, the underlying mathematics remains consistent.?

Now, let's delve into the breakdown of the 65-day average sales cycle:?

- Up to 15 days are wasted on couriering documents globally at various stages of the transaction.?

- Up to 20 days are spent with documents sitting on desks, either due to operational issues or opportunistic reasons.?

- Up to 20 days are allocated for internal information processing and approval flows.?

- Up to 10 days are lost in local import and export customs clearance and other formalities.?

?

While the specifics may vary due to the diverse permutations of financial arrangements, contractual agreements, geographies, and commodities being traded, the fundamental principle remains constant. Let's now explore the potential impact of digitizing part of the current paper process, specifically by reducing couriering days from 15 to 5.?

In the first semi-digital scenario, the trader digitizes the upstream portion of the process, enabling the original bill of lading to be digitally transmitted from the load port agent to the shipper and then directly to the bank within minutes rather than days.?

?

In the second scenario, we push digitization further, with the bank accepting the digital bill of lading, settling, and instantaneously transmitting the eBL to the destination—either to the buyer’s bank or directly to the buyer. In this advanced scenario, which still requires the conversion of the eBL to paper at disport to meet local banks' and customs' requirements, up to 15 days of couriering can be eliminated from the process.?

The potential financial implications of these scenarios are significant. Let's compare the three scenarios: the "current paper BL scenario," the "partial eBL digitization scenario," and the "full eBL digitization scenario."?

?

Even in the partially digital scenario, which is highly feasible to implement, the trader can achieve an additional full turn of equity per year. This equates to a $20 million increase in yearly equity availability and an $80 million boost in financing, significantly enhancing the company's capacity for business expansion. Simultaneously, the ROE can increase by 51%, yielding an additional $1 million in gross profit. With full digitization, the benefits are even greater, albeit with a larger implementation effort.?

It's worth noting that we've only considered the financial impact of eBL implementation, without delving into other substantial advantages such as reduced legal and operational risks due to fraud mitigation, reduced delays, errors, and lost documents.?

?

While implementing eBL requires time, effort, and a moderate commitment of resources, delaying its implementation is a luxury no efficient company or forward-looking CFO can afford. Every month spent postponing eBL implementation represents wasted potential.?

?

If you're interested in learning more about how eBL can be implemented, please don't hesitate to reach out to us at [email protected] or contact the authors directly on LinkedIn.?