This case study explains how disputes between banks lead to obsessive ‘gap risk – behaviour’ of your bank and as such, slow down your business.
The ‘Piggy in the Middle’ situation occurs when the seller cashed it’s LoC and the buyer feels not all conditions have been fulfilled, giving the issuing bank a reason to object to any kind of recourse from the advising (seller’s) bank. This creates a dispute between banks.
From an engineering company in Frankfurt am Main
We are a manufacturer of specialised hydraulic pumps. We export a large share of our business to Africa. Dealing with African buyers requires additional logistical challenges, which may lead to ‘ad-hoc’ deviations from the planned journey.
We often work through a correspondent bank in Mombassa, being the issuing bank of the LoC. These LoCs are then confirmed by our Frankfurt bank. The risk that the documentation does not match (‘gap risk’) forces bank employees to focus on the exact matching of terms in documentation. This means that an unintentional change, due to a typo or any other immaterial reason, causes the issuing (buyer’s) bank to demand an endorsement or even an entire new set of documents.
We had a similar experience; suddenly, our own bank (!) pointed out that there was a small discrepancy on one of the pages. We missed our shipping slot and had to re-do the documentation in accordance with the demands from our bank. Since the buyer’s bank in Mombassa failed to respond to our messages, it took us 3 weeks to get it sorted.
The Mercurion platform we discovered, is a cloud-based platform that is easy to work with and saves everybody time and money.
We can certainly recommend it !