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Bankers see growing trend of open account transactions
Open account transactions are predicted to gain popularity and overtake the traditional way of doing trade finance by issuing letters of credit (L/Cs) and bank guarantees in the coming years, as they provide more flexibility for businesspeople, say banking executives
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pen account transactions are predicted to gain popularity and overtake the traditional way of doing trade finance by issuing letters of credit (L/Cs) and bank guarantees in the coming years, as they provide more flexibility for businesspeople, say banking executives.
According to Citibank Indonesia senior vice president for trade products Risman Firmansyah, the lender is seeing growing open account use among its customers.
'Exporters and importers demand cheap and fast facilities. Open account is one form of financing that they prefer at the moment because they get less hassle,' he said on Thursday during the 4th Annual Indonesia Trade and Commodity Finance Conference.
Open account is a simpler trade financing procedure in which a client pays upon the receipt of goods.
It usually uses an invoice as opposed to an L/C issuance that requires more documents, such as air waybills and certificates of origin.
Risman said part of the open account techniques that Citibank's clients preferred included export factoring and forfaiting.
Factoring is the discounting of short-term receivables, while forfaiting is a mechanism that enables clients to sell their medium- and long-term receivables to a forfaiter at a discount, in exchange for cash.
'However, despite the rising trend, the use of open account transactions still depends on each business sector. In oil and gas, for instance, the regulator requires the use of L/C due to its lower risks,' Risman said.
Bank Danamon trade product management head Margaret Tjahjono also spoke of a growing trend in open account transactions. Data from the lender showed open account transactions began to overtake traditional ones in 2012.
In 2012, open account transactions already accounted for 55 percent, or Rp 6.9 trillion (US$594.67 million), of its trade finance business, whereas a year before, they only accounted for 47.3 percent.
Meanwhile, in the first quarter of this year, the same transactions contributed 52.1 percent, or Rp 10.1 trillion, of the lender's trade activities.
Maggie said that in 2014, Danamon eyed around 40 percent growth in trade finance, supported by its factoring and forfaiting. With the target, its trade finance portfolio is expected to stand at about
Rp 27.58 trillion.
R. Adhi Susatyo, the trade finance head of Bank International Indonesia (BII) Maybank, said open account transactions enabled the lender ' part of Malaysia's bank ' to attract a wider customer base.
'They are a different or alternative form of financing,' he said.
Last year, BII managed a total of $2 billion in trade volume, up 24 percent from 2012.
According to Adhi, the bank's improved information technology system would offer more open account options for the customers.
Bank Negara Indonesia (BNI) international division head Abdullah Firman Wibowo said open account transactions would be more suitable for 'experienced' businesspeople with their relatively lower-risk prevention measures.
'As trust levels among businesses increase, they will opt for simpler transactions. On the other hand, an L/C is chosen when the relationship between the buyer and seller is still pretty new,' Firman said, adding that a detailed L/C functioned as a business safeguard.
