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CREDIT MANAGEMENT CREATING THE FUTURE
PERFORMANCE RISK MANAGEMENT LIQUIDITY RISK MANAGEMENT
PAYMENT SECURITY INSTRUMENTS TRADE CREDIT SCORECARD
TECHNOLOGY TRAVEL

 

PAYMENT RISK (CREDIT) MANAGEMENT:
25 Day BFOEs - Understanding the related Credit Risk ( Previous 2001/03 notes updated as per April 2014 )
ICE Brent Crude Futures and 25 Day BFOE (Brent-Forties-Oseberg-Ekofisk) Forward contracts create the basis for the determination of the cost of more than 65% of the crude oil bought and sold in the world. However the jargon and processes related to the wider Brent Futures and BFOE market are not easy to unravel. Understanding the credit risk implications is even more challenging. This article clearly covers all important points.
DME Oman Crude Oil Futures (OQD)
The Dubai Mercantile Exchange’s OQD contract is becoming the crude oil pricing benchmark for the Asian market, displacing the Dubai Crude Oil Futures contract. It is important to understand the credit risk implications of trading in these and the associated OTC Oman Crude Oil Contracts. This article clearly covers all important points.
ITI @ SMU (Singapore Management University) Guest Lecture Series' Presentations Delivered by Ron Wells  
Click to access a copy of the supporting PowerPoint:

Part 1: Strategic B2B Credit Risk Management
Part 2: Performance (Pre-Delivery) Risk Management
Part 3: Payment (Post Delivery) Risk Management
Emissions Credits Trading: Credit Risk Management Aspects Explained (January 2010)
Read Taleb’s Black Swan*?....twice?…..so now what?
* The Black Swan – The Impact of the Highly Improbable, Nassim Nicholas Taleb 2007, Penguin Books
In essence Taleb persuades the reader that the most impactful social and technological changes – the changes that will drastically alter the course of future history - cannot be predicted since they are ‘unknown unknowns’.  Such events – which he calls Black Swans – will happen for the first time so cannot be imagined in advance, and cannot be predicted by models that extrapolate forward the past.  This is all very interesting however the burning question after reading this seminal work is; what does it mean for someone in the business of Credit (Performance and Payment) Risk Management?  Click the link and read the article to uncover one possible answer.  Click here to obtain a copy of the Chinese version of the article.  Order the book here
China: A Review of Developments in Credit Management
This presentation reviews (a) the current state of development of the credit risk management profession in China (according to the presenter's limited knowledge) and (b) some important basic steps to bear in mind when planning to do business with Chinese counterparties.
View this presentation by going to www.ccrinteractive.com and registering.  Registration is free and only takes a couple of minutes.  After you register you will find yourself on the opening page of the website, with a video of a politician making one of the conference opening speeches starting to play.  Below that video window you will see several buttons.  Click on the INTERNATIONAL button and a menu of videos will appear, one of which is this presentation, click on that item and the presentation will begin.  It runs for 25 minutes...
Cash Flow Cycle Analysis - available in English and Chinese
A discussion starter presentation given to a meeting of the Shenzhen Credit Risk Managers' Club
Customers will fail to pay, but which will fail and when?
Scenario Planning would benefit Credit Risk Management
The author of this paper suggests that it is not good enough after a bankruptcy occurs to say; ‘the ratios were good, and they always paid on time’.  Rather be the credit manager to say, ‘their strategies didn’t make sense in terms of any reasonable future scenario, and their business model was inflexible, so we withdrew open credit months ago’.

Credit Risk - An Executive Summary
This paper introduces Credit Risk Management and related concepts. Also available in Russian. A brief outline of these concepts is provided, including the concept of the portfolio management of Receivables. More detailed papers follow below.

Corporate or Customer Credit Risk
This article clarifies the boundaries of this vast subject and expresses some current approaches to the management of what is often a significant asset. Also available in Russian.

Country Risk
This paper refers to the risk that a Buyer may not be able to pay, due to a money transfer restriction imposed by local Authorities. A practical method for managing Country Risk is explained in this article.

Bank Risk
Corporate and/or Country Risk are often reduced or eliminated by obtaining a bank payment guarantee [usually a Letter of Credit (LC)]. In such cases the Bank Risk must be assessed and managed. This article details a practical method for dealing with this challenge.

Portfolio Risk Management
At any given point in time, the credit manager is really managing a portfolio of credit risk. The portfolio perspective is quite different from that of the individual credit transaction. It allows credit to be viewed from the standpoint of pooled risk. Kelly Cundiff,  the Director of Market Strategy (Fortune 2000 Corporations) for eCredit.com Inc., discusses the current trend towards wider implementation of portfolio management of receivables. Published with permission.

Portfolio Credit Risk Management ( A special treat for you if you read Italian! )
Elia Maggiolo (Venice Italy) was recently awarded a well deserved Laurea Specialistica or Secondary Degree (five years of study) by the University of Verona. His extensive thesis thoroughly covers the potential for credit management to positively influence competitive advantage. It includes a chapter that examines 'How portfolio risk management can implement marketing strategies.' The thesis was awarded maximum marks by university assessors. It is an honour to be allowed to make available through this web site chapter four, which specifically discusses the portfolio management of receivables.
The full Index of this thesis (full title: La Gestione del Rischio dei Crediti Commerciali come Strumento di Marketing) is also available, should you be interested in other aspects of this work.
Please contact Elia at elia.maggiolo@tin.it if you wish to discuss his paper.

Forensic Cash Flow Analysis ( A 21st Century Global Credit Management Tool )
Many analysts feel that the Operating Cash Flow number produced by a company is reliable, because it is not subject to manipulation in the same way as balance sheet and income statement numbers.  This is simply NOT TRUE.
This realisation has seen the recent development of the inexact science of Forensic Cash Flow Analysis as an early 21st century tool for credit research.

CO2 Emission Credits Trading Challenges Credit Management
Read why certain counterparties could suffer negative consequences due to the introduction of Emission Credits trading
25 Day BFOEs - Understanding the related Credit Risk
ICE Brent Crude Futures and 25 Day BFOE (Brent-Forties-Oseberg-Ekofisk) Forward contracts create the basis for the determination of the cost of more than 65% of the crude oil bought and sold in the world. However the jargon and processes related to the wider Brent Futures and BFOE market are not easy to unravel. Understanding the credit risk implications is even more challenging. This article clearly covers all important points.
PERFORMANCE RISK MANAGEMENT:
Annual Coal Markets Conference
On February 22, 2012 Ron Wells presented a paper titled Risk Management Techniques & Tools, which focused on Performance Risk at the 10th Annual Coal Markets Conference in Singapore. Click here to view or download a version of the presentation that includes additional material.
The Art of Assessing, Quantifying and Managing Buyer or Supplier Future Physical Performance Risk
Physical Performance Risk is not the same as Payment Risk so it is not correct to apply the same Probability of Default, Potential Future Exposure at Default, and Loss given Default measures to both.  The current general practice of applying the same measures to both leads to an erroneous, usually exaggerated, assessment of the risks related to future physical performance.  An alternative method is proposed to answer the response that 'there is no other way', and to initiate a debate, was presented at the 3rd Annual Credit Risk in Energy Trading ConferenceAlso refer to an extended article on this subject by clicking this link: English; or for the Chinese version click this link: Chinese.
Assessing, Quantifying and Managing Buyer or Supplier Performance Risk in the Physical World is the Challenge 
This article discusses the methods currently used to assess Performance Risk, their efficacy and what alternatives may be considered.  Additional comments can be read on the BWcr weblog:
Margining and Value at Risk - is there a better way?
LIQUIDITY RISK MANAGEMENT:
Hedging Future Commodity Price Risk Can Damage Your Company’s Liquidity:
Hedging future commodity price risk is something to consider, only if you guard against the chance that the outcome could damage your company’s liquidity and/or its competitive position.  Click here to obtain a copy of the Chinese version of the article. 
CREATING THE FUTURE FOR CREDIT MANAGEMENT:
Energy Credit Risk - The Future & Career Prospects
Ron Wells presented this topic at the IECA Europe 28th European Credit Education Group Conference in Athens, on June 24, 2014.  Click here to view or download the supporting presentation material.

Early 21st Century International Credit Manager (circa 2010)
This article explores the role of the International Credit Manager in the 21st Century, by means of a fictional scenario set in Europe in the year 2010.  The art of Scenario Planning is also explained.

There is a better way to manage your Credit Department, it just hasn't quite been invented yet ...
"In the early 21st Century commercial credit management is still a mixture of art and science. It is almost exclusively focused on the day to day micro-management of individual customer accounts or individual sales transactions." This will change.
PAYMENT SECURITY INSTRUMENTS:
The BPO & Friends have a Stranglehold on the LC and will soon finally lay it to rest… 
Read why every business that accepts Standby Letters of Credit as collateral cover (security) for its sales transactions should switch to requiring Bank Payment Obligations (BPOs).  Discover how the BPO-Plus (BPO & Friends) will gradually but inexorably replace transaction related Documentary LCs over the next five years or less.  The considerable rewards intrinsic to using BPO and electronic documents in combination are available to every trading partnership today; you should be benefiting - click here.

Payment Undertakings
A Buyer's 'Purchase Confirmation & Payment Undertaking' linked to 

a Risk Sharing Agreement or 
a Bank's own Guarantee or Standby LC

can be an alternative form of payment risk cover ('insurance') when the Buyer refuses to provide an LC directly, or where the Seller wants to give the appearance of providing unsecured (open) credit.

Other alternative Forms of Payment Security - PN's and/or DG's
A practical guide for the use of Promissory Notes (PN's) and/or Demand Guarantees (DG's) as payment risk cover, rather than Letters of Credit (LC's). 
Available in Russian and English

Letters of Credit Covering Oil Commodity Transactions
Jeremy Francis, formerly a Credit Specialist with ChevronTexaco Global Trading (London), explains some of the novel features of these Letters of Credit (LCs). He includes a discussion of Letters of Indemnity for Missing Documents (LoIs) and Price Escalation Clauses. Published with permission. 
Contact Jeremy via email at: Jeremy Francis (New Zealand).

Significant Letter of Credit Legal Decisions (Singapore Courts)
Singapore is probably the most important centre of trade finance in Asia . The linked notes cover a number of significant decisions on trade finance handed down by the Singapore courts in recent years.  Kindly supplied by Toh Kian Sing of legal firm Rajah & Tann.

Credit Insurance - Risk Cover Options for Emerging Markets
This article explains two non-traditional ways in which Credit Insurance can be put to work in high risk emerging markets. These methods could provide profitable sales opportunities where none exist today.

TRADE CREDIT SCORECARD & LIMIT MODEL:

Trade Credit ScoreCard & Credit Limit Model - A Report
Experts say ‘it cannot be done’, but you can read how one company developed its own Trade Credit ScoreCard.
"(this) work serves as an excellent foundation for those interested in building their own models. Studying (Ron's) methods and approach will also provide credit professionals with an understanding of credit scoring in the B2B world."
Read this Institute of Management & Administration’s report on a presentation given in New York - reprinted with permission.

Credit ScoreCard & Limit Model - Case Study
An animated PowerPoint presentation that leads you through the analysis of an anonymous USA based Oil Refining & Petroleum Products Marketing company. This is a combined Russian & English presentation that may take a few moments to download.

NEW TECHNOLOGY:

Bolero
Bolero.net services enable the creation of viable electronic alternatives to paper documents.   This is a vitally necessary building block for B2B electronic commerce and it has arrived.   A Bolero.net Project Report provides some practical guidelines, and a previously written article (May 1999) provides additional background information.

OPERATING ABROAD:

Operating Effectively in the International Arena
Effective meetings and negotiations with people from other countries and cultural backgrounds, requires careful preparation. "Respect" is the key word. These three articles provide some guidelines based on practical experience and research.

Cultural Differences. This article outlines some significant differences which must be borne in mind when dealing with people from Europe, Russia, Central Asia and North America.
International Business Travel. This piece lists some practical hints for International Credit Managers who are preparing to travel to a country for the first time.
Working with Interpreters. This item presents a helpful strategy for anyone working with a language interpreter.

 

 
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Last Updated:  August 19, 2014 18:37 +0100