Brooks Automation Inc., in Chelmsford, Massachusetts, a multinational maker of semiconductor production equipment, sells a lot of its U.S. products to foreign buyers, relying heavily on letters of credit to get paid. And over the years that meant living with discrepancies in the letters of credit, requiring a lot of time to correct them.

But not lately. For two years it's been outsourcing to ABN Amro Bank, a global leader in trade finance, which now handles most of its letter of credit activities. The bank creates the trade documents, advises the company when the LCs come in, collects the payments, and manages the information flow.

"Discrepancies have become rare, which is saving us a lot of time and expense," says Michael McNeill, accounts receivable supervisor. Plus, the bank's web site makes it possible to track transactions from start to finish, "which lets me know what's happening with my money," McNeill added.

Meanwhile, in Jacksonville, Florida, Putnam Lumber Company, an exporter of plywood and lumber, has outsourced the management of its export receivables to TheoFinance, a two-year-old London-based firm that tracks transactions and communicates with buyers on behalf of its clients.

Putnam, which has worked with it for the past 16 months, has found the service has cut down dramatically the amount of over-due invoices. "It has taken the collection process out of our hands, which means we can spend our time on other pursuits," said Russell Crosby, vice president.

The two companies' experience suggests what's happening, as outsourcing becomes a fast growth trend in U.S. trade finance operations. The outsourcing suppliers include a few large banks, a couple of credit insurers, and a host of smaller specialty firms that have climbed on the technology bandwagon in recent years to make transaction management faster, more accurate, and less costly.

A labor-intensive activity

Trade finance historically has been a labor-intensive activity, as well as a transaction-oriented operation. The sizable amount of letter of credit discrepancies has become less acceptable, as exporters try to squeeze their costs, and transfer risks to banks and insurers. In addition, the outsourcing suppliers are helping to link the financial process to the exporters' larger supply chain management strategies.

At ABN Amro Bank in Chicago, John Ahearn, Senior VP with its Global Trade & Advisory unit, notes that larger corporations increasingly outsource the entire process from credit underwriting to risk mitigation, from transaction processing to information management. And, the trend has begun filtering down to a growing number of middle market firms, who started by automating domestic transactions and now include exports as well.

In the banking arena, the cost of automating trade finance activities has also brought consolidation. "Banks at the top end have enough core business within their franchise to afford the heavy technology costs," Ahearn says. That has meant spreading the benefits through outsourcing not only to exporters but also to other banks.

ABN Amro Bank, headquartered in Amsterdam, partners with 25 banks globally in the U.S., Europe, and Asia. In the U.S. it also delivers this product through its Chicago-based middle market subsidiary, LaSalle Bank. Its global trade portal, www.maxtrad.com, provides a single access point to a host of online services and information products.

The bank's trade finance package includes document creation, risk mitigation (it underwrites the credit), a refinancing capability (it buys the receivables), and the use of credit insurance (with which it takes over the receivables and pays up front). Plus, the web based information system.

Among credit insurers, COFACE North America, the U.S. subsidiary of Paris-based COFACE, has also begun to deliver the entire credit function, including underwriting buyers and setting credit limits, taking the payment risk, and handling collections. COFACE began with larger corporate clients but is now working with middle market and smaller firms, says Chris Short, who manages the middle market business in Monmouth Junction, New Jersey.

A key element of COFACE's capacity is a huge global database on companies that it put together on its own and through alliances with two dozen local credit insurers and credit reporting firms worldwide.

TheoFinance, in Middlefield, Connecticut, is a specialty firm that delivers an invoice management and collections service through offices worldwide. It uses the Internet to communicate with clients and their accounting systems, but sends out invoices within the buyer's country when requested (most customers send their own).

It offers an organized schedule of invoice management, starting with a phone call to each buyer prior to the invoice, to make sure the product has arrived and is in good shape. If the payment is overdue, it calls again on a fixed schedule, and then another time. If payment is still not forthcoming, it turns the receivable over to a law firm.

A key element of the program is a web site that reports on the status of each invoice, linked to the exporter's ledger. Founder Sebastian Bouvet is the former owner of Veritas, a U.S. credit report firm that focuses on Latin America. He sold it to COFACE.

Lex-Tek International, in Atlanta, is a specialty firm that helps exporters, as well as insurers, brokers and banks, manage credit insurance policies through software and online services. Its "Trade Credit Policy Manager" is a database that maintains the policy file, and produces status reports that remind users of their requirements in meeting deadlines. Its "Trade Banker" permits banks that lend against insured receivables to track invoices and payments through an interface with the exporter's accounting system. That produces an accurate reading of receivables in the system, and measures these against the insurance policy.