A brief case study on “Credit Repot”: Success and failure of Export

Prepared by Proshad Kumar Ray

Credit report is the credential report of individual/company through which its ability in the
respective business area and its business portfolio is expressed which may include history of
timely payment, overdue debts, default, under ranking credit profile. Incomplete credit profile
may be considered a risk factor. Analyzing the credit report, seller/exporter may know
company’s ability to pay against it exportable goods which enable exporter as well as banker to
take decision regarding export.

Case Study 1

Export Failure: ABC exporter Ltd., Bangladesh received an order from XYZ Importer Ltd., UK
to export readymade garments at sight basis. In the order, there was a term that the RMG would
be prepared with the fabrics from the importer nominated buyer of China on ussance basis. The
liability of ussance Back to Back (BTB) LC would be settled from export proceeds. ABC
exporter Ltd., of Bangladesh procured goods and prepared RMG as per terms and conditions of
sales contract/purchase order but finally failed due to non-availability of Importer. The EXPORT
failed.

Case Study: The exporter Ltd., Bangladesh is a well reputed exporter has been performing his
export business over several decades. Till to this case, the exporter has no record of export
failure. The exporter has been doing his business in several banks and enjoying composite limit
over hundreds crores. On studying the case, it is found that:

 The Exporter had great negotiation power over several banks.

 Exporter wanted to open BTB LC from buyer nominated company in China
 Exporter’s bank obtained credit report of China seller and found satisfactory.
 Exporter’s bank opened BTB ussance LC in favor of China seller
 Exporter bank found documents as per LC and gave its acceptance
 Exporter received goods in order
 Exporter furnished readymade garments and taken EXP from its bank for final shipment
as per contract
 Exporter failed to communicate with XYZ Importer Ltd., UK.
 Finally XYZ Importer Ltd., UK was not found till to date and finally export failed
Causes of failure:
 Before financing to exporter, exporter’s bank obtained credit report of XYZ Importer
Ltd., UK.
 The credit report shows that the exporter line of business is different with that of sales
contract.
 Financial strength is undisclosed
 Credit report also shows that the XYZ Importer Ltd., UK has a greater than average risk
of business failure.
Challenges:
 Considering past export business track record, Exporter’s bank had to facilitate the
exporter despite the credit report of importer XYZ Importer Ltd., UK.
 In all past cases, bank always receives payment having these types of credit report of the
foreign importer.
 Since the satisfactory creditworthiness is not defined terms, bank may not estimate
creditworthiness of the importer against this term.
 If the exporter had not been facilitated, the business may be shifted to another bank and
the bank is eagerly agree to facilitate the exporter.
 Case Study 2

Export Success: As per GFET, Volume-1, in all version, Obtaining of satisfactory credit report
is mandatory for doing export and import business in Bangladesh. As per chapter 8 of GFET,
before issuing EXP, the bank will obtain the satisfactory credit report of importer. Bank obtained
credit report of buyer/importer which was not satisfactory. The status of the buyer was bankrupt
in the report including a lower financial strength. Despite its such type of credit report, till to date
no export is failed.

Case Study:

 The foreign buyer has been facilitated export business on DA basis.

 Buyer takes possession of the goods against acceptance.
 Buyer makes payment with the sales proceeds on maturity date
 Till today, buyer has not failed any due date for payment

Reason of Success:

 The business line of the buyer is matched with that of sales contract/purchase order
 Buyer in very well-known in line of this business and has been doing business over the
years.

Present Status of Buyer:

Analyzing of the above credit report it is understood that every buyer has a failure rate. The
failure rate is shown from worst to be best but the dilemma is that the best buyer may fail
irrespective of its success rate.
Conclusion: Case Study1 shows failure of export as the buyer is not recognized in the line of
business. Case Study 2 shows success of export as the buyer is recognized in his line of business.
So it’s a great tool of identification of potential buyer.