Deutsche Bank and GE Aero Energy, a General Electric Company business that manufactures gas turbines and other power equipment, have announced their collaboration to introduce new risk management and working capital solutions for complex projects in Africa, China and other emerging countries. These transactions will be supported by a unique combination of traditional trade finance and the more progressive financial supply chain product offerings.

GE Aero Energy and Deutsche Bank work together to cover GE Aero Energy's payment and documentary risk, enabling accelerated payments and hence improved working capital. The transaction involves the structuring of standby and documentary letters of credit, confirmations and transfers of such instruments. With Deutsche Bank's guidance, GE Aero Energy prepares the shipping documents required for payment under the letters of credit. Where unavoidable discrepancies in the documentary presentation occur, Deutsche Bank then provides GE Aero Energy with an accounts receivable purchase linked to the underlying letter of credit.

Reducing payment risk
This arrangement reduces payment risk. Jonathan Richman, Managing Director, Head of Trade Finance North America and Financial Supply Americas, explains: ‘While Letter of Credit confirmations provide a valuable means for corporates (exporters) to mitigate the counterparty risk of their importer, and the risks associated with the importer's bank and country, in some cases the exporter will not be able to prepare compliant shipping documents in order to receive payment under the Letter of Credit, thus negating many benefits. By linking a Receivable Purchase to the transaction, it is possible to continue to give clients the ability to discount the obligation and accelerate their cash flow even when they present discrepant documents under the Letters of Credit issued in their favour.‘