Letter of credit transmission process of Nestlé Bangladesh limited and various factors affecting it

Abstract

The study “Letter of Credit Transmission Process of Nestlé Bangladesh Limited and Various Factors affecting it” has been conducted on Nestlé Bangladesh Limited, an FMCG company started as a joint venture between Transcom Limited and Nestlé S.A, Switzerland in 1992. Nestlé Bangladesh Limited has action plans for business, people processes and Governance. Nestlé Bangladesh Limited has a business action plan that urges to keep the focus on value drivers and free cash flow to be amongst the top performers. However, Letter of Credit transmission process from opening till settlement is affected by many factors that hamper efficiency in terms of cost and time elapsed. Letter of These factors include foreign currency exchange rate, risk of inferior quality and quantity of goods, price of good in the domestic market and non-compliance to terms and conditions leading to amendments. After the study was conducted through non-probability sampling (convenience sampling) on a sample size of 50 respondents, the results were collected and collated and the following findings and conclusions have been. Exchange rate fluctuations have been perceived by respondents to be the most influential factor in affecting letter of credit transmission efficiency in terms of cost and time elapsed. The mean for exchange rate fluctuation is 1.58 on a likert scale representing highly risky as 1 and not risky at all as 5. This means that the respondents on average indicated that exchange rate fluctuation is a very important factor affecting letter of credit efficiency. Based on this finding, a hypothetical chart had been prepared to mark the different value of letter of credit payments at different dates due to exchange rate fluctuation. The results showed that on a typical month, payment differences may be as much as 5.18% of LC payments. That sum would definitely have a negative impact in the long term, since over the period of a year the total extra payments made due to inefficient letter of credit transmissions will be showing on overall company performance. The objective of driving value and focusing on free cash flow is thus not met. In order to ensure that business action plan is followed, it is crucial for NBL to take note of collaboration between departments and also predict exchange rates through mechanisms shown in the report. Further study is required to have a more detailed look on how much effect this has on company performance.