Treasury and finance professionals who make widespread use of the Internet across several finance functions do not yet utilise online tools to in their letter of credit (L/C) management processes to any great degree according to a recent survey.

It does however report that overall, the use of the web by finance professionals is growing and that strong growth in Internet usage in finance functions is expected in the next year.

Cash management online

The survey found that 91 per cent of treasury and finance professionals who responded to a questionnaire devised by the US-based Association of Finance Professionals (AFP) said the Internet plays a role in their company's use of financial services.

A massive 86 per cent of respondents said the Internet now plays a role in their company's cash management activities. Only 32 per cent of respondents said the Internet is integral in their L/C management processes.

Derivatives hedging offline

Around a half of the respondents said they use the Internet for investment and foreign exchange services and 39 per cent of companies who participated in AFP's research project told researchers that they used the Internet in relation to bank loans.

Finance functions that are managed offline even more than L/Cs include insurance, bonds and commercial paper, and derivatives hedging according to the survey results.

Online L/C support

Around 23 per cent of total respondents said they communicated over the Internet with service providers in respect of L/C business while 19 per cent said they obtained information on L/Cs online. Just 11 per cent of respondents said they transacted L/C business online.

Only 2 per cent of respondents said they expected levels L/C business over the Internet to decrease over the next year. While 32 per cent thought levels would increase, a two-thirds of all respondents thought there would be no appreciable real change in the level of Internet in L/C transactions over the next twelve months according to the survey results.

Growth areas

The survey results, recorded in an AFP report entitled The Internet and the Changing Financial Services Marketplace, indicate that most Internet usage with respect to finance functions is devoted to obtaining information and communicating with service providers according to the report.

The report says that recent growth in the use of the Internet has been centred on three finance functions - cash management, foreign exchange services and investments. Virtually none of the respondents said they had reduced their usage over the past year.

Barriers

Respondents in the survey cited that barriers to Internet usage continue to be security (84 percent), authentication of counterparties (79 per cent), enforceability of contracts (57 per cent), inability to integrate data with internal systems (54 per cent), and credit quality of counterparties (52 per cent).

This is the fourth year AFP has been tracking Internet usage for financial functions. The survey was conducted in July 2002 via e-mail to 2,000 practitioner members of the association and yielded 272 responses, a response rate of 14 per cent. The typical respondent works at a company with annual revenues between US$500 million and US$999.9 million.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.