Collection Account Facility & Release of Tea Process

·         The Current System
·         The need to improve the Current System
·         The Proposed System
·         The Strengths of the Proposed System

Current System
·         After the sale of tea at the auction, Brokers prepare and send Account Sales Reports to the Producers.
·         The Brokers prepare Delivery Orders and forward non-negotiable copies to the Warehouses whilst retaining the originals to be released upon proof of payment from by the Buyers
·         The Brokers raise invoices to the Buyers for the lots they purchased at the auction
·         The Buyers pay Brokers for the invoice value no later than the prompt date
·         Upon receipt of payment, as confirmed by the Bank, the Brokers issue delivery orders for the lots purchased and fully paid for. These are handed over to the Buyers’ authorised agents
·         Buyers use the delivery orders to collect the tea from Producers’ Warehouses
·         The Brokers then remit, by telegraphic transfer, to the Producers the value of teas sold less their commissions , catalogue charges and Warehouse charges on or before the prompt date

Need to Improve the Current System

The need to improve the current system arises from concerns that:
·         Brokers may fail to remit funds to Producers before the prompt date
·         Bank guarantees that have been opened to mitigate this risk are costly and at times inadequate for full cover
·         It relies on the Broker for both the confirmation of payment and release instructions for  the tea

Proposed Process – Structural Changes

In order to support the proposed system the following structural changes are necessary:
·         EATTA  established,after due process a  Tea Sales Collection Account with an EATTA authorised Bank (CfCStanbic)
·         All Buyer Payments will be deposited in the Tea Sale Collection Account
·         EATTA Management Committee has issued an irrevocable pre-instruction to the Bank to distribute funds from  the Tea Sales Collection Account as follows:

a) Participating Producer Members:
·         Commission and catalogue charges to be paid to the Broker on Prompt Date by Bank
·         Warehouse charges, after Broker verification is to be remitted to the account of the Warehouse on Prompt Date by the Bank
·         A Part Payment based on all collections received by close of business on Friday following the Sale will be paid on the Tuesday 10h00 (5 working days after the Main Sale) by the Bank
·         A Balance Payment will be made by the succeeding Tuesday at 10h00 (10 working days after the main sale) by the Bank

b) Non-Participating Producers

o    All Buyer(s) remittances will be transferred to the nominated Brokers account by close of business the same day
o    Charges and commissions will be disperced by the Broker on the Tuesday ........
o    A Part Payment based on all collections received by close of business on Friday following the Sale will be paid on the Tuesday 10h00 (5 working days after the Main Sale) by the Broker
o    A Balance Payment will be made by the succeeding Tuesday at 10h00 (10 working days after the main sale) by the Broker
o    Brokers, Producers, Buyers and Warehouses will retain viewing rights only over Collection Account
o    On a weekly basis, the Brokers will prepare as follows:
o    All Sales Invoices are to be distributed in an encripted format to the Bank by 1500hrs on the day of the Secondary Sale and by 10hr00 the day following the Main Sale  are to be distributed to the Buyer by 1500hrs on the day of the Secondary Sale and by 10h00 the day following the Main Sale
o    Sale Confirmation (same as above)
o    Account Sales are to be distributed to the Producers  by the Thursday 16h00 following the Sale  
o    To facilitate the flow of information the Banks has availed an IT Platform to support:
·     The prompt (electronic) release – 15 minutes -of updates from Collection Account transactions to the Brokers, Producers, Buyers and Warehouses
·         The information release has  been structured in line with roles and functional authorities
·         A clear back up plan has been established to ensure a reliable and seamless flow of instructions (electronic and / or manual)
·         A Service Level Agreement (SLA) with responsibility clauses will be signed off with respective Banks and Members accordingly

Proposed Process – Tea Purchase

o         The Producer offers tea to the Broker
o         The Broker presents the tea for sale
o         The tea is purchased by the Buyero         The Broker prepares the sales confirmation and distributes the same to the Producers and Warehouses immediately after the sale (Secondary on 3pm and Main day after 10am)
o         The Broker prepares the invoices and distributes them to the Buyers and Bank (as agreed time lines)
o         The Buyers remit funds into Tea Sales Collection Account

Proposed Process – Tea Release to Buyer
o         Immediately upon receipt of funds in Tea Sales Collection Account, the Bank will send an automated message – within 15 minutes - alert to the Broker, Warehouse, Producer and Buyer confirming receipt of funds and will then release a Tea Release Document (TRD) to the Broker
o         The Broker will issue the Delivery Orders (DOs) supported by the Tea Release Document to the Buyers’ Agent
o         The Buyer then presents both the TRD and the DOs to the Producers’ Warehouse at the time of collecting the teas
o         The Warehouse will match the documents and then release the teas

Proposed Process – Distribution of Funds
o         Tea Sales proceeds will be distributed from the Tea Sales Collection Account as follows:
o         On the authority of the invoice, the Bank will remit the Buyers’ commission to Broker’s account
o         On the authority of the account sale, the Bank will remit to the Producer; Broker and Warehouse accounts accordingly
o         Payments out of Collection Account

Strengths of the proposed system

The proposal intends to cover  the needs as follows:
o    Brokers may fail to remit funds to Producers by the prompt date
§  Cover: the authorised Bank rather than Brokers will be responsible for distribution of funds
o    Bank guarantees that have been opened to mitigate this risk are costly and at times inadequate for full cover
§  There is no need for bank guarantees as the SLA with the Bank as the key custodian covers any default risk
o    It relies on the Broker for both confirmation of payment and release of tea
§  Confirmation of receipt of funds is direct from the Bank to all relevant stakeholders including the Warehouses
§  Release of tea by the Warehouses is after authenticating documentation from two sources – Original DO’s submitted by the Buyers and the Tea Release Document from the Bank
o    KEY: It is envisaged that the electronic process will enhance speed between payment and release of tea hence save purchase to shipment time for Buyers

Important Notes
·         All copies of invoices are to be sent to the Bank by the Broker to facilitate auto reconciliation (uploaded files)
·         The Bank will control the proceeds from Collection Account for the Participating Members’ accounts
·         The Buyer provides the Bank, Broker and Warehouse payment details for every remittance
·         The Bank is to have a SECURE SERVER where they will upload all payments made to the Producers’ accounts
·         The Broker, Producer, and Warehouse will have real time online access to the data in this secure server using individual passwords
·         The Broker will release the original DOs supported by the TRD to the Buyer
·         The Warehouse will match the DOs against the TRD before the release of any tea
·         Only payments into Tea Sales Collection Account from Buyers will be deemed to represent gross Auction and Direct Sales Proceeds
·         Payments from Tea Sales Collection Account to Members will always be within prompt dates