L/C UPAS: Unlock Your Order Capacity and Secure Your Import Working Capital

SME and industrial startup executives tend to view financing growth as a matter of seeking traditional debt or raising capital. However, for those who purchase goods from abroad, there is a little-known solution at the heart of banking relationships: the Letter of Credit with the UPAS option.

The Working Capital Trap in Importing

For a rapidly expanding company, importing goods is a drain on cash flow. It can take 90 to 120 days from the time the supplier demands payment (often upon shipment) until the products are sold and the proceeds are collected in France .

This cash flow “gap,” or working capital requirement (WCR), ultimately limits a company’s ability to place orders. Traditional lines of credit are often maxed out, and factoring only addresses the end of the chain: the sale. But how can a company finance the upstream stages without exhausting its short-term credit lines?

Letters of Credit and the UPAS Mechanism: Working Capital for Imports Financed by the Bank

A Letter of Credit (L/C) is a document evidencing a payment commitment issued by a buyer’s bank to a seller.The UPAS (Usance Payable At Sight) option within an L/C transforms a security tool into a powerful financing lever. Whereas a traditional L/C merely guarantees payment, UPAS mitigates the risk borne by the buyer by deferring it over time:

• From the Supplier’s Perspective: The supplier is paid “at sight” as soon as the goods are shipped. For the supplier, there is no risk, and payment is received immediately.
• From the Buyer's Perspective (You): You repay your bank only at a later date, for example, 90 or 120 days after the goods are shipped.
• The key player: The bank provides financing for the inventory throughout the entire transportation and marketing process.

Three Major Strategic Benefits

A review of recent cases highlights three performance drivers:

1. An extremely competitive cost of capital: The interest rate on a UPAS loan is based onthe EURIBOR (the eurozone interbank reference rate), plus a bank margin of 1.5% to 3% (the average margin for international trade financing). This is often two to three times cheaper than a bank overdraft or a traditional working capital loan (which often approach 8–10% during periods of high interest rates). It is also an alternative to “RBF” (Revenue-Based Financing) loans, which are often used by default because they are easy to access but can carry interest rates as high as 20%.
2. Reliability and Supplier Discounts: Obtaining a bank’s endorsement for a UPAS application is a powerful mark of credibility. It proves to the supplier that your business model and financial statements have successfully passed the bank’s rigorous audit. Whereas a supplier would often require a 100% down payment at the time of order as a precaution, the “At Sight” bank payment guarantee removes this barrier. This allows you to regain control of your cash flow by avoiding tying up your cash for weeks before shipment, while guaranteeing the supplier immediate liquidity as soon as the goods leave the factory.
3. Balance Sheet Optimization: Unlike a traditional bank loan, which locks in long-term debt on the liability side of the balance sheet, the UPAS L/C is a transactional financing tool. It allows you to finance your operating cycle without maxing out your medium-term credit lines. By separating inventory financing onto “Trade” lines, you keep your borrowing capacity intact to finance strategic investment projects (R&D, CAPEX) that require traditional bank debt.

The CFO's Role in Managing Letters of Credit

In the absence of a CFO, responsibility for managing the UPAS automatically falls to the executive director. But managing structured financing is not a simple administrative task; it requires specialized expertise and specific skills to avoid mistakes that can have devastating consequences.

To ensure this lever does not become a pitfall, the UPAS manager must master three key areas:

• Absolute documentary accuracy (Zero Defects): Trade finance is a science of the decimal point. A data entry error or a miscalculated validity date can hold up the goods at the port.
  • The classic mistake: Demurrage charges (port storage fees) that pile up and eat into the gross margin because of a non-compliant document.
• An analytical view of the cash cycle (rather than an accounting one): It is important to be able to correlate inventory turnover with actual customer payment terms in real time.
  • The classic mistake: Setting a payment due date of 90 days while forgetting that if the customer pays 15 days late, the bank will debit the account before the funds have been received.
• Agility in specialized banking negotiations: Know how to balance the cost of the UPAS (Euribor + margin) against the cash discounts negotiated with the supplier.
  • The classic mistake: Using UPAS for low-margin orders, where financing costs and commitment fees (0.5% to 1.5%) ultimately make the transaction unprofitable.

This is where the expertise of a professional really comes into play. The CFO’s role is not merely to “approve the numbers,” but to ensure consistency between the procurement strategy, actual sales figures, and banking constraints.

Without these in-house capabilities, the CEO risks exhausting credit lines on non-strategic orders, leaving the company unable to act when a major opportunity arises

Example with figures illustrating the use of a UPAS L/C

An industrial SME imports a shipment of goods worth 200 k€ and sets up a 120-day UPAS letter of credit at an annual rate of 5%.

• Total L/C cost (interest + fees): ≈ €4,600, or 2.3% of the amount (≈ 6.9% on an annualized basis)

The main benefit lies in reducing working capital requirements: the company does not pay out the 200 k€ until the UPAS due date, when it receives payment for its sales, which allows it to free up ordering capacity without straining its cash flow.

The question is no longer just what to import, but how to use one's banking infrastructure so that the import cycle itself finances future growth.

Requirements for Obtaining

The UPAS is not a startup tool; it is a lever for scaling up. To open such a line of credit, banks require a structure that is already firmly established. Here are some important criteria that must be met:

• A track record of transactions: Banks give preference to companies that already have a history of regular, incident-free imports. If this is your first import, it will be more difficult to obtain the UPAS option right away.
• The nature of the goods: UPAS is ideal for finished products or raw materials with a fast turnover. If you are importing complex machine tools with an 18-month commissioning cycle, the bank will be much more reluctant, as the cash flow gap becomes too uncertain.
• A Solid Financial Foundation: The bank analyzes your most recent balance sheets, paying particular attention to your working capital and debt-to-equity ratio. It needs to ensure that you are financially sound enough to repay the loan when it comes due, even in the event of a setback.
• The BPI France guarantee: It allows banks to share their risk. To be eligible, the company must demonstrate that the transaction generates at least 20% added value in France. This means that the import must not be purely commercial in nature (“purchase-resale” without processing).
• Supplier rating: The bank also checks who you do business with. A supplier who is already known to and has been positively "rated" by the international banking network will greatly facilitate the opening of the line of credit.