Risk is present, in some form or another, in every transaction. But nowhere is risk so glaring as it is in the trade finance “gap” that bedevils supply chains around the globe.
That gap takes shape when receivables are outstanding, when the “whens” and even the “ifs” of collection are left unanswered, and companies have to chase receivables in the hopes of converting invoices to cash in the bank.
The gap, as noted in these digital pages, runs a few trillion dollars – more than $3 trillion, by some estimates, for U.S. firms alone.
See also: Trade Credit’s $3.1T Squeeze on US Businesses
In the meantime, these same firms might tap into alternative sources of financing – credit lines, for example, or factoring – to tide things over. The interactions between buyers and suppliers can be smoothed significantly by advanced technologies, including platforms.
The pandemic is reshaping how B2B payments are done, and bit by bit, companies are abandoning paper-laden and manual processes in favor of digital upgrades. The modernization extends to payments – and trade finance, which is global in scope but still cumbersome, is a key beneficiary.
At a high level, as Joon Kim, global head of trade finance product and portfolio management in BNY Mellon Treasury Services, told PYMNTS’ Karen Webster, the pandemic has shone a spotlight on the frictions tied to the traditional processes.
Read more: Blockchain Is Accelerating the Digitization of Trade Transactions
“Exporters usually present the documents to the counters of various banks, but many critical small and medium-sized enterprise employees were working from home offices, so it was extremely challenging to review the original patch,” said Kim.
Bringing Blockchain Into the Mix
Numerous examples of tech-enabled efforts to streamline international trade finance have surfaced in recent weeks. BNY Mellon, in one example, announced its participation in the Marco Polo Network, as reported earlier this month. That network will help bring blockchain technology into international trade finance with real-time insight into workflows, payments, purchase orders and invoices.
See also: BNY Mellon Introduces Blockchain Tech to International Trade Finance
Separately, bringing trade finance more fully into the digital age has impacted any number of verticals. One might look to vehicle sales as an example, where in Europe, vehicle financing firm Auto1 FT said it would use smart contracts to tackle some of the complexities inherent in vehicle financing. Taimur André Rashid, CEO of Berlin-based vehicle financing firm Auto1 FT, said that “every new vehicle that we’re onboarding to finance [for dealer inventory] is a smart contract, and we won’t be turning back.”
The financing, as reported, is used by dealers to buy used car inventory.
Related news: Auto1 FT Rolls out First Car Financing in Europe on Ethereum Blockchain
In a recent panel presentation focused on the trade gap and how tech can smooth a number of processes, B2B platform Joor CEO Kristin Savilia said that “SMBs and mid-market companies have been really focused on cash flow and access to capital. They’re just more flexible in how they’re willing to do business.” With two-sided marketplaces, there has been “a great acceleration to on-platform payments. We have platform payments that are being very well received, and making the accessibility to cash easier.” TreviPay CEO Brandon Spear added that “marketplaces are probably going to become the source of trust between these two partners that don’t necessarily know each other.”
You may also like: The $3T Payments ‘Trade Gap’ Can Be Tamed With Better Data, Retooled B2B Platforms
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