Supply chains are a major talking point in the business world at the moment. Ongoing pressures on international trade, from struggling Brexit negotiations to the Trump-China trade war, have shone a spotlight on supply chain practices, particularly amongst smaller businesses who are more likely to feel the squeeze.

On a smaller scale, many businesses are re-evaluating how they trade internationally as a result of these macroeconomic pressures. Despite the challenges, businesses shouldn’t be discouraged. Organizations can aim to reduce friction within their own supply chains to deal with the impacts of new tariffs or customs regulations.

Certain types of businesses will place a focus on introducing leaner logistical practices. An efficient supply chain should pull, not push, and leaner logistics often goes hand-in-hand with reducing waste. These businesses will therefore look to manufacture only what is in demand or what has been ordered by customers, in order to avoid excessive stock build-up.

Others businesses might look at integrating different business units to improve overall performance – for example, a UK logistics specialist integrating with a European partner to ensure access to the wider European Union.

Assess international payments

All businesses will have a need to tighten up the way they pay international suppliers, disperse funds to foreign operations and repatriate their profits from overseas sales.

On the surface, disruptive new tariffs look like they spell trouble. But the incremental savings businesses can accumulate by getting their international payments and reducing the rates they pay for transactions overseas can mitigate impacts from a hike in tariffs.

In other words, a thorough assessment of their international payments will be crucial.

Removing barriers to global market entry

Cross-border businesses are starting to turn away from traditional payment providers and towards specialist fintech companies.

While these fintech companies are younger, they have spent years developing and investing in technology and practices to refine the process of moving money across borders in a frictionless manner. While challenging the incumbents in the payments sector simply used to mean running cheaper, quicker and easier operations, progress continues to be made.

Undoubtedly, the end goal is to make trading abroad smooth and easy for businesses of all sizes. But more recently, the focus switched from offering a price-centric proposition to eradicating the barriers to entry for overseas expansion.

Improving international payments

In the previous couple of years, there have been two main innovations in the payments sector that have been designed to improve the speed and efficiency of international payments.

In sectors such as shipping, there has been a lot of noise about the potential of blockchain technology. Its immutability and decentralised system would allow manufacturers, shipping agents, the end consumer and customs agents to use the same database to track goods across the world.

While the jury is still out on how effective it will prove in changing the process of moving money overseas, steps are being made to make the system more reliable. A payments network built on distributed ledger technology which is decentralised and impenetrable against fraud would provide all parties in a transaction with an incorruptible record of said transaction.

This would have significant impact on the payments sector moving forward, but in reality, a complete switch to blockchain would take years and would require a complete shift in the status quo of the industry.

Multi-currency platforms for smaller business

Another innovation that has come to the fore are multi-currency accounts. Historically, these were only available to large multinational companies with an international network and were subject to high monthly management fees.

However, fintech companies have been developing multi-currency platforms which serve as a viable option for smaller businesses. These platforms enable them to trade, invest and grow like a local company in a foreign country, without the need to pay for a significant number of boots on the ground.

Previously, businesses would have to use banks and maintain a presence abroad in order to open a foreign bank account. This was both time consuming and expensive for business owners. But a multi-currency platform allows a small business owner to open a bank account in different currencies, for example, USD and AUD, through a single platform.

Using a multi-currency platform, business owners don’t have to provide proof of residency or evidence of a local company entity. There’s no need for bricks and mortar headquarters, and no need to hire in-country staff to satisfy and manage the required market presence. A business’ presence in a country can now remain wholly digital.

Without these physical shackles, businesses can move their money from country’s currency to another for just a fraction of the price and hassle than under the archaic international banking stipulations of the past.

Seamless international payments

Ultimately, creating a trading environment where companies have access to their payment history across their supply chain through one platform will provide business owners with improved visibility.

International payments should be frictionless and not operate like a game of Mouse Trap. All parties would benefit from the seamless movement of money, as opposed to a convoluted mechanism reliant on idiosyncratic systems.

If anything positive came out of last decade’s financial crisis, it was the desire to develop new technology to create solutions that enable businesses to operate on a higher level than ever before. It was this desire that led to the establishment of a fully-fledged fintech industry.

For businesses that trade internationally and come under pressure from the decisions taken by those at the top, a focus on improving international payments can make a vital difference.

The post Fintech facilitates seamless international payments appeared first on Trade Ready.

Trade finance has shifted from a fairly esoteric, focused and niche element of global trade to become an integral part of the most fundamental aspect of international trade: the global supply chain.

A slow but inexorable shift away from traditional trade finance instruments, such as documentary letters of credit, has motivated banks and other providers to seek ways to stay engaged in, and critical to, the conduct of trade and the provision of trade finance.

Adapting to the new era of supply chain management

Settlement of international trade transactions on an open account basis—in effect, settlement of an invoice by cheque—has eliminated historically attractive margins for trade finance providers, and has removed several lucrative risk-mitigation features that were available under traditional instruments.

Banks and trade finance providers have been working for several years to devise product and service offerings that could usefully and credibly be offered to the market while generating acceptable returns for the providers.

Enter SCF, or supply chain finance.

Trade financiers’ interest in supply chain finance comes at a time when global sourcing patterns are changing drastically and becoming concentrated in Asia, which for many importing nations means supply chains become extended—geographically, and in terms of the time required for transactions to complete.

Similarly, payment cycles extended for some time, with key metrics such as days sales outstanding (DSO) on the rise.

Out with transactions, in with solutions

Trade finance specialists have taken a markedly greater solution orientation in responding to the needs of their customers, and have become very directly involved in efforts to optimize the financial efficiency of global supply chains for their clients and for their clients’ business partners in the supply chain.

This contrasts sharply with the much more transaction-oriented view that prevailed only a few years ago, and likely better serves the efficient conduct of international trade across the globe.

An often-quoted analogy is the idea that trade bankers are now much more interested in designing and building a structure, rather than simply providing a “brick” when a trade client needs help.

As indicated, trade finance providers are becoming active earlier in the life of a trade transaction, now providing solutions, such as financing based on purchase orders, and remaining engaged beyond the traditional point of financial settlement.

By engaging closely with importers and exporters, banks have learned significantly more about their clients’ businesses, and leading trade financiers have been able to develop event-triggered financing solutions across the transaction lifecycle and across the supply chain.

Innovation led online trading platforms into the mainstream

The future of international trade—and therefore, trade finance—promises more change and innovation than the industry has seen in its entire history to date.

As online trading platforms become increasingly mainstream and able to credibly handle a wider range of products and services, the financing of exchange (trade) on such forums will start to gather momentum.

Clearly, this will be limited to smaller items, generally for small businesses, yet it is often noted that small businesses are the drivers of leading global economies.

eBay, the pioneering—and leading—online marketplace has taken some acquisition steps that line up interestingly with the core value propositions in trade finance. eBay provides a rough process for assessing the risk of trading with a potential importer or exporter (the user’s “Feedback Profile,” which is a collection of comments provided by others who have transacted with the individual or company).

The platform provides customized software to assist with inventory management, including a dispute resolution mechanism, and identifies its top exporters through tiered “levels” based on monthly volumes.

eBay acquired online payments provider PayPal in October 2002, adding payment facilitation on a global basis to its trade-finance-type capabilities. Most of PayPal’s major competitors have since shut down—similar Internet-based payment systems from Citibank, Yahoo! Inc. and even Western Union could not compete against the PayPal brand.

Relative newcomers like Paypal are challenging traditional providers

PayPal now has more than 169 million active accounts in 190 markets and 25 currencies around the world

As much as trade finance has been a conservative line of business, in keeping with its banking DNA, the changing realities and dynamics of global commerce are demanding—and will continue to demand—innovation and responsiveness from leading providers of trade finance.

Traditional providers of financing and payment solutions to international trade are being challenged by numerous entrants to the market, including courier companies (now logistics solution providers) with trade finance units such as UPS Capital, specialized hedge funds supporting trade, investment bankers such as Merrill Lynch, and even the finance arms of global companies such as GE Capital.

From a technology perspective, the variety of providers increases the likelihood that “out of the box” thinking will add to the dynamics of innovation.

These new players will help shape the application of technology to the development of additional solutions and value propositions in trade finance.

These new and emerging providers of trade finance are noted to raise awareness: while UPS Capital has provided trade finance to their logistics customer base for over a decade, a number of the new providers, including those from the investment finance arena (as opposed to banking), are still working to carve out unique and sustainable offerings in trade finance.

Some new players, such as London or New York–based hedge funds, may focus on enabling trade with higher-risk emerging markets, in hopes of generating higher returns for their financing activities.

An appreciation for the technology options and solutions in the market can help international traders determine their approach to the conduct of international trade and global business, tailoring the solution to specific requirements.

As more companies go global, and do so earlier in their lifecycle (as evidenced by the expression “the global start-up”), trade finance solutions will need to be creative, flexible and responsive—all facilitated and enabled through technology.

How do you see supply chain finance changing over the years? Are you enjoying the advantages of a more solution-based approach to trade finance?

The post Why the future of supply chain finance belongs to financiers who think ‘outside the box” appeared first on Trade Ready.