4 ways to unlock trapped value in global trade
May 5, 2021
May 5, 2021
The future of touchless payable and receivable processes is now more real than ever. Discover the 360-degree value distributed ledger technology brings to intelligent finance operations.
The total cost of trade finance should be lower than it is today. At any given moment, upwards of $56 trillion is locked up in working capital. Why? Current trade finance relies on paper-based transaction processes, some created centuries ago, that can be costly, time-consuming and lead to delays, errors, and risks.
Many people working in Payables, Receivables and Trade Finance operate in data siloes, making data reconciliation especially challenging. These age-old processes stand in the way of the reliable, real-time information gathering and tracking that businesses need to make the most credible financing decisions.
The market conditions of this global pandemic demand that we discover new ways to ensure the liquidity of the global supply chain. Let’s examine four areas where a new intelligent finance operating model could eliminate unnecessary inefficiencies and bridge the trapped value gap in trade and supply chains.
Analog processes commonly used today often require documents to be physically couriered between parties. Paper-reliant processes can lead to inconsistencies, time lags and fraud. For many supply chains, overcoming this challenge is table stakes.
Consider for example, the total cost and wastage of critical goods such as batches of seasonal produce getting stuck for days at port while banks debate the paperwork and whether the shipment has been paid. Now, imagine the positive ripple effect if that determination was made digitally in seconds with all parties having complete visibility into the transaction process.
With the enabling capabilities of distributed ledger technologies, a new Payment Commitment solution can make straight through processing possible. I have seen efficiency gains that shortened processing time from 5-10 days to fewer than 24 hours. Companies can exchange, verify, and automatically match trade data to obtain digital payment obligations for faster payments. This by no means requires a rip and replace of entire systems, but a lightweight update to existing cloud infrastructure.
In traditional trade finance, banks typically charge a premium at 50-60% of the total funding for a given transaction to cover operational expenses for a given transaction even before covering the costs of risk, liquidity, and capital. When electronic trade data, such as orders, invoices, and proof of delivery, is stored on a distributed ledger, a buyer’s bank can provide a payment commitment to their supplier to execute payment on the maturity date.
This new way of trading brings 360-degree value for all stakeholders as it helps to increase payment security and decrease both risks and costs associated with the documentation and administration that analog processes require today.
Data reconciliation sits at the heart of most business models. But when everyone keeps duplicate copies of the data, the process is filled with inefficiencies and slow messaging-based verification flows. If a single trade finance transaction warrants more than 20 players reconciling 10-20 documents containing approximately 5,000 data fields related to goods, transport, and payment, how could that time be better spent?
There are an estimated four billion documents in circulation at any given moment for documentary trade. All these workflows could be consolidated on DLT, helping to eliminate most of the data entry and reconciliation efforts across the patch. Less traditional book-keeping and backward-looking function requirements means leaders can empower finance teams to shift to more strategic, innovative roles with greater opportunity.
This all leads to the shared challenge I hear voiced from clients and their customers of all sizes and backgrounds: working capital and liquidity, or easy-to-access cash. Watch any Shark Tank episode and you will hear the same. Limited access to working capital and liquidity means limited growth. With greater access comes the ability to buy more inventory, manufacture more sustainable goods, create more jobs, and grow the global economy.
Imagine a small-medium-sized business that may be sensitive to disruptions like unprecedented purchasing trend changes that impact cash flow. A DLT-powered operating model presents significant opportunity for process optimization, transparency, and reduction in days of sales outstanding, thereby helping increase working capital and liquidity for all participants in the ecosystem and improving financial inclusion at scale.
With the opportunities of this future state in mind, Accenture formed a strategic alliance with the Marco Polo Network. The Marco Polo Network is a joint undertaking of over 30 leading banks, alternative lenders, and technology providers, many of whom Accenture is already working with today. Tapping into the Marco Polo Network, a prime example of a multiparty system at work, enables our clients to access this working capital finance network and connect separate solutions in one highly automated, interoperable, platform.
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The powerful combination of Marco Polo and our experience across trade finance, payables and receivables processes and operations will help create avenues for our clients to operationalize the development of new products and services with the goal of saving time and mitigating risk. We want to see you unlocking as much trade and working capital as possible to achieve a touchless finance process with greater procure-to-pay (PTP) and order-to-cash (OTC) functionality.
Read more in this series: Trading in the new with multiparty systems
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