The World Trade Organisation (WTO) estimates that 80–90% of world trade relies on trade finance. It is a mechanism that not only ensures security between importers and exporters but can also extend a line of credit to companies desperately needing cashflow to get their operations moving.

Pandemic disruptions, political upheaval and currency fluctuations have made companies more nervous to trade internationally.

“With every crisis, trust among the participants goes down and that’s when you reconsider the risk that is involved in open account transactions,” says Enno-Burghard Weitzel, senior vice president of Strategy, Digitalisation and Business Development at Surecomp.

“The more insecure these financial flows to physical supply chains are, the more you want to secure them with a guarantee” from trusted financial intermediaries. Unfortunately, trade finance has not always been a straightforward solution due to an excessively manual process, and a lack of access to smaller corporates who might not have the know-how to get the best deals.

However, this is a narrative that Surecomp wants to change. “For the last 35 years we have provided trade finance solutions to a very small group of multinational corporations (MNCs). Now we are providing solutions to a far broader space even SMEs can now make use of our solutions,” says Weitzel.

Why can trade finance be so challenging?

Historically, trade finance has been tied to paper because it relies on ownership of title documents, for which it is difficult to implement a universal digital solution.

“As a corporate I have to agree with my corporate counterpart, not only on the details of the transaction, but on how we exchange the transaction, and the one global standard that provides interoperability is paper,” says Weitzel.

“Trade finance is the only business where digitisation is attaching a PDF to an e-mail.”
This system is slow because contracts must be agreed, written, and approved within, sometimes incompatible, working hours. Guarantees can take weeks, by which time exchange rates or demand could have shifted and can result in burdensome fees and time wasted.

Documents can get lost in the process leading to further delays, poor limit management, or banks chasing for already paid fees. All these factors create instability and could damage trading relationships in the process.
There has long been a trade finance gap between MNCs and SMEs, that makes access far more difficult for smaller corporates. While a major disparity is due to smaller enterprises having less data to prove they are a good risk for financing, they also lack the knowledge and manpower to get the best deals.

Originally Posted: https://www.theglobaltreasurer.com/2023/05/16/democratising-the-trade-finance-process-through-digitalisation/

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