In advance to BCR’s Consortia ‘21 event which will take place on 19-20 October in London, Sudhir Dole, CEO, Trade Information Network reveals the challenges trade finance is facing and identifies risk mitigation techniques.
The challenges related to open account trade finance during the past two years are not new, but the incidents that have occurred have highlighted that the risks remain and need to be addressed. As before the pandemic, the main risks related to receivables finances are: fraudulent purchase orders and invoices, double financing risk and performance risk of the supplier.
Double financing risk is predominant in the industry in times of crisis when cashflow is very tight. But there is a way of mitigating this risk which is increasingly popular. The creation of an industry standard data registry, whereby buyers and sellers can exchange trade data with their banks is the logical solution of managing this risk, particularly in emerging markets. There are already some central registries recording invoices or even buyer/seller relationship to prevent double financing in these regions.
What about purchase orders? Are they able to be recorded as well in a centralised online data? The answer is yes, they can be recorded like invoices in standard data registries. To make it clearer, let us take an example, let’s say a supplier approaches his bank and provides them with a purchase order and seeks financing. Now, the banker is not sure whether the purchase order is genuine. In some platforms, the data will be provided to the banker from the original source that is the buyer and ideally directly from their ERP system, substantially reducing the fraud risk. Suppliers can approach their relationship banks on platforms to seek financing. Financing itself is provided in some cases outside the platform and managed by the bank on its core trade finance platform.
Meet Sudhir Dole during the first day of BCR’s Consortia ‘21 where he will speak on the case study ‘Extending SCF liquidity to an earlier stage in the supply chain relationship’. Find out more about trade finance challenges and how to mitigate risks by participating to BCR’s Consortia ‘21 event.