Global trade encompasses an annual US$28.5tn of transactions across a complex web of suppliers and buyers. From agricultural exports to textiles, metals and minerals to manufactured goods, the supply chains that span the planet are an enormously important driver of economic growth and development, lifting more than one billion people out of poverty since 1990.

However, with so many companies relying on their banking partners to help finance these trade transactions, underpinning successful global trade is the successful and timely issuance of bank guarantees. Unfortunately, this is often hindered by an inefficient, decentralized application process, inaccurate data being sent back and forth via email between multiple parties, which results in multiple amendments, a risk of fraud and delayed approvals. So, what does trade finance efficiency look like and how can technology help connect all parties to support process efficiency and collaboration across the trade finance ecosystem?

What does best practice trade finance efficiency look like?

It’s all about ease, speed, transparency and control. In order to optimize their trade activity, corporates should be striving to make their finance application process as easy and streamlined as possible in order to achieve same day guarantee issuance. In the current climate this would ideally incorporate an ESG-compliant, paperless process whereby text is pre-approved by the guarantor, and details are aligned with beneficiary. Transparency is a key feature of optimal trade finance efficiency, where corporates should have full visibility of their instrument status across the whole transaction lifecycle; but not just of one bank at a time – a centralized visibility of agreed and utilized limits, and of forecasted credit availability given instrument due dates across all banking partners at once. Transparency, alignment and reconciliation (agreed vs actual) of fees and charges with each guarantor per transaction is also crucial to optimal visibility of trade finance operations. In terms of control we would also recommend that corporates are able to set their own internal authorization process across their financiers.

Why is trade finance connectivity so important to every global business?

Trade finance instruments are marked by inherent complexity and business sensitivity. They involve the sharing of much more information with many more parties compared to an open account money transfer. Therefore, achieving secure, real-time connection with all parties involved reduces the risk of error, fraud and miscommunication. Having direct connection with a guarantor is far more important with regards to texts, instrument status, fees, charges and limits compared to clean payments. With so many parties involved than an open account transaction – a Letter of Credit for example could involve  a buyer, seller, issuing bank, advising bank, freight forwarder seller side, global shipper, freight forwarder buyer side, export port authority, import port authority and a freight insurance company – it is crucial for ease, speed, transparency and control, that a time and cost-efficient connection is maintained between everyone in order to be aligned on the extensive range of documents, certificates and data points being exchanged.

5 key areas to evaluate your trade finance efficiency and accuracy

Here are our recommended five key areas to assess how efficient your current trade finance process is:

  1. Are your guarantee approvals taking too long, leading to increased prices or potentially even losing a deal and therefore even revenue?
  2. Is your application process cumbersome? Do you have to log into multiple banking portals to request finance? Is it time consuming with lots of back and forth to finalize a guarantee, time that could be better spent on other tasks?
  3. Do you lack visibility of liquidity and credit limits across all your banks which may lead to a lack of funding, or unnecessarily high limits which is costly and inefficient?
  4. Are you exposed to the risk of fraud and error with an insecure manual process? Do you see mistakes in documents? Could your email process be exploited for fraud (social engineering)? With so many business-sensitive data points being exchanged, this potentially provides the basis for fraudsters to build a seemingly real but fraudulent profile.
  5. Do you suffer a lack of visibility of your trading partner identities and integrity? Working with unethical partners can lead to loss of money, loss of reputation and penalties for ESG ignorance and non-compliance.

To conclude, we believe the key to successful trade finance efficiency lies in successfully connecting all parties. Technology can be leveraged to achieve this and should be open to everyone to increase access to trade finance and in turn facilitate trade. If your company suffers from any of the above challenges, it might just be worth reconsidering how well connected you are and whether there’s room for improvement.