MOBILIZING THE COMBINED STRENGTH OF BUYERS AND SUPPLIERS
World trade is forecast to grow by 73% in the next 15 years. Supply chains are getting longer and any bank finds its own clients routinely trading with one another. It makes sense, therefore, for banks to address a complete supply chain (a great way to expand) and to support more strongly the relationship between its own client’s suppliers and customers. With this growth in the volume and value of international trade comes an increasing move from letters of credit to open account trade – 85% of trade is accounted by open account today. Factoring is one of the fastest growth opportunities in trade services. With credit insurance, corporations are protected against the risks related to buyer failure.
The industry is developing financial instruments to manage risk in the open account trade. For instance, SWIFT and the Banking Commission of the International Chamber of Commerce (ICC) have come together to develop the Bank Payment Obligation (BPO), an industry-wide standard, aimed at mitigating the risks that are associated with international trade, benefiting both the buyers and the sellers (even if it’s questionable whether the banks benefit).
Several gaps exist between the physical and the financial supply chain. While the physical supply chain has reached a high level of electronic efficiency the same is not true of the financial supply chain. Besides the manual processing of documents, data is often scattered over multiple systems and efficient data archival and retrieval is time consuming. Operational risks increase as processes and technology are not coordinated. This challenge coupled with restricted credit availability and cash flow issues due to lack of transparency across the supply chain, has led corporations to look for solutions that can effectively manage their financial supply chain.
A supply chain platform provides corporations with domain management capabilities that capture information on customer and counter-party relationship, finance arrangement booking, automation of invoicing and reconciliation processes as well as finance settlement, thus allowing corporates to manage their finances more effectively. A comprehensive solution with a front end portal makes vendor management easier for the corporations. At the same time, banks reap the benefit of additional revenue.
With an international presence, banks have an extensible network of client relationships. Being so highly regulated – though a huge drain on cost - does add to the bank’s trustworthiness. As a bank you need to seize the opportunity and become a valuable partner in the corporation’s financial supply chain.
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