<\/p>\n
Global trade<\/a>, at its heart, is about receivables. One company owes another for the goods or services it has purchased.<\/span><\/p>\n While that may sound simple enough, businesses engaged in international trade contend with <\/span>a range of<\/span> factors, from geopolitical risks to environmental hazards, that can disrupt supply chains<\/a>, delay payments and trap valuable working capital<\/a>.<\/span><\/p>\n \u201cDecades of globalization have led to supply chains becoming increasingly complex,\u201d <\/span>Duncan Lodge<\/span><\/a>, global head of supply chain finance and EMEA head of trade at <\/span>Bank of America<\/span><\/a>, told PYMNTS. \u201cIf you\u2019re dealing with a new company in a different country for the first time, how much do you <\/span>really<\/span> know about them? Visibility and resiliency become\u201d important areas of focus.<\/span><\/p>\n International commerce and trade often span multiple geographies, involve numerous counterparties and rely on a variety of transportation modes, he said.<\/span><\/p>\n Beyond these external risks, the traditional \u2014 and ongoing \u2014 reliance on paper-based processes can create additional friction and increase the amount of trapped working capital.<\/span><\/p>\n Lodge stressed that different countries have varying levels of digital maturity, meaning that paper still plays a role depending on where firms do business.<\/span><\/p>\n \u201cAt any time, when you have paper, you introduce manual processes,\u201d he said. \u201cThat means someone has to extract information, process it and ensure its accuracy \u2014 introducing delays, inefficiencies and the potential for error.\u201d<\/span><\/p>\n Digital innovations<\/a> are addressing these pain points and unlocking opportunities for businesses around the globe.<\/span><\/p>\n One of the key drawbacks of relying on paper documentation is the reduced end-to-end visibility.<\/span><\/p>\n As soon as an exporter sends off their documentation, they lose sight of what\u2019s happening to their transaction, Lodge explained.<\/span><\/p>\n \u201cIs the buyer encountering problems with the documents?\u201d he said. \u201cWhen will they get paid? This uncertainty represents trapped working capital for both the buyer and the seller.\u201d<\/span><\/p>\n Given these longstanding challenges, Lodge emphasized the importance of digital transformation<\/a> in global trade.<\/span><\/p>\n \u201cEradicating paper brings significant benefits in terms of speed, reduced processing risks and improved visibility between counterparties,\u201d he said.<\/span><\/p>\n This visibility is crucial for managing counterparty and performance risks \u2014 both key concerns in international trade.<\/span><\/p>\n Digitalization also unlocks the potential for new forms of financing. For instance, purchase order financing relies heavily on the availability of real-time data<\/a>. Paper-based processes slow down access to that data, limiting the opportunities for businesses to secure <\/span>financing<\/span> earlier in the procurement cycle. Digital trade documentation, on the other hand, provides better data that can be fed into financing models, opening new avenues for liquidity, Lodge explained.<\/span><\/p>\n \u201cIf investors have better data, they can better understand credit and performance risk dynamics, making trade finance<\/a> and receivables more investable as an asset class,\u201d he said. \u201cThis, in turn, helps plug the trade finance gap \u2014 a gap that is only increasing as more companies seek to engage in global trade.\u201d<\/span><\/p>\n As digitalization gains traction, advanced technologies<\/a> like APIs<\/a> are being integrated into trade finance operations to help mitigate payment risks via data visibility. Much of the data that businesses need to make informed decisions is trapped in silos, often within a company\u2019s enterprise resource planning (ERP) system or with third-party logistics<\/a> providers.<\/span><\/p>\n APIs play a role in breaking down these silos and allow companies to access the information they need in real time, Lodge said.<\/span><\/p>\n \u201cAPIs have been used extensively in consumer applications, but we\u2019re now seeing how they can be applied to trade finance to stitch together ecosystems and expose the necessary data,\u201d he said.<\/span><\/p>\n By integrating APIs, logistics providers can share valuable information about the movement of goods, helping buyers and suppliers optimize their processes and reduce uncertainty.<\/span><\/p>\nOvercoming the Legacy Challenges of Global Trade<\/span><\/strong><\/h2>\n
Using Technology to Mitigate Global Payment Risks<\/span><\/strong><\/h2>\n