Supply chains underpin the global economy, and inefficiencies in payment processes have emerged as a barrier to growth, resilience and cost control.
On Thursday (Oct. 3), HSBC launched an embedded finance venture with Tradeshift, a cloud-based, global trade network for purchase-to-pay automation, supply chain payments, marketplaces, virtual cards and supply chain financing. Observers are hopeful that digitizing logistics payments could herald a brighter future for global trade.
Traditional, paper-based payment systems used in the supply chain and logistics sector are slow and prone to errors. This inefficiency exacerbates costs, causes friction between partners, and leads to delays in cash flow. Companies need smooth supply chains, and relying on outdated payment systems creates bottlenecks.
The shift to digital payments — and the host of technologies they enable, including artificial intelligence (AI), real-time data analysis, and machine learning — offers an opportunity to modernize and address these issues.
Read more: Logistics Takes Center Stage Amid Global Supply Chain Uncertainties
With the logistics landscape in flux and supply chain disruptions still fresh in everyone’s minds, the potential for digital payments to unlock greater efficiency and profitability has never been more promising.
Consider this: Logistics companies can wait weeks, if not months, for payments to clear, causing cash flow disruptions that hamper operations. Add in manual invoicing errors and drawn-out reconciliation processes, and it’s no wonder the sector is hemorrhaging time and money. Digitalizing these payments promises to fix these issues, cutting payment cycles from weeks to days — or even hours.
Advances in data analytics and AI are enabling firms to automate and streamline invoice reconciliation. AI can drastically reduce invoice discrepancies by analyzing large volumes of data in real time and automating tasks such as matching invoices to purchase orders or flagging potential errors for review.
The benefits go beyond faster transactions. Digital payments offer greater transparency, allowing logistics firms to track payments in real time, reduce fraud risks, and better manage their finances.
AI can also provide insights into spending patterns and cash flow, enabling businesses to make more strategic decisions. By centralizing and analyzing payment data, companies gain a broad view of their operations, which can be used to forecast future expenses, identify cost-saving opportunities, and improve supplier relationships. This kind of data-driven decision-making is becoming essential for businesses that want to stay competitive.
Read also: Embedded Finance and the Great Supply Chain Reset
At the same time, digitalization of supply chain payments also presents an opportunity for optimizing working capital, particularly through mechanisms like dynamic discounting and supply chain finance.
But by integrating digital platforms, companies can take advantage of dynamic discounting, allowing them to pay suppliers early in exchange for a discount. Suppliers gain faster access to funds, while buyers can reduce costs.
Supply chain finance enhances working capital management by allowing third-party financial institutions to pay suppliers on behalf of buyers. This means that suppliers get paid earlier without hurting the buyer’s cash flow, which can remain intact until the invoice’s original due date.
By extending these types of digital financing options, companies can not only improve liquidity but also create more resilient supply chains that are better equipped to handle economic fluctuations and disruptions.
“Decades of globalization have led to supply chains becoming increasingly complex,” Duncan Lodge, global head of supply chain finance and EMEA head of trade at Bank of America, told PYMNTS last month. “The ability to join the dots across different platforms will be key to driving further digitalization and unlocking the full potential of global trade.”
“If investors have better data, they can better understand credit and performance risk dynamics, making trade finance and receivables more investable as an asset class,” Lodge added. “This, in turn, helps plug the trade finance gap — a gap that is only increasing as more companies seek to engage in global trade.”
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