Global trade, at its heart, is about receivables. One company owes another for the goods or services it has purchased.
While that may sound simple enough, businesses engaged in international trade contend with a range of factors, from geopolitical risks to environmental hazards, that can disrupt supply chains, delay payments and trap valuable working capital.
“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. “If you’re dealing with a new company in a different country for the first time, how much do you really know about them? Visibility and resiliency become” important areas of focus.
International commerce and trade often span multiple geographies, involve numerous counterparties and rely on a variety of transportation modes, he said.
Beyond these external risks, the traditional — and ongoing — reliance on paper-based processes can create additional friction and increase the amount of trapped working capital.
Lodge stressed that different countries have varying levels of digital maturity, meaning that paper still plays a role depending on where firms do business.
“At any time, when you have paper, you introduce manual processes,” he said. “That means someone has to extract information, process it and ensure its accuracy — introducing delays, inefficiencies and the potential for error.”
Digital innovations are addressing these pain points and unlocking opportunities for businesses around the globe.
One of the key drawbacks of relying on paper documentation is the reduced end-to-end visibility.
As soon as an exporter sends off their documentation, they lose sight of what’s happening to their transaction, Lodge explained.
“Is the buyer encountering problems with the documents?” he said. “When will they get paid? This uncertainty represents trapped working capital for both the buyer and the seller.”
Given these longstanding challenges, Lodge emphasized the importance of digital transformation in global trade.
“Eradicating paper brings significant benefits in terms of speed, reduced processing risks and improved visibility between counterparties,” he said.
This visibility is crucial for managing counterparty and performance risks — both key concerns in international trade.
Digitalization also unlocks the potential for new forms of financing. For instance, purchase order financing relies heavily on the availability of real-time data. Paper-based processes slow down access to that data, limiting the opportunities for businesses to secure financing 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.
“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,” he said. “This, in turn, helps plug the trade finance gap — a gap that is only increasing as more companies seek to engage in global trade.”
As digitalization gains traction, advanced technologies like APIs 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’s enterprise resource planning (ERP) system or with third-party logistics providers.
APIs play a role in breaking down these silos and allow companies to access the information they need in real time, Lodge said.
“APIs have been used extensively in consumer applications, but we’re now seeing how they can be applied to trade finance to stitch together ecosystems and expose the necessary data,” he said.
By integrating APIs, logistics providers can share valuable information about the movement of goods, helping buyers and suppliers optimize their processes and reduce uncertainty.
Another key technology that Lodge highlighted as playing an important role in trade finance is optical character recognition (OCR). While digitalization advances, paper documentation is still hard to eradicate entirely, especially in certain jurisdictions where paper-based documents like bills of lading are still legally required.
While OCR has been around for years, the current iteration of the technology has improved its capabilities. Next-gen OCR, unlike previous solutions, can operate with a high degree of accuracy, helping bridge the gap between physical and digital processes and allowing businesses to extract data from paper documents until full digital adoption is possible, Lodge said.
In addition to APIs and OCR, Lodge highlighted the importance of an ecosystem approach to trade finance technology.
“It’s very hard to get all companies to coalesce around a single platform,” he said. “Instead, we need to focus on maximizing the interoperability of platforms so transactions can move seamlessly across different systems. The ability to join the dots across different platforms will be key to driving further digitalization and unlocking the full potential of global trade.”
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