Reduce global trade frictions
To finance the estimate $ 27 trillion With cross-border B2B commerce flowing through global supply chains, some companies have many options – from traditional bank loans to invoice factoring and other trade finance products.
But not all businesses are created equal. Often, small and medium-sized businesses negotiate with lower invoice values than medium and large companies, resulting in these SMEs being left out of the market for trade finance offers from vendors who do not find the small businesses valid enough to to work. with.
According to Shirish Jain, program director at Proxtera, this creates a significant barrier to growth for small businesses.
“SME [small and medium-sized enterprises] have many financing options only when they have a track record, when their transactions are with “ known ” buyers, and the note size is ideal for lenders – [about] $ 30,000, “he recently told PYMNTS.” This has created a higher barrier to entry, and often results in a lack of choice, no choice or choice with extreme needs, such as personal safety or collateral. “
When the size of invoices and orders is below this threshold of $ 30,000, the small business community is not always aware of alternative sources of capital. As Jain explained, however, this is far from the only hurdle companies face when looking to grow and trade internationally.
B2b lack of trust
Trade finance products like supply chain and purchase order financing are vital sources of capital to fuel cross-border trade. But the providers of these finance products also serve another purpose: to act as an intermediary who can mitigate risk and ensure that funds get to the right hands.
When small businesses don’t have access to trade finance, they also lack that risk mitigation component that can make B2B commerce so cumbersome.
“When it comes to cross-border trade, the biggest hurdle SMEs face is trust,” Jain said, noting that this lack of trust manifests itself in several ways.
On the supplier side, a lack of confidence means a lack of certainty of payment, while for buyers it means a lack of certainty that the right products will be delivered on time. This sticking point can also lead to challenges in the dispute resolution process in the event that the terms of the contract are not met.
According to Jain, the pain point of a lack of payment certainty for suppliers and a lack of profitability for buyers is particularly acute in less mature trade corridors where financing options are even more limited.
Before – and after – the trade
Mediating these sticking points can be complex, going beyond simply injecting cash and providing escrow services from the point of sale.
Indeed, Jain said, streamlining the flow of cash in cross-border B2B commerce involves addressing the major sticking points before and after a deal is struck.
On the pre-negotiation side of the lifecycle, it is possible to offer support in buyer-supplier discovery, as well as in facilitating import / export licensing requirements. During trade, he said, small businesses face many logistical and shipping obstacles, especially in new trade corridors. And finally, in the post-trade workflow, companies are responsible for managing payments and working capital.
Proxtera’s strategy to fight against these commercial obstacles is to integrate directly into B2B e-commerce platforms and introduce complementary services such as financing, payments and execution. This requires strategic collaboration and coordination between Proxtera, e-commerce platforms, FinTechs and the business partners involved, but results in a workflow that can meet the challenges of small businesses when they need it, regardless of their location in the global trade lifecycle.
With the coronavirus crisis adding even more friction to global business operations through business closures, supply chain disruptions and working capital constraints, SMEs will be tasked with finding the right tools to overcome these obstacles. Diversifying supply chains and building a working capital cushion will be critical for small businesses as they navigate disruption.
“By diversifying their supply chain, SMEs will be able to rapidly expand their revenue streams from a single market to multiple markets, thereby improving the chances of thriving in the ‘new normal’,” Jain said.