CROSS-BORDER TRADE FINANCE TRANSFORMS THE SME INDUSTRY.
Cross-border trade is as old as trade itself. Some features haven’t changed over the centuries: astonishingly large volumes with often eye-watering risks and rewards. In 2011, the World Trade Organisation estimated that around $17.8 trillion (USD) was traded globally. To put that in perspective, the value of global trade in 2011 in one year was approximately twice that of all the US dollars on the planet!
Unsurprisingly for such a large industry, the complexities of world trade have become mind-boggling, as interminable rounds of trade negotiations between nations bear witness. . The fundamental principles and hence challenges for traders remains the same, despite attempts to create universal frameworks, protect national economies and reach agreements.
The value of goods or services in one place can have a different value elsewhere. A profit can be made by purchasing from abroad and selling at home. The problem is that purchase and sale take place in different places and different times. The seller needs to be paid before releasing the goods and the buyer won’t get paid till he sells them at home. Bridging that gap – “financing the trade” has become a huge and diverse collection of businesses. And rather than becoming simpler, the techniques have, rather like evolution, tended to become increasingly complex.
As the complexities increase, so do the risks – and the transaction costs. These risks (dispute, credit, documentary, process, execution, currency and fraud) must be mitigated or eliminated for trading to function properly. But with the maxim that “no two deals are identical”, today’s “traditional” cross-border trade facilities frequently generate mountains of paper, defying all attempts at simplification.
The problems are part logistics, part bureaucracy and part finance. While the first two are being well addressed by advances in technology, a fundamental problem means the same cannot be said for the finance.
The money involved has had to be connected to the physical goods or services traded. “I will only lend you, the buyer the money if I, the lender can either get hold of the goods (or equivalent value assets) until you pay me back”. This link between money and goods has remained intractable, and is largely responsible for the continuing complexity of trade transactions. If this link could be broken, goods could move more freely, benefitting fully from today’s advances in logistics management, while the money could flow freely and quickly from buyer to seller.
One company has broken this link and aims to change fundamentally the way in which cross-border trade is conducted. TradeRiver, a supply chain financier allows its enrolled buyers to purchase goods for cash in local currency anywhere in the world without getting involved in the location, state or condition of the goods or, importantly the value as agreed between buyer and seller.
Provided the buyer commits to repaying TradeRiver the value of the goods in the future, TradeRiver will release full payment to the seller at any point determined by the buyer without reference to the goods beyond ensuring that the goods are not illegal and that buyer and seller satisfy the relevant anti money-laundering and company ownership due diligence legislation.
Using a simple online process, buyer and seller create the details of their trade and each party agrees to and signs for the details digitally. At the point the buyer agrees to repay TradeRiver on a buyer-determined date in the future, TradeRiver immediately pays the seller the full transaction value in local currency. In this way, a buyer can effectively purchase for cash on the other side of the world at a point that he, the buyer determines. The process is the same for every transaction and is used by buyers to pay at any point, from pre-manufacture to post-delivery and inspection.
For the first time, goods and their payment are completely separate, making cross-border trade arguably no more complicated than an online credit card purchase from an overseas retailer. As TradeRiver’s COO, Toby Lanyon, says: “our solution works equally well within the UK or from overseas, but in many cases our cross-border customers access financing which, quite simply, would either not be available at all from traditional facilities, or which would be fiendishly complex and expensive to put in place.”
“Our challenge”, he continues “is to change the way trading partners look at their cross-border transactions. As the number of customers using our solution grows, it is possible to imagine a global network within which, since everyone is using the same process, the flow of trade goods and services becomes no more complex than any other online purchase.”
Five reasons why alternative finance is great for importers and what this means TradeRiver can offer.
TradeRiver offers many advantages for UK importers wanting to purchase goods and services not only from the UK but also from abroad.
Here are the top five reasons why alternative finance is great for importers…
1. Pay suppliers easily and quickly with the confidence of a cash buyer
Via a secure online platform, a transaction can be immediately confirmed online.
The supplier will receive payment for their goods or services, – wherever they are in the world.
Using TradeRiver gives Buyers the confidence of a cash buyer, allowing them to negotiate better pricing and terms with their suppliers.
2. Payments and administration are paperless and transparent
Paperwork and administration costs are reduced and payments accelerated by creating and executing the entire transaction on our secure online platform.
3. No restrictions
There are no restrictions on the type of business financed: whether a retailer, manufacturer, wholesaler or service provider, TradeRiver can provide buyers with a pre-approved revolving facility. There are also no restrictions of where the goods or services are imported from – the supplier can be from the UK or from anywhere else in the world and TradeRiver is financing imports from Asia, South and North America and Europe.
Finally, TradeRiver does not restrict transaction size, supplier concentration or the point in the trade cycle at which suppliers are paid.
4. Flexible trade finance
Buyers need only use their facility when needed: interest is only charged on amounts drawn and there are no costs involved for setting up a TradeRiver facility and no non-utilisation or management fees.
Because buyers are in control of the funding, they can pay different suppliers within their credit limit and enjoy up to 120 days to settle the balance.
5. The TradeRiver Finance solution is uncollateralised
TradeRiver facilities do not affect existing loans, credit facilities or finance arrangements and are secured against credit insurance which TradeRiver puts in place. TradeRiver is a trade finance specialist, not a bank – so working with them causes no conflict with existing banking and finance relationships.
Written by Toby Lanyon, COO
Chief Operating Officer – Toby Lanyon
Managing Director and Head of the Middle East at European Islamic Investment Bank Plc in Bahrain from 2007 – 2009, Toby has 15 years broad-based investment banking experience throughout the Middle East. Previous roles also include Head of Equity Derivatives marketing for BNP then BNP Paribas from 1995 until 2005 as well as being a Director at Nomura Investment Bank from 2005 – 2007. With degrees in electrical engineering and aeronautics, Toby started his professional career as a Royal Naval Officer and Fleet Air Arm research and development test pilot.
About TradeRiver Finance (TradeRiver)
TradeRiver is an online funding solution that provides trade finance for SMEs, allowing them access to working capital at any point in the supply chain to help support and grow their business. It works by providing the buyer with a pre-approved revolving facility that can be used to finance trade with multiple suppliers. Payments and administration are paperless and transparent via our secure online platform.
Established in 2009, TradeRiver has attracted a fast-growing community of forward-thinking businesses looking for an alternative to traditional trade finance. Buyers and sellers in any supply chain can now benefit from a level of flexibility, responsiveness and agility that simply isn’t available from traditional bank-based finance.
By offering this service, TradeRiver helps provide the life blood of economic small business growth in the UK. In an environment where mainstream lending to UK businesses is in decline, TradeRiver provides a viable alternative for SMEs looking to plug funding gaps in their supply chain, having loaned over £30 million in the last two years.