Trade finance platforms are multiplying on shared standards, with 21 eBL systems approved by shipping's P&I clubs
A trade finance platform puts the buyer's approval, the trade document and the payment on one record. The International Group of P&I Clubs lists 21 approved eBL systems, and ADB expects full digitalization to cut trade costs by 8% on average.
Distributor finance
Distributor finance funds a distributor's stock of a large manufacturer's goods until the distributor's own customers pay. The finance provider takes rights over the stock and invoices, and the manufacturer can back the program with a stop-supply letter or buy-back guarantee.
Dynamic discounting
In dynamic discounting, the buyer pays its sellers' approved invoices early from its own cash, and takes a discount that shrinks as the due date gets closer. The seller chooses when to be paid, while the buyer has spare cash.
Payables finance (approved payables, reverse factoring)
In payables finance, a buyer sets up a program so its suppliers can sell approved invoices to a finance provider and get paid early, at a cost based on the buyer's credit. The buyer still pays the full invoice on the original due date.
Trade finance shortens the cash cycle by funding receivables, inventory or payables one term at a time
Working capital stays tied up for the length of the cash conversion cycle. Factoring, inventory finance, payables finance and export working capital finance each work on one part of that cycle to release cash.
The cash conversion cycle counts the days cash is tied up in trade, and each day has a financing cost
The cash conversion cycle counts the days cash is tied up in trade: days sales outstanding plus days inventory outstanding minus days payable outstanding. Every day in the cycle locks up a day of sales that has to be funded.
Distributor finance funds a manufacturer's dealers to hold stock until their own customers pay
Distributor finance funds a large manufacturer's distributors to hold goods for resale until their own customers pay. It is secured on stock and receivables and often backed by the manufacturer through stop-supply, buy-back or risk sharing undertakings.
Dynamic discounting lets buyers earn a return on their own cash by paying suppliers early
Dynamic discounting lets a buyer pay suppliers early out of its own cash, at a discount that shrinks as the due date approaches. The US Treasury's public test: take a discount only when its yearly rate beats the value of funds rate.
Longer payment terms hold up when suppliers can get paid early on the buyer's credit
Payables finance lets a supplier on longer payment terms sell its approved invoice early, at a cost typically aligned with the buyer's credit, while the buyer still pays on the original due date.
Payables finance pays suppliers early on the buyer's credit, while the buyer still pays on the original due date
Payables finance is a buyer-led program in which suppliers sell invoices the buyer has approved to a finance provider, at a discount priced on the buyer's credit. The buyer still pays the full invoice on the original due date.
Trade finance protects a shipment, supply chain finance frees the working capital around it
Trade finance reduces the risks of international trade; supply chain finance optimizes the working capital invested in supply chains. Payables finance, its best-known form, lets suppliers sell buyer-approved invoices at a cost aligned with the buyer's credit risk.