November 20, 2017

How Blockchain Technology Is Changing Trade Financing

by Treasury Optimization, Finance Centralization, Industry Trends and Technology, Payments and Financing

Over the past few years, blockchain technology has been declared to transform a number of different financial and business processes. How will it transform trade financing?

Blockchain technology will change trade financing

Over the past few years, blockchain technology has been declared to transform a number of different financial and business processes. The extent of the disruption that this technology still in its infancy will eventually be able to cause, remains to be seen. Nevertheless, numerous use cases leveraging blockchain are emerging as we speak.

At the moment, one of the most interesting areas where the blockchain technology is utilized and where it could have considerable impact in the future is trade financing, receivables financing, and factoring.

Traditional means of financing lack flexibility
In today’s challenging business environment, efficient working capital management has risen in importance for finance organization. Optimizing both the payables and receivables is one of the key objectives of any well-run corporate finance function.

At the same time, the linear business-to-business trade models are evolving into digital business networks. In these buyer–supplier ecosystems, seamless collaboration between trading partners and other stakeholders plays an essential role to ensure business success and to maintain supply chain stability, for instance.

Against this backdrop, the traditional means for trade and receivables financing lack flexibility. Factoring is a costly option and typically leaves little or no room for the company to decide which sales invoices to get financed – you either sell all your invoices or none of them.

The rapidly developing real-time business networks require a financing layer that is alike real-time, simple, and secure, and that genuinely improves the operating capabilities of the companies in the network.

10-fold cost efficiency with blockchain technology
These are the very issues that blockchain technology can for its part help to solve. The technology is particularly well-suited for creating distributed ledgers that increase the reliability, speed, and transparency of transactions between different stakeholders.

In factoring and receivables financing today, a lot of multifold work and exchange of documents back and forth is required both from the company in need of short-term financing, the underwriter assessing the risks, and the funder. But if all the different parties could have simultaneous view to all the related data in real-time, many delays and phases requiring manual work could be avoided.

This could mean that the cost of the financing for the company needing liquidity would be only a tenth of what it is with today’s solutions. With blockchain technology at the heart of the orchestration engine of a new generation trade solution service, the ten-fold cost efficiency would not be the only gain compared to traditional factoring services – operational and transactional risks could also be reduced, building new trust in trade financing.

We at OpusCapita are invested into a new solution for modern receivables financing, leveraging an innovative financing platform integrated to our extensive invoicing network. We see blockchain as a potentially disruptive but highly interesting new technology.


Petri Karjalainen on blockchain technology for trade financing

Petri Karjalainen
Head of Strategic Partnerships, OpusCapita

Petri Karjalainen has over 30 years of experience in ICT industry including 15 years with purchase-to-pay and electronic invoicing business. He is currently responsible for driving strategic partnerships and partner business to next level at OpusCapita. Recently, he spoke at the Nordic 360 Blockchain Conference on next generation trade financing with blockchain technology.


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