Digitize trade: 4 big points for CFOs
Digitizing trade is a hot topic in conferences, but perhaps still not quite making it into mainstream thinking for corporate CFOs.
So should I go digital with trade?
Here are four big wins for CFOs from trade digitization - all available without significant costs, technology risks or complexity.
It is much simpler than you might think!
How do CFOs "digitize trade"?
Digitizing trade means getting suppliers to self-digitize and self-match their trade documents at shipment over a portal - like PrimaTrade.
Self-digitizing means that suppliers use OCR (built into the portal) that lifts data from documents (bills of lading, packing lists, invoices, inspection reports, certificates) to create structured data at shipment that suppliers then warrant as correct.
Self-matching means that suppliers match their invoices to purchase orders from the buyer (price and quantity) so that it is completely clear what is being shipped and how well it relates to what has been ordered.
This form of trade digitization is award-winning and can be implemented without costly IT work and lengthy projects - in fact, you can just switch it on and get immediate wins.
It uses the approach of "cash against data", and you can also read more in a white paper published by the ICC United Kingdom (see here to download).
Win 1: Digital supply chain finance - it's big
So you have a supply chain finance program.
It works but you note that utilisation by suppliers is not that high and finance teams complain about the work involved - so you have not rolled it out beyond your top 50 to 100 suppliers.
Upgrade your SCF program to a digital SCF program by using a platform like PrimaTrade:
Suppliers provide and warrant data to you as they ship which you can use to automate early payment decisions.
Utilisation shoots up as early payments become truly early.
You can add all your suppliers to the program because the automation lifts the burden on your finance teams.
The benefits are immediate as you can expand your SCF program to all your suppliers, automate the whole process including early approvals, and utilisation shoots up as early payments become "truly early".
Win 2: Customs and compliance
Most companies look at this work as being something handled by logistics teams - using "logistics data".
So that's data that comes via carriers and freight forwarders who know what they are transporting, so can provide the accurate data needed to populate filings for customs and duty payments.
Right? No - wrong.
Logistics data flows are designed with the needs of transportation in mind, and so normally suffer from a number of issues:
The data provided is not accurate. Typically, the carrier/forwarder has an "advance shipping notice" or "ASN". This is provided when freight is booked, usually a week before goods are collected. It is just a guess by the supplier as to what they will ship later that they have to give in order to book the freight.
So the ASN usually does not match the commercial invoice, which is issued at shipment. This discrepancy leads to a lot of reconciliation work in the buyer trying to get the data right for the customs filings.
Digitizing trade documents at shipment means that suppliers are providing you directly with comprehensive data based on what they have actually done. You do nothing - the data just arrives.
But this is actually the data you need for the customs and duty filing process and you no longer have to reconcile ASNs to invoices in order to work out what's actually going on.
Result - accurate customs filings without the hassle you have today.
Win 3: Monetise early payment discounts
Once early payments become truly early - ie: at shipment - suppliers will give big discounts on their invoices.
Why?
They no longer need to buy credit insurance
Their own credit standing improves because they get paid as they handover product - so there is no time period when the goods are gone but no cash has arrived
They no longer have to borrow themselves
You might think that supply chain finance already delivers early payments. But the reality is that it is a "post-delivery" product - so early payments are not very early. That's because most companies cannot approve invoices until after goods are delivered - simply because they have no information before then on which to make a decision.
Once trade gets digitized, data flows at the speed of light and approvals can be done before goods arrive. So that means the early payments are truly early and suppliers get a big win.
The discounts can be 2 / 3 / 4 / 5% on the invoice value - it is a really big saving for buyers.
And this saving is available simply as a result of digitizing trade and getting warranted and reliable data to flow quickly from supplier to buyer.
Win 4: Reduce processing efforts in AP teams
Most large companies have set up a digitization process for in-bound invoices at their head office.
Invoices arrive via email
Attachments are stripped and put through an OCR system to create a digital version.
This data is then matched to purchase orders and goods receipts and posted to the ERP.
There are many many companies providing invoice processing systems to do this - but it is a source of cost and effort that can be avoided!
Why not get your suppliers to do the work?
With a trade digitisation portal like PrimaTrade, suppliers turn their invoices into data for you and without an IT project.
Instead of emailing their invoices to you, they upload them to a secure portal and do the OCR-step themselves, warranting the data to be correct. On top, suppliers can then also match the invoices to purchase orders themselves, so that you also don't have to do this.
The resulting "matched invoice" can then be posted directly to your ERP without your accounts payable team ("AP team") having to do any work. It is a much more efficient way to operate.
One of our PrimaTrade clients reduced workload in their AP team by 40%.
It is all much simpler than you might think
You can digitize your supply chains without complexity and technology risk.
Find out more and have a short call with us.