There has been an increasing demand for a supply-chain finance infrastructure that will help modernize financial institutions and organizations. There has been a need for flexible, modern, and scalable solutions.
The credit crisis increased the need for supply chain finance. It's also important to state that the pandemic also triggered a digital changeover in the financial and accounting industry, that beforehand was moving exceptionally slowly. This created a move to a more digital supply chain finance atmosphere.
When it comes to financing, data handling and security are held to the utmost priority. A forced move to remote working created unprecedented challenges for the financial institution. Technology played a huge role in creating solutions - and we will explore how here.
What is supply-chain finance?
Before we explore digital modernisation, we need to clarify what supply-chain finance is.
Companies very often look for ways to improve their cash flow and working capital, and supply-chain finance (SFC) is often believed to be the most substantial solution. They are an affordable way to improve working capital, payment flows, and overall financial structures.
Essentially, it encourages cooperation between the sellers and the buyers, predominately in sales transactions. This can involve invoice management, automating transactions, and tracking certain other financial processes (such as settlements). It's a mutually beneficial situation where people can have access to owed money quicker and the buyer can also be given more time to pay. This comes in the form of short-term credit, for example.
SFC gives much more room for negotiation. And technology has only helped modernize this even further.
Blockchain in supply chain finance
If we talk about technology in supply chain finance, we obviously have to mention blockchain trade finance.
In short, blockchain technology allows businesses to share documents, track transactions, and (of course) share cryptocurrencies. For instance, cryptocurrencies such as Ethereum and Bitcoin can operate transactions without an intermediary.
Blockchain has proven to be successful in improving supply chain finance. In terms of business, blockchain improves cybersecurity all while reducing costs and increasing efficiency. For supply chain finance, blockchain creates what is known as an audit trail for every single financial transaction. It has been able to strengthen trust and relationships between the supplier and buyer.
Blockchain also has begun introducing smart contracts which can automate future transactions, again making supply chain finance easier and more streamlined.
Why is supply chain finance modernisation important?
The world is adopting and enraging artificial intelligence. In the supply chain finance industry (and other industries), we are finally realizing how important data is. Many believe that data is the most important currency in the modern world. Therefore, treating this data the same as currency i.e. automating, protecting, and processing it in the same way is so important.
Data's worth and value are only expanding. In turn, so does the responsibility that falls on companies. It is becoming integral that their data security is strong - nobody wants a weakness in the financial industry. Of course, things aren't perfect just yet but the modernisation of the supply chain will help us achieve certain levels of success.
So, without further ado, let's look at ways that digital trade finance is modernizing.
Data Analytics
As we mentioned, data truly is the new currency in the world. Data analytics, therefore, presents supply chain finance with an interesting opportunity. As smartphones and digital technology are constantly evolving and improving, data sources are constantly growing, too.
User interfaces known as "The Internet of Things" have given a drastic rise to new data analytic methods. This can be used for specific reasons, a great example would be credit scoring, and can be used to improve usability and efficiency.
The finance industry has found that data analytics has cultivated an environment where supply chain financing can provide higher quality service and expand a customer base.
Interfaces
On the topic of interfaces, we have to talk about how this has modernized supply chain finance. The quick advances in the internet have also led to an increase in cloud computing.
Now, we are seeing traditional banking business models being completely disrupted. Technologically advanced methods have been enabling businesses to employ third-party services to help advance their systems. Like with every new business method, this is cost-reducing and has amazing scaling potential. Integration methods like this also minimize security vulnerabilities. It's a win-win.
Digital Infrastructure
There has been a rapid modernisation in infrastructure. For example, interoperable interfaces and standardization. Technology has modernized supply chain finance in such a way that new services are now accessible to financial institutions. However, this comes with some drawbacks in terms of storage and security. Therefore, cloud and blockchain services have triggered the digitisation of supply chain processes - this reduces numerous barriers for both sellers and buyers. For this reason, cloud data storage is becoming a central aspect of everybody's business model.
Managed Services
Cloud solutions as well as AI, automation, and Distributed Ledger Technology are all integral digital innovations that have completely revolutionized supply chain finance. They reduce the costs in businesses and any security leaks in logistic management.
Overall, SFC practices are continually being modernized and improved by various technological advances. Essentially, you will continue to see technology shifting the market attempting to reduce costs all while leveraging usability and profit.