In 1975 an advertisement was launched that would run uninterrupted for over 21 years making it one of the longest running advertisements on TV and instilling into international travelers the slogan; American Express Travelers Cheques “don’t leave home without them”
Working its way and sway via stars of the stage and screen Karl Malden, Roger Daltrey, author Steven King and actor Peter Ustinov it cemented in a generations’ mind a traveler’s cheque and later a pre-paid AMEX card, the message that, whatever you do and wherever you go, taking the AMEX with you was rule number one. The idea of a traveler’s cheque seems so quaint and of another time yet the slogan itself lingers on for the sheer urgency and impact it had. But what has it to do at all with Distributed Ledger Technology (DLT) or blockchain in the new age of trade finance and balance sheet management?
Well if I could borrow that phrase and edit it slightly, I would want to impress upon the minds of treasurers whether you are a Global Fortune 500 company or a five-person metal sheeting manufacturer, a few layers down in a global supply chain that finally: “You don’t need to leave home ever again”
Let me frame the proposition with more clarity…a great deal more clarity you insist.
The essential value proposition of blockchain and DLT when used with trade finance and balance sheet activity consists of three essential elements:
- Record the truth
- Coordinate updates to the truth
- Establish trust in the truth
In order that all three legs of this particular stool are in place it is core to establish trust in the source of the data, i.e. from whence it came and by whom the original data was generated. Provenance (from the French provenir) meaning to come from/forth is the essential ingredient we are seeking to establish in order that the trust mechanisms of DLT kick into gear. And the best most original source of financial and asset data must come from and can only come from the ERP (Enterprise Resource Planning) of the entity seeking trade finance, or balance sheet optimisation via receivables or payables financing.
The ERP is the home base you should never have to leave again. Up until today, any corporate large or small has had to go to somewhere else – a web-based financing portal, a destination application, either managed by a bank or 3rd party fintech provider – or manually send an Excel file to somebody in order to seek optimisation of their working capital. This process creates numerous challenges, such as efficiency issues in terms of extraction of trade–related data and managing the ever-growing number of destination platforms all with different login credentials and feature functionality to manage your balance sheet.
Today, it is not uncommon for a treasurer to have to work with over 20 different platforms delivered by providers such as LiquidX, PrimeRevenue, Demica or Taulia to manage their receivables for example. These externalised, cloud-based trade finance providers have all come about through technical and business model innovation and have served the market…up to a point…however are unscalable, and inherently cannot solve the risks around provenance and the three intertwined trust layers. There is a new fundamentally better model and it brings it all back to the ERP; back to home base.
The solution is a trade and working capital financing application within the ERP system. It provides corporates with access to on-demand trade financing and risk mitigation solutions at critical points in the trade lifecycle from a single, standard interface in a fully integrated and highly automated fashion. This allows corporates to manage and optimize key financial metrics including days payable outstanding (DPO), days sales outstanding (DSO), cash conversion cycle, and counterparty risk using just one application embedded directly in the corporate’s own ERP environment.
This means that both companies and financial institutions are able to create, manage, and automate complex, multi-party trade and working capital finance orchestrations and enable end-to-end automation from one application accessed through a single interface within the core system- the core system of any business, the ERP. Such embedded trade and working capital finance application provides corporates with much needed trust as well as flexibility, visibility, and control over management of trade and working capital financing without the traditional cost, time, and risk associated with setting up and running working capital financing programs. Treasurers are now able to manage critical working capital financing and risk mitigation centrally, without the need to change existing processes or carry out long, expensive implementations.
This working capital and trade finance application can be natively part of your major ERP vendor service offerings such as an Netsuite, Oracle, Microsoft Dynamics, SAP, a Zero or a SAGE for smaller organisations. Appraise this carefully for a moment; Natively part of your ERP infrastructure. The ability for me as a treasurer inside my core ERP to arrange, configure and present receivables asset for early payment to whichever partner bank or liquidity provider across multiple jurisdiction’s, currencies, geographies and all from the comfort safety and familiarity of my own ERP.