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Tradeshift, a European fintech specialising in supply chain payments, is working with the Danish Export Credit Agency (EKF) to open up much-needed liquidity to businesses in Denmark through a technology-driven supply chain financing model.
Under the model developed by Tradeshift in collaboration with EKF, banks will be encouraged to offer favourable credit lines to large organisations with export turnover in order to pay their suppliers earlier. EKF will underwrite these lines of credit.
The Danish initiative, which has been endorsed by leading academics including Professor of Economics at Aarhus University Philipp Schröder, is being touted as a cost-efficient alternative to government-backed loans and stimulus packages designed to help ease liquidity pressures placed on businesses as a result of COVID.
The dramatic slowdown in trade over the past two months has seen many larger organisations extend payment terms to suppliers. According to one recent study, late payments to UK suppliers have shot up by 23% since 11th March.
This clogging up of cash flow is putting major pressure on otherwise healthy businesses, and risks slowing down dramatically any potential bounce-back after the current conditions lift. The problem has been made more serious as traditional trade finance insurers threaten to pull out of the market and government-issued ‘helicopter relief’ money struggles to flow to businesses that would most benefit.
By effectively removing the risk and reducing cost elements around access to supply chain finance, it becomes a virtual ‘no-brainer’ for large organisations and their suppliers to use the system. By targeting the top 250 large buyers in Denmark, Tradeshift claims that up to $55bn in working capital can be made available to suppliers between in Denmark from June 2020, to June 2021.
“We want to do our bit to motivate companies to pay immediately, so we’ve made our full arsenal of solutions available to export companies that choose to show their support for suppliers. Under our model companies can pay suppliers ahead of time without compromising their own liquidity, ”says EKF Director Kirstine Damkjæ
The Danish initiative relies on accessing invoicing data exchanged between buyers and sellers to build up an accurate picture of existing invoice liquidity that is eligible for finance. As the technology partner in Denmark, Tradeshift will help businesses deliver the necessary visibility into these transactions to enable the system to roll out rapidly and at massive scale. Businesses that rely on paper-based invoices will not be able to access the program.
“The immediate payment scheme has the potential to become a vital support package for companies during the corona crisis. Not only is the economic potential inherent in itself, it also avoids the behavioral death spiral, where all companies in a value chain withdraw their payments simultaneously, ”says Tradeshift’s co-founder and SVP, APAC, Mikkel Hippe Brun.
Tradeshift has made the financing model entirely open source so that other fintech companies and organisations can provide solutions to help facilitate the digital requirements of the overall system. Whilst the financing model is currently available only in Denmark, there is no reason why it could not be rolled out in other countries.
Tradeshift is currently in discussions with a number of governments across the world who are considering the model as a way to make working capital available to businesses. An estimated $9trillion dollars of working capital is currently trapped in supply chains globally, due to lack of suitable supply chain financing options.
For more information on the current initiative please visit (https://tradeshift.com/da/straksbetalingsgaranti/)
