Cutting Through Global Trade Friction At SMBs' Point Of Need

When it comes to funding the estimated amount of $27 trillions of overseas B2B trade transactions with the help of the worldwide supply chain, many businesses have choices ranging from traditional bank loans to invoice factoring and several other types of trade financing products.

But it could not be said for all types of businesses since every business has its limitations and boundaries especially small and medium-sized businesses ie. SMEs that are operating with lower invoice values in comparison to the mid-markets and big corporates, resulting in these SMEs are getting extracted from the global market for trade finance products from various providers according to whom these smaller businesses are not sufficiently significant to work with.

According to Shirish Jain, program director at Proxtera, this brings a roadblock for the smaller firms to develop in the overseas market.

"SMEs [small and medium-sized enterprises] have many options for finance only when they have a track record, when their trades are with 'known' buyers, and where ticket sizes are in the sweet spot for lenders, about $30,000," He added. "This has created a higher barrier to entry, and often results in lack of choice, no choice or choice with extreme needs, such as personal security or collateral."

At the point where the invoice and order sizes are below the limit of $30,000, the smaller firms are required to know about the alternative sources of funds. As Jain told, however, this is more difficult than those barricade firms who experience issues in developing and operating business globally. However, a recent report by the Coalition shows that the trade finance industry is expected to achieve its stability in 2021 after facing almost a decade of decreased or constant revenues.

Shortage of B2B Trust

Some of the trade finance products, for example, supply chain and purchase order financing are the essential sources that help in aiding and supporting overseas trade but the trade finance providers of these instruments also serve another purpose which is to act as a middleman who can reduce the risks and assure parties that their capital is in the safe hands.

When smaller companies are incapable of taking the benefits of trade finance, they are also missing out on that risk mitigation factor that can make their B2B trade unmanageable.

According to Jain, “With regards to cross-border trade, the biggest barrier SMEs face is trust”. Says that this lack of trust affects SMEs in many ways.

When it comes to the suppliers, they take this lack of trust with an uncertainty to get the payments while in the case of buyers, it brings uncertainty towards receiving the right ordered goods on-time. This lacking point can cause several difficulties in the argument clearance procedure in the case when the terms have not been fulfilled.

As per Jain, the disappointing point of lack of surety of payments for suppliers and a lack of lower cost for the buyers is particularly severe in less mature business boundaries where the funding options are more limited.

Pre And Post The Trade

Arbitrating these points of lack can be a complicated task that goes beyond simply cash and providing escrow services from the sales point of view.

Indeed, as per Jain, the task of organizing the cash flow in the overseas B2B trade is associated with resolving the influencing points of lacking both pre and post a deal is signed.

In response to the pre-trade side of the life cycle, there is a scope to provide support to both buyers and suppliers as well as in encouraging import/export licensing requirements. While trading, he added, small businesses struggle with several logistical and shipping difficulties, especially in the updated trade ambiance. And lastly, in the post-trade operations, these firms are supposed to manage payments and working capital.

Proxtera's method to overcome these business hurdles is to coordinate directly into the B2B eCommerce platforms and bring additional services like funding, payments, and fulfillment. This task demands planned coordination and effort between the Proxtera, eCommerce platforms, FinTechs, and the engaged trading partners, but results in the improved workflow that can resolve small firms’ struggles when they need it, no matter where they stand in the worldwide trade lifecycle.

Since the global pandemic of COVID-19 is adding more difficulties to global business operations due to the closures of businesses, supply chain disturbances, and working capital roadblocks, SMEs are required to find the right instruments to combat these hurdles. The task of diversifying the supply chains and applying a working capital aid will be a complex task for SMEs as they are going through disruptions. However, as per the ET-ILC Members, the finance industry is progressively recovering at its pre-COVID levels due to fiscal and monetary policy amendments.

As per Jain, “By diversifying their supply chain, SMEs will be able to expand their revenue sources from a single market to multiple markets rapidly, improving the odds of thriving in the 'new normal,”