How Supply Chain Visibility, Data, and AI are transforming Trade and Supply Chain Finance

Lenders funding global trade have long relied on financial information and trade documentation to assess creditworthiness, manage risk, and ensure the compliance of transactions funded. This lending model is, however, being tested by the increasing complexities of global trade, supply chains and improving technologies.

The problem is company financial information becomes outdated very quickly, trade documents are not always accessible, and supply chains often lack real-time visibility, which increases risk. Moreover, the inconsistent and unstructured nature of supply chain data has limited the use of artificial intelligence to derive actionable insights from supply chains, which could be used to support additional lending and manage risk more efficiently

This has resulted in lenders being extra cautious in risk taking and lending, particularly to SMEs and Llarge businesses in the absence of strong financials or the provision of additional collateral. This ongoing approach to risk in global trade can in part be blamed for the trade finance gap, which stood at USD 2.5 trillion in 2022.   

But there is some good news! Emerging supply chain platforms are reshaping this landscape by offering real-time tracking and visibility of goods from the purchase order (PO) stage right through to final delivery. These platforms bring structure and consistency to supply chain data, allowing lenders to harness AI-driven analytics to derive valuable supply chain insights, enabling better credit decisions at scale, faster onboarding, improved risk and compliance management.

A New Opportunity for Lenders
Global supply chains have grown more complex, beset by geopolitical tensions, shifting regulations, demand volatility, and logistical challenges. These factors complicate inventory management, cash flow forecasting, and profitability, making credit decisions more challenging for lenders.

Supply chain platforms now provide much needed visibility and transparency into clients' supply chains. With real-time visibility and access to historical supply chain data, lenders gain the insights necessary to make more informed lending decisions, manage risks more effectively, and ensure compliance. Clients, in turn, benefit from better supply chain management, improved cash flow predictions, and a reduction in supply chain risks.

The Transformative Capabilities of Supply Chain Platforms
These platforms offer several critical features that can directly benefit lenders:

Data Integrity and Quality: Supply chain data is validated by third-party collaboration, ensuring accuracy. This structured and consistent data, combined with AI, enables lenders to make real-time decisions at scale.

End-to-End Visibility: From purchase order creation to final delivery, lenders can track goods at both the container and SKU levels. This provides more accurate visibility into ETA’s, potential shipping delays, control of goods, and the potential impact on cash flow.

Centralised Collaboration: Platforms serve as a hub for essential trade documents, such as purchase orders, bills of lading and delivery notes. They also enable seamless collaboration between stakeholders, including lenders, freight forwarders, suppliers, and buyers, through permissioned access.

Strategic Applications for Lenders
Depending on strategic priorities, investment levels, and operational capacity, lenders can adopt these platforms in various ways:

Expanding International Trade Offerings: Lenders can differentiate themselves by offering clients free or subsidised access to supply chain platforms. This helps businesses optimise supply chain management while giving lenders critical insights for better credit decisions and risk management. The approach fosters deeper trade relationships and can increase trade finance transaction volumes with a specific lender.

Enhanced Credit Decisioning and Risk Management: Real-time visibility from purchase order stage to final delivery allows lenders to better assess when goods have shipped, control points of inventory, and potential shipping delays affecting cash flow. Historical data provides insights into supplier performance, product transit times, and buyer relationships. AI-driven insights enable dynamic credit model updates and more precise lending decisions at both individual and portfolio levels.

Funding Larger Parts of the Supply Chain: Pre-export financing has traditionally been high-risk for lenders. By having visibility into purchase orders and access to supplier performance data, lenders can confidently extend financing at earlier stages of the supply chain, reducing risk while improving clients' cash flow and increasing lending revenue.

Compliance and Trade Sanctions: Platforms simplify compliance by tracking the origin of goods, identifying supply chain participants, and monitoring trade routes and shipping vessels in real-time. AI-generated insights help detect potential trade sanction violations before they occur, allowing lenders to manage compliance more proactively and efficiently.

Embedded Payments, FX, and Finance: As companies seek seamless financial services within their operational platforms, lenders can embed their payments, foreign exchange, and financing options directly into these platforms. This can support and enhance existing trade and supply chain finance programs and create opportunities for innovative new financial products. By embedding financial services, lenders can enhance the international trade finance experience for their clients and increase profitability.

The Path Forward
Supply chain platforms driven by AI and real-time data offer a transformative opportunity for lenders. By adopting these solutions, financial institutions can make faster, more accurate credit decisions, optimise risk management, enhance client relationships and improve profitability.

If you are a lender and are interested in exploring how supply chain platforms can be integrated into your transactional banking and lending strategies, please contact Brenton Booth directly at brenton.booth@t3ipartner.network