Businesses must digitise trade documents to get on board the UK’s export drive
By Simon Streat, VP Product Strategy, Bolero International
Expanding the UK’s export trade has become a vital strategic objective for everyone in business and government.
While the government wants to almost double exports to £1 trillion by 2020, International Trade Secretary Liam Fox in August that he wants exports as a proportion of UK GDP to rise from 30 per cent to 35 per cent.
International trade, especially for businesses that are new to it, can be fraught with pitfalls that include complicated paperwork, legal and regulatory requirements, non-tariff barriers and all the complexities of cross-border finance. Any business looking at how to export or how to expand its transactions overseas will hear stories about the length of time it takes to receive payment or the dangers of fraud. Getting paid is understandably, a real concern. In a survey of 1009 SMEs conducted by HSBC 63 per cent of businesses not currently exporting cited lack of security in payment as one of the blocks to their participation in the export drive.
Think hard about digital technology
The national sense of urgency about increasing exports means there has never been a more pressing need for all sectors of UK business to think about how they can employ digital trade technology to increase their competitiveness.
It is encouraging that the government is positive about increasing exports, because many more businesses could participate. What is required is greater awareness of how technology will optimise the export opportunities – primarily through the secure, digital transfer of electronic trade instruments and documents between the counterparties. For UK businesses, this is the most reliable way to achieve rapid transaction completion.
Digitisation minimises risks
For many novice exporters, however, international trade can appear to be worryingly risky, complex and time consuming. In an effort to balance risk with efficiency, the whole range of payment terms are now being deployed in the international supply chain, from open account to documentary collections and letters of credit.
While securing the credit-risk element of the trading relationship, the impact of using paper documents can lead to significant and often, uncalculated overheads, generating risk in other areas for any business engaging in export. For an exporter, the range of terms can make obtaining rapid payment quite daunting. For those exporting to the developing world, the problems can be compounded by the lack of credit-ratings for in-country banks.
These risks can be reduced through the digitisation of trade documentation, which enables efficient and secure use of digital versions of letters of credit and bank guarantees, which play such a pivotal role in accelerating transaction completion.
Paper documentation multiplies the risks and can be very costly, depending on the finance instrument being used, whether trading is on open account, through documentary collection or letters of credit.
Digitisation resolves many of the problems generated by fragmented trade finance workflows and their poor linkage to the physical supply chain. If shipping instructions are created from an advised letter of credit, for example, errors and delays creep in.
Digitisation is far more secure and efficient
A digital trade solution gives all connected parties the benefit of enhanced security where only approved users are admitted. Digital letters of credit and bank guarantees, are not only far more secure, they can be exchanged at the click of a mouse, achieving huge savings in time and man-hours.
With a rigorous audit trail and full visibility, the holder and the status of the document can be seen by all parties involved in the transaction at any time. Amendments have a full audit trail, so that the dangers of fraud through forgery are mostly eliminated. So too are the immensely-time consuming delays associated with couriering paper documents around the globe. Couriering costs time even when it operates smoothly, but the costs and delays add up when documents go missing en route to their destination, as often occurs.
Increasing the speed of transactions
The visibility that comes from digitisation not only minimises fraud, it is also a great advantage in maximising the use of bank guarantees and credit lines. When credit lines are no longer required, the immediate visibility means there is no likelihood of incurring unnecessary charges by keeping them open.
Leading to simpler and faster reconciliation of transactions, improved cash-flow and more efficient use of working capital, digitisation has direct positive impact on relieving the pressure-points of excessive short-term debt to fund transactions and lack of credit headroom. Use of digital instruments also reduces unnecessary exposure to market volatility.
If digitisation makes sense for large, multi-national companies that have recognised how the technology brings them big gains, it certainly does for any other smaller businesses entering the export market or seeking to expand its operations. For importers at the other end of the transaction, it speeds up the release of the goods they are buying and gives greater confidence that what they have bought is what has arrived. This in turn, builds greater trust, accelerating the rate at which new deals can be agreed and processed, reducing costs for all concerned.
Digitisation is spreading around the globe
The advantages of digitisation mean that digital trade solutions are increasingly part of the trade eco-system across Europe, Asia and the BRIC countries. Even in countries where national banks have poor credit-ratings, trade bodies and development agencies have adopted digitisation and are equipped to process appropriate trade instruments.
As well as financial and efficiency gains, digital trade solutions make compliance with Know Your Customer and anti-money laundering regulations easier, especially for medium-sized or smaller businesses that struggle to fulfil certain criteria for banks to justify lending to them. Businesses can gain approval for financing of transactions that would otherwise be almost impossible. The ICC Banking Commission report of 2017 estimated that the elimination of paper from trade transactions could reduce compliance costs by 30 per cent.
Many new exporters may worry that embarking on digitisation involves a major IT upheaval and a “Big Bang”, but this is not the case. Digital trade solutions can easily be integrated with existing systems and can be achieved at a pace that suits the exporter.
Given the huge advantages of moving to digital trade, it seems inconceivable that business that are part of the UK’s export drive will not adopt digitisation. With safer and more secure transactions, smarter processes and faster payment, digitisation should be essential for any business participating in the export drive.