We know how.
Trade Finance for Corporates
An innovative solution using Instant Payment
Why is it different?
Once developed by the European Central Bank and the European Payments Council, the "real-time transfers” are intended to make payment transactions in the Euro zone less complicated, more flexible and, above all, faster. Payments can be transferred from the ordering party to the recipient within a few seconds.
Instant Payments have been offered by commercial banks since 2017 and are now available throughout Germany. New opportunities connected with this payment method create space for innovation and digitization. Currently, instant payments are associated with the benefits for retail banking and use in the private area. The intention of Specific- Group is to change this.
Based on the current developments in world trade (see also our article on Trade Finance), we have taken up the challenges and developed a special use case for trade finance that combines Instant Payments with supply chain finance.
Current challenges in supplier financing
- Financing for the supplier is based on acceptance of the invoice by the buyer.
- There is a gap in financing for the supplier as long as the invoices and goods are not accepted.
- In order to close this gap, the supplier has to face credit or liquidity costs.
- There is a lack of full transparency between the involved corporates and their banks.
- This leads to a delay in the exchange of information between all involved parties.
We combine Instant Payments with supply chain finance, which further minimizes the financing gap in the supply chain.
In comparison to the usual process, the financing in our target scenario is not based on accepted invoices, but on a (virtual) account of the buyer, which is kept at the buyer's bank. The monetary supply chain is thus directly aligned to the physical supply chain, to ensure end-to-end transparency for the involved companies and banks.
In real time the supplier is enabled to receive financing options based on the actually purchased and accepted goods and the payment of the related amount to the (virtual) account.
At the same time, Instant Payments are used for all payment flows, accelerating the entire process.
By using APIs, we create a connection between existing and established banking products and solutions with new technologies and possibilities.
By integrating the ERP system of the byer and the supplier, an automatic Straight Through process is created that offers absolute transparency between the monetary and physical supply chain.
This means, when the delivered spare parts are processed by the buyer, an automatic payment order is triggered to the (virtual) account. This payment order contains the corresponding serial number of the spare parts and represents the payment to the supplier according to the due date and specifying this data.
The following video visualizes how our use case works in detail:
- Suppliers receive liquidity at an early stage, which saves costs for further financing. Since the financing is geared to the buyer, suppliers usually have to pay a lower interest rate. At the same time, better transparency about the use of the delivered goods by the buyer is ensured.
- Buyers who participate in this solution can be preferred by suppliers and at the same time strengthen their business relationship, which supports the negotiation of better payment conditions and longer payment terms.
- By integrating the solution, banks have the chance to open up new business areas and offer new, modern services. Innovative solutions can be a "door openers" for the acquisition of new customers as well as for strengthening the loyalty of existing customers. In addition, the Bank can benefit from additional earning due to the interest margin. Banks have the advantage of a better transparency as well, as they are no longer dependent on the submission of invoices but can view the payments showing the relevant goods directly in the account. For the buyer's bank, there is an additional opportunity to increasingly offer virtual accounts and integrate them into the process.
The use case was presented to the public for the first time at the event "An innovative single market for the Euro", hosted by the European Central Bank on 6 and 7 May 2019. A summary of the highlights of the event is published on our homepage.