How Does Trade Financing Fit With E-Invoicing?

Tradeshift

Trade financing is a broad-based term we can use to encompass a range of receivables financing and payables financing techniques. The difference between the 2 types is relatively simple:

  • Vendors are in control with receivables financing program
  • Payables financing programs are buyer-led

There are a range of common areas of trade financing programs today outside of global trade-centric programs and products. These include: supply chain financing (i.e., an uncommitted credit facility, typically with companies at or near an investment-grade credit rating), dynamic discounting, reverse auctions and auction marketplaces, buyer-led invoice finance, p-cards, seller auctions, factoring and invoice finance.

(For further information and definitions of these programs, download the Spend Matters PerspectiveUnderstanding How E-Invoicing Fits.)

From an e-invoicing perspective, there are significant benefits to incorporating programs into trade financing initiatives. Trade financing programs that leverage an approved invoice can typically enable finance over a greater time frame due to the acceleration in the approvals process. They are usually based on an approved invoice from a buyer, which is the equivalent of the “golden ticket” in terms of the likelihood an invoice will be paid.

In addition, e-invoicing can enable a standard onboarding program, which may involve bank-centric “know your customer” or elements that can further reduce general supply risk.

Last, e-invoicing can help provide greater efficiency for buyers and suppliers in trade financing. In contrast, non-e-invoicing-centered, supplier-centric financing programs are often relationship, labor and operations intensive, in part because programs such as factoring consist of several distinct services: receivables monitoring and collection, credit assessment, payment guarantees and financing.

This article is based on content from the Spend Matters Perspective: Understanding How E-Invoicing Fits. Authored by Spend Matters Founder and Managing Director Jason Busch, with input and guidance from Trade Financing Matters’ David Gustin, it provides a foundation for organizations considering or already putting in place an electronic invoicing (e-invoicing) or purchase-to-pay (P2P) program.

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