Why Are Financial Supply Chains Not Keeping Up With Physical Supply Chains?

Financial supply chains and global capital flows are highly complicated. So, too, are physical supply chains. Yet the way cash flows around the globe is actually quite antiquated compared to the flow of goods and materials (and the information trail that can enable better procurement and supply chain management compared with trade financing). In the white paper, “On-Demand, Event Triggered Finance With Network Models – A Game Changer?,” my colleague David Gustin captures this idea when he notes that, “In many industries, the financial supply chain has lagged behind the advances made by the physical supply chain by a decade.”

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But where can we point the finger? David observes that, “EDI (electronic data interchange) has been the traditional glue between various parties, aligning financial supply chain information flows with the movement of goods in the physical supply chain … EDI hubs are still the dominant form of interchange for direct material spend volumes, but, for all the benefits of a structured language, EDI has numerous limitations. Some examples include one-to-one connectivity, linear onboarding with no benefits of scale, expensive and time-consuming implementation and small business vendors that have a difficult time in supporting.”

To date, David notes, “The market has never really taken off for combining EDI messaging with trade finance; for example, using the advanced shipment notice (ASN) to trigger payment. The ASN is widely used in the retail sector and serves multiple purposes (packing list, pre allocating inventory, feeding the A/P system to create pseudo invoices for matching, etc.).”

Yet the ASN has shortcomings as a financing trigger. Check back later this week to find out why. Or if you’re keen to understand why today, download David’s full analysis here. We also encourage you to investigate our deep, subscription coverage of trade financing, invoicing discount and P2P on Spend Matters PRO.

In addition to Spend Matters PRO research, David and Jason offer workshops, lectures and advisory services to corporations, banks, private funds, consultancies and technology providers that want to learn more about the trade financing ecosystem and its intersections with new technology products and platforms. Contact them directly to learn more: jbusch (at) spendmatters (dot) com or dgustin (at) tradefinancingmatters (dot) com.

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