

Many of our exporter clients are poorly-served by supply chain finance programs implemented by their buyers. This short article explains:
PrimaDollar provides business trade finance. We provide trade guarantees (letters of credit) and finance (cash at shipment) to support supply chains which run across international borders.
Adding a business trade finance capability (PrimaDollar) onto a supply chain finance program provides a much-needed solution to the gaps that arise.
A supply chain finance program inserts one or more banks into the supply chain of a corporate buyer.
This is to bridge the gap between:
Supply chain finance programs are arranged by buyers for their benefit, and for the benefit of their suppliers.
How supply chain finance typically works:
The business (let’s call it the “Buyer”) sets standard payment terms for all its suppliers (“Suppliers”), for example, invoices will be paid 60/90/120 days after goods are delivered.
Suppliers who want to be paid earlier than this backstop date are offered an ability to get paid earlier, but with a discount. This is implemented in an online system:
In accounting / legal terms, usually the bank pays cash upfront to the supplier in order to acquire the right to receive the deferred payment from the buyer under the invoice.
If the discount that the supplier agrees is higher than the funding charge from the bank, this creates an additional revenue source for the buyer.Sophisticated versions of this arrangement are integrated into the buyer’s accounting system with direct links to one or many funders on an auction basis.
Exporters, particularly in emerging markets often need to be paid at shipment, if not before.
The main reason is that banks who provide pre-shipment finance usually want to be repaid before goods leave the country of manufacture. Additionally, many governments in emerging markets have also implemented exchange control regimes that make it a criminal offence for banks and exporters to surrender control over goods without payment; this is to prevent foreign exchange fraud and ensure that export proceeds are properly remitted to the exporting country.
In practice, very strong suppliers working with very strong buyers find ways to manage the twin challenges of pre-shipment finance and foreign exchange controls. But many exporters are not in a position to solve these issues without assistance. This is where supply chain finance should come in and provide the solution.
But unfortunately there are gaps:
Taking these points in turn:
(a) Early payment is not available to everyone
A recent PwC industry survey found that 70% of supply chain finance programs involve less than 100 suppliers (click here).
When a multi-national corporate implements a supply chain finance program, aside from the IT and integrations, one of the biggest challenges is the on-boarding of suppliers. This is not just a practical question (training and information about the program) – it is mainly a question of compliance and cost.
A large part of a supply chain by outstanding amount of US$ can be brought within the program, but many suppliers in terms of numbers are left out; and these suppliers who are left out are usually the ones where the finance is most needed.
Moreover, the drive to reduce costs across the supply chain pushes buyers to locate suppliers in lower cost locations who are often smaller players in their markets.
These lower-cost locations, for example in South Asia, are exactly where the toughest foreign exchange control regimes operate, where local banks are most strict in requiring cash at shipment, and where compliance is hardest for lenders to achieve easily.
Those suppliers who need supply finance the most are the very suppliers who cannot easily receive it. The Asian Development Bank estimates the annual supply chain finance gap for Asian suppliers to be around US$1.7 trillion in 2017, up from US$1.4 trillion in 2016.
In summary:
(b) The money comes too late
As highlighted above, an emerging market exporter usuallyneeds the finance when the goods are shipped. But supply chain finance programs provide finance when invoices are“approved” for payment– which is usually after goods have arrived, been landed, inspected, and accepted – and the paperwork has made its way through the corporate system.
Suppliers in Asia usually ship by sea. This is a significant part of global trade in manufactured goods. Shipping times are often 30 days or more between South and East Asia and Europe / US.
So there are two issues:
Historically, these issues were solved using letters of credit and sending shipping documents through the banking system.
This covered the risks for the exporter and the exporter’s local bank. The shipping documents were not released without payment, whilst giving the buyer the chance to verify that the documentation matched their expectations. But supply chain finance programs do not extend their reach into this “transit period” – when goods have left the supplier but not yet reached the buyer – and so a significant and problematic gap emerges.
The “money comes too late” is one of the biggest challenges in supply chain finance.
In summary:
(c) Mid-sized buyers do not offer supply chain finance
Mid-sized buyers are usually the buyers where supply chain finance is most needed, but also the buyers where a program is not implemented.
The reasons are simply cost and complexity. A supply chain finance program typically requires the following topics to be addressed:
These are large company projects, inevitably. The process of corralling finance providers, liaison with auditors and advisers, organizing the technology and setting up the Supplier on-boarding is expensive in terms of time and money.
In summary:
PrimaDollar is a trade finance company.
With our business trade finance solutions:
Our technology bridges exactly the gaps that supply chain finance programs have difficulty in addressing.
How PrimaDollar’s trade finance solution works:
The PrimaDollar trade finance system is simple:
These processes are automated by our systems. They are easy and convenient for all the parties involved.
Since we are not a bank, we can physically purchase and then collect the actual commercial invoice involved.
PrimaDollar supply chain trade finance really does work in practice
PrimaDollar’s supply chain trade finance helps finance programs to reach those important parts of the supply chain which otherwise are unsupported.
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