Over the next five years, financial institutions have a unique opportunity to capitalise on the rising demand for receivables finance. Let’s first look at the evidence for this trend before exploring how institutions can maximise the opportunity.

The global economy

According to the International Monetary Fund, global growth will be “stable but underwhelming” in 2025 – and hit a “mediocre” 3.1 percent over the next five years. Regionally, the IMF anticipates growth downgrades for the Middle East, Central Asia and sub-Saharan Africa, driven by oil conflicts, civil unrest and extreme weather events. The US is expected to fare better but European markets are also likely to see revised forecasts on the downside. On the other hand, China and India, thanks to surging demand for semiconductors and electronics, are predicted to perform well.

So, what does this picture of global GDP imbalance and geopolitical instability mean for business funding going into the New Year? Possibly very little, if recent rather optimistic forecasts, are anything to go by.

Ongoing global instability won’t dampening appetite for growth

Findings by EY ITEM Club suggest that bank-to-business lending in the UK is on course to grow by 3.1 percent in 2024, and then 5.6 percent in 2025 and 6.2 percent in 2026. The important point is that companies’ appetite for borrowing is set to increase as capital costs decrease.

Private equity firms’ confidence in deal making in the year ahead is surging, according to a survey by Deutsche Numis, which found that 84 percent of respondents expected to complete five to 10 deals next year. That’s significantly up from 2023, when just 12 percent of private equity firms surveyed said they were “highly likely” to execute bolt-on acquisitions to portfolio companies.

Experts tentatively predicted this renewed confidence at the beginning of the year. Quoted in a Euromoney article, HSBC’s head of global trade and receivables finance Vivek Ramachandran said falling cost of credit, linked to falling reference rates, would “hopefully provide a little bit of impetus for companies to embark on new economic activity or expansion.” And rates have fallen, albeit gradually, in the UK, the US, the eurozone and China. Indeed, there have been recent rate cuts by central banks responsible for seven of the top 10 most traded currencies.

Do financial institutions have the tools to meet the rise in lending demand?

Unforeseen events aside, it would appear that 2025 is going to see a marked uptick in demand for trade and receivables finance, as part of a wider business investment trend. The question financial institutions need to ask themselves is, do we have the operational capacity and tools to meet the growing need for short-term borrowing?

It’s certainly the case that many small to medium-sized commercial banks and asset managers find it challenging to offer trade and receivables finance to corporate clients. This is because these financial institutions are without the necessary operational infrastructure. We wrote about this in more detail back in July 2024 – see our blog here. As for larger lenders, while they undoubtedly have the capacity to meet renewed growth in business funding, they might still face difficulties caused by legacy platforms that slow decision making and require time-consuming manual inputs.

Thankfully, Aronova can support all sizes of banks and asset managers with their short-term business lending strategies, providing they require a revolving working capital facility of at least $10m. Our cloud-based platform allows banks and asset managers to outsource the day-to-day management of receivables purchase programmes, with functionality covering seller data collection, invoice eligibility, invoice sale and the calculation of seller cash settlements. We’re also tackling white-collar fraud through advanced monitoring tools and are enabling portfolio-wide automation of global debtor credit limits.

By transferring the above operations to Aronova, businesses can spend more time building their working capital portfolios. And with many experts predicting a renaissance in corporate investment and borrowing in 2025, financial institutions must have the ability to seize the opportunity for growth.  

Ready to learn more?

Contact us to find out more, and talk to a member of the Aronova team.

Sources:
IMF – Global growth is expected to remain stable but underwhelming
Bank lending to business set to grow by 2.6%
BCC economic forecast
Private equity firms’ confidence in dealmaking surges, survey shows
Trade finance survey: Outlook hangs on rate cuts by year end

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A recent report by Allianz describes how global working capital requirements (WCR), i.e. the amount of money businesses require to cover operating costs, increased for the third consecutive year in 2023 to reach their highest level since 2008. The trend shifted from quarter to quarter, rising sharply in the first three months of 2023, before dropping slightly in Q2 and then dropping further in the final three months of the year.

Allianz put 2023’s annual increase in WCR down to a “combination of softening economic growth with higher inflation and the higher cost of financing”. However, the global financial services group observed that there had been softer changes between July and December for two years in a row.

The research findings are based on an analysis of 45,000 listed companies in 35 countries. And the implications for business leaders and financial institutions are stark: the more working capital requirements rise, the more firms need to seek out short-term borrowing solutions.

Late payments: can we afford to reduce terms?

Meanwhile in Europe, companies are having to wait longer for invoice settlement due to an ongoing profit squeeze and rising costs. In a bid to tackle late payments, the European Commission has set out proposals for new regulations that could see terms cut from recommended 60 days to 30 days binding. But there are genuine fears that this will create cash flow problems for many firms. Allianz says companies will need an additional €2 billion in finance under such restrictions. Which is no surprise when we consider that 42% of companies were looking at payment terms above 60 days at the end of 2023.

The very real nature of these challenges was underlined in research by C2FO, which found that one in four businesses didn’t have enough access to liquidity to operate for a year. Another pressure point is highlighted in PwC’s Working Capital Study 23/24. It says that despite rising input costs, global revenues have continued to grow. This creates a situation where companies need more working capital to support this growth, even as they strive for efficiency.

There’s a need for working capital. But is it being met?

Whether it’s regulatory pressures or rising WCR, demand for short-term financing is only set to increase. However, there remain many financial institutions, particularly small to medium sized commercial banks and asset managers, that struggle to offer this vital form of business finance to their corporate clients, despite a desire to do so. Receivables-backed working capital finance is often seen as a cost-effective answer for corporate clients, but providing these programs can be challenging for many financial institutions.  They lack the capacity and infrastructure to run the daily operations, often resulting in them offering inferior working capital solutions that only fund receivables issued to larger debtors, or they simply shy away from the opportunity altogether.

Outsourced daily operations is one solution

Aronova is helping banks and asset managers of all sizes to overcome barriers to the provision of working capital products by providing outsourced solutions for the day-to-day management of receivables purchase programs. The products take care of seller data collection, invoice eligibility, invoice sale and the calculation of seller cash settlements. Extensive features include fraud monitoring, automated portfolio-wide global debtor credit limits (often with insurance certainty), and can provide backup servicing if required.

We aim to help banks and asset managers focus on origination and the funding of working capital programs by leaving the day-to-day operations to Aronova. Aimed at corporate sellers requiring a revolving working capital facility of at least $10m, our platforms can be deployed on an insured or uninsured basis. We anticipate the corporate seller remaining responsible for account servicing, cash allocation and the regular upload of receivables data to us. This data provides both lenders and corporate sellers with the transparency each requires to operate a modern receivables finance program.

In short, AronovaTransact! allows banks and asset managers to expand their working capital offerings without the burden of managing the day-to-day operations. Financial institutions that were previously unable to offer these products can now enter this growing market with confidence.

To find out more, Contact us to talk to a member of the Aronova team.

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Our latest innovation gives those in charge of working capital finance access to a range of market-leading features.  This provides more control, saves time and increases security. With Aronova Live! you have:

• immediate assessment of invoice and supplier eligibility
• access to instant decisions on acceptance into a funding programme for buyers/sellers
• real-time processing of seller/buyer invoice data and eligibility
• improved cash flow and optimised working capital positions
• rapid access to collections and credit control analysis which frees capacity more quickly
• full automation of processes, reducing operational risk

Ben Grant, Head of Partnerships, explains how Aronova Live! has been developed and tested with our global partners:

“We have a team of developers dedicated to continual innovation based on our global network of funding providers, banks, institutional investors, insurers and corporates. We know that those responsible for receivables programmes struggle with the risk, inefficiency and added cost of manual processes. Aronova Live! was developed in response to these issues and we know that those now using it have seen their operations benefit substantially.”

Instant decisions and reduced fraud

Aronova Live! works by establishing a secure API connection between the data sources. This enables the near instant communication of changes (new records, changed records, closed records) to accounts receivable, accounts payable and credit collection data. In addition, other asset classes that can be expressed as an invoice such as portfolios of corporate loans, leases, credit cards can also be included in the data flow.

This makes it possible to calculate global debtor credit limits, assess invoice eligibility and process invoice purchases live and on demand. While not everyone requires this, we know that for some the ability to calculate availability or sell an invoice within minutes of processing is a major benefit. And it’s not just improved efficiency, the technology also reduces fraud risk.

The API creates an uninterrupted flow of information directly from the originating invoice platform or accounting package. With no manual intervention, data manipulation is less likely, resulting in improved programme security and better data integrity.  Automation also takes some of the legwork out of Know Your Customer and anti-money laundering verification.

The importance of digitisation

The trend towards digitisation of trade receivables during the pandemic has accelerated as remote working has made paper-based processes even less viable, and injected urgency into financial service providers’ previously slow-burning digital initiatives. As a result, digital financing flows multiplied across the entire financial services industry during 2020, helping working capital finance platforms reach a critical mass of user and transaction numbers.

We know that real-time technology will become the norm in the years ahead, but we’re pleased to be able to offer this facility long before many others have even started to automate their manual processes. 

You can learn more about AronovaLive! here or contact us for more information.

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Invoice repurchasing is a feature of many invoice-backed working capital finance programmes, but it’s often a slightly blurred area where implementation is inconsistent between different programmes and interpretation can often depend on local jurisdictions and associated legal frameworks.

The obligation of a borrower to repurchase invoices depends on a combination of legal framework, program type and the repurchase reason.  So for example, in an off-balance sheet (non-recourse) transaction, repurchasing due to invoice credit performance would not be a contractual obligation, but is often done voluntarily by the borrower to avoid breaching triggers or to protect the overall funding programme.  Other contractual provisions relating to items such as dilutions or fraud could however force an invoice repurchase.

On-balance sheet (recourse) transactions are of course different.  The contract terms could require repurchase in the event of adverse credit performance, similar to the repurchase obligations as a result of dilutions or fraud.  And even in borrowing base transactions, a repurchase proxy exists through eligibility rules that jettison or expel invoices from the borrowing base when certain credit performance, eligibility criteria, warranties or programme obligations are breached.

The Aronova View

As service providers our role is not to structure transactions or set legal frameworks, but we increasingly see behaviour that is not traditionally monitored, and is probably not even considered when setting up the programme. This behaviour could affect eligibility and therefore funding, and should in many cases force the repurchase of an invoice, irrespective of the programme type.

Consider the case where an eligible invoice is submitted and sold (or forms part of the borrowing base), only for the issue date or due date of the invoice to be updated so that the invoice, if retested, would no longer be eligible.  Or what happens if the value of a sold invoice subsequently changes relative to the advanced amount, so that an ineligible advance rate has now been applied.

We see activity like this on a regular basis and in response we built Collateral Shield as a means of protecting the funder (and insurer) against this silent, mostly unobserved activity.  On a programme-by-programme basis, Collateral Shield applies a repurchase strategy that can be configured to respond to certain events.  So for example, if we detect a due date change to a sold invoice, Collateral Shield could automatically repurchase the invoice and retest it against relevant eligibility criteria.  It would only then be resold to the programme if it were still eligible.

Collateral Shield makes it possible to control repurchase activity in a more systematic way and to enforce repurchasing when required by the funding or insurance programme.

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Synopsis
Improvements in working capital management will enable all organisations to create value and enhance the way they operate. According to PWC, there is €1.2tr of excess working capital tied up on balance sheets.  Those who release the blockages which hide this capital will be able to boost growth and create more potential for investment.

Evaluating and structuring the programmes designed to release working capital can be a complex process and may involve many parties with different priorities. Technology can mitigate the operational risk associated with manual analysis and structuring, as well as improving visibility and unlocking potential. However, industry experience and a refined process to support the technology is every bit as important.

This paper discusses the problems and solutions involved in launching new working capital programmes, and how to reduce risk and secure better outcomes for all parties through a combination of technology and a detailed systematic process.

Challenges in working capital programmes

Anyone involved in working capital finance programmes will almost certainly have experienced the frustrations of trying to see things clearly enough early enough.  This is necessary to support effective structuring for ongoing management, and to avoid the risk presented by poor practice. In the early stages, many issues can trap decision-makers in an endless loop of inertia, indecision and over-analysis. When the programme is incepted, disjointed processes, the inability of debtors to see the behaviour, and changes in the risk profile are commonly cited as some of the main challenges faced in this sector. For example:

• Portfolio evaluation – with working capital finance programmes, it is clearly vital to gain a full understanding of the portfolio’s profile and performance. Discrepancies in methodology between the various parties, as well as different manual or technology-based analysis tools, can lead to confusion at this important stage. The result could be that a programme that doesn’t fit the client’s needs.
• Behavioural analysis – traditional analysis methods may provide a reasonable view of the basic behaviours that underpin the risk profile of the portfolio at any point in time. However, the subtleties that can precede material changes in the portfolio, or even fraudulent behaviours, can be nearly impossible to spot. Changes in patterns of payments, size or frequency of invoices, or even when and how invoices are settled, can be indicators of potential problems.
• Programme Compliance – it’s relatively simple to ensure that the invoices to be funded are in line with the defined eligibility structure on day one. However, details such as the order of the rules to be applied can make a material difference to the outcome. Testing is required and the analysis of the structure prior to funding can be very time-consuming. Initial testing is generally done with a single snapshot of data, and it is very difficult, if not impossible, to test for all scenarios. This means that non-performance and unanticipated risk to the programme may go unnoticed.
• Reporting and alerting – one of the key challenges of the effective running of a funding programme is the need for consistent, effective reporting and alerting:
  • Much reporting of performance is still done via weekly or even monthly feeds of data. With such long periods between reports, negative changes to programme performance can often be impossible to remedy by the time they are identified.
  • Traditional reporting methods often rely on analysts keeping a close eye on the data and reporting their findings to risk committees and other stakeholders. This manual process can mean subtle, behavioural changes that can be precursor to fraud or significant changes in risk can extremely difficult to identify in sufficient time to act.  
  • With multiple parties to a transaction, reporting requirements can lead to misunderstandings and discrepancies in the way that the portfolio performance is seen.

Systematic analysis and technology

Recently, many column inches in the trade press have been devoted to the coming together of finance and technology. The world of finance certainly operates more efficiently when using new technology solutions, with more accurate results and a better experience for users. However, if technological innovation is based on a disjointed process, you are simply automating a bad process which will yield inaccurate results.

To unlock the potential in working capital programmes you need to be able to:

• evaluate the potential of a programme to enable all parties involved to make quick go/no-go decisions
• deliver effective analysis of the portfolio to allow all parties to move quickly through structuring, armed with all the right information rather than a mass of unrelated information
• protect the programme through the systematic application of rules so that only assets eligible for the programme are included
• grow the programme with the confidence that precise insight and control is provided to all parties, who can then invest and grow the programme with confidence

Aronova’s answer to these problems

For over 15 years we’ve been producing technology to work with invoice data for funding and insurance and have distilled our extensive experience into a highly refined process that we call “Evaluate, Deliver, Protect, Grow”. Our technology is designed around this process. We can control the challenges and organisational complexity of bringing so many parties together. Aronova’s experience of structuring complex programmes enables us to foresee problems and provide critical guidance on the deployment of technology. We achieve this as follows:

Evaluate
A simple Excel upload of standard invoice data can provide near-instant analysis of the profile, risk and performance of the portfolio. We run automatic data validation algorithms to spot both data and behavioural anomalies, and our strategic partnership with Dun & Bradstreet enables us to match the underlying obligors or suppliers to a DUNS number. This enables us to confirm the exact legal entities in the programme in addition to their associated group structures. This gives all parties a single, clear view with the ability to make quick go/no-go decisions with confidence

Deliver
After the initial evaluation, we automate the process of adding a feed of data into our system to support the structuring of the programme and ensure that any changes in the data are monitored. Our flexible multi-pool eligibility structure is then deployed with the criteria for the programme in place to allow for effective modelling. The result is that the funding can be optimised to both meet the requirements of the borrower while effectively protecting all parties. 

Protect
With the programme now up and running, the effective management and monitoring of the portfolio is critical. Firstly we continue to apply all the eligibility criteria to every new piece of data that we receive to ensure it complies with the programme requirements. We also deploy tried and tested behavioural algorithms to identify changes in the portfolio’s profile. These algorithms identify any fraudulent or behavioural changes which could present a risk.

Grow
Our process and technology effectively checks all new data, making sure that only assets that meet the requirements of the programme are passed for funding. All parties are alerted if any issue is identified long before it becomes a problem. The result is that the programme can be scaled without incurring additional risk or needing to take on additional staff to manage the extra required analysis.

Aronova Multi-Pool Technology

You can read more about how we have helped to grow multi-pool programmes here.

And you can learn more about creating an industry-specific approach to the Evaluate, Deliver, Protect, Grow model by selecting your industry below.

Funding providers
Banks
Asset Managers
Funds
Insurers
Private Equity

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Last year, PWC’s Working Capital Report 2019/20 analysed the largest global listed companies of the past five years to assess trends in the approach to working capital management. According to PWC, there is €1.2tr excess working capital tied up on balance sheets, and they concluded that improved working capital management is one of the most effective ways in which value can be created.

Evaluation challenges at the pre-funding stage

However, as anyone who has been involved in the evaluation and structuring phase of a working capital programme will attest, one of the most frustrating components of this early stage can be the amount of time it can take to get the programme over the line. In the modern-day world of compliance, and with the ever-present risks of portfolio non-performance and potential fraud, every effort needs be made to understand the underlying assets so that all parties to these transactions are protected.

Receivables-backed programmes

With receivables-backed programmes, it is vital to gain a full understanding of sellers and their accounts processes, to see how they manage collections performance and elements such as aged debt and dilutions. It is also critical to be able to understand their clients, analysing patterns of trade and behaviour and seeing clearly the concentrations and risk within the portfolio. 

Even today, in our technology-rich world, we see so much of this being done manually. Funders take files of data and reports, with headline statistics compiled by the seller themselves, to be validated and scrutinised by analysts using models in Excel. This data is then verified and audited, and the outputs used to provide the initial pricing for these programmes. All of this takes a huge amount of time, and it can be several months before anyone can move on to structuring the programme and putting the documents in place.

It’s not just a matter of the inertia caused by these delays. Relying on reports created by the seller and a single cut of receivables data can lead to broad-brush structures with additional layers of protection built in. Often the reserves may be higher than actually required, with lower-than-optimal advance rates added for protection. This though compounds the problem and may make your offer uncompetitive. 

With greater demand in the sector, more and more organisations are deploying technology to help them during the pre-funding stage. Those using advanced analytics for the process are able to dramatically reduce the time spent on some of these critical elements, as well as gaining insights that are nearly impossible using traditional methods. 

An attractive asset class

Aronova have been helping banks, asset managers, private equity companies and insurers to analyse portfolios since 2003. Almost every programme we see has several potential suitors as receivables, as an asset class, are becoming more and more desirable. Receivables are large programmes with nicely diversified risk, and long-term investments with a good, stable return, and not only are we seeing a lot of activity from the traditional banks but a growing appetite from the capital markets and investment funds. 

At this early stage there is the greatest risk of losing the opportunity to a competitor, but the ability to automate the process and use advanced analytics can reduce this. 

How the technology works

A single upload of current and past data – the kind of standard data recorded in any accounts system – can be a real game-changer in these scenarios, providing instant, comprehensive analysis of the portfolio:

• Smart-matching to DUNS validates every obligor and flags those of concern
• Enriching the data shows concentrations of obligor, group, sector and geography
• Analysis shows performance over time and key areas of risk
• Proprietary behavioural analysis algorithms spot trends in behaviour and identify potential fraud
• Clear visibility supports simple go/no-go decision making

This all not only dramatically reduces the time needed to analyse the portfolio but enables organisations to provide tailored, competitive programmes which fulfil the borrower’s specific requirements. In addition, it effectively protects all counterparties to the transaction, significantly improving the likelihood of being selected to fund the programme.

By improving the accuracy of analysis at the pre-funding stage of a working capital programme, all parties involved in the transaction can evaluate, simplify and unlock the benefits more quickly. Digital technology is now more accessible and flexible to use, and should be a standard tool for accelerating working capital improvement.

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Helen Castell is a freelance journalist and editor with nearly 20 years’ experience as a financial journalist, specialising in trade finance, commodities, energy and international development.

COVID-19 has shaken the world economy to its core, bringing chaos, uncertainty and pain to supply chains in almost every sector and geographical market. But while the challenges facing global trade are very real – and the human cost of the pandemic is rightly front of mind – the financial services sector has a responsibility, and an opportunity, to keep trade flowing and help otherwise viable companies survive the storm.

The months ahead will see numerous businesses fail, but there will also be survivors and even successes. Many in the healthcare, grocery, online retail and technology sectors, for example, are already enjoying demand upticks that they will only be able to capitalise on – and hopefully sustain post-crisis – if their own suppliers also stay healthy.

The readiness of working capital providers to support these firms with fresh liquidity is already being put to the test, as is the ability of technology innovations that some have invested in to provide the transparency and efficiency that is now needed more than ever.

Rush for liquidity

Demand for cash has soared in recent months, with firms across the globe – from smaller businesses to investment-grade names – rushing to stockpile liquidity to ensure they can pay bills and buy inventory if revenue and other sources of credit dry up. In the US, for example, firms drew an unprecedented $162 billion from existing revolving credit facilities in the final three weeks of March, also tapping another $26.1 billion in new revolvers and loans, according to Bloomberg data. 

Buyers are also seeking more time to pay suppliers, which are simultaneously requesting early payment from customers to help them survive or even grow throughout the crisis – creating a financing gap that represents an opportunity for working capital and supply chain finance providers. US fintech Taulia, for example, says its platform experienced a more than 200% surge in early payment volumes for suppliers in March, while funders like Citigroup and Greensill have predicted demand for supply chain finance will outstrip availability in the months ahead.

At the same time however, fears of credit downgrades or fraud have spooked traditional lenders, with numerous banks taking a more cautious approach to supply chain lending that has traditionally been core to their transaction banking business. 

Although this process was already underway pre-COVID – with insufficient investment in automation at some banks rendering what is a relatively low-margin, high-volume business increasingly less attractive – the trend has accelerated sharply this year. The UK’s Lloyds, for example, reportedly closed its supply chain finance book to new business in March, citing the heightened risk of fraud that often accompanies economic downturns. Others have withdrawn even from pre-existing programmes.

Helping supply chains survive

The benefits that receivables-backed working capital finance brings to corporates – especially during times of downturn or business disruption – are well documented. 

In a supply chain finance programme, a financial intermediary effectively lends a big buyer or importer working capital that is then funnelled to its various suppliers in the form of early – and sometimes even pre-shipment – payments for their invoices. 

Such programmes enable suppliers – which pay for the service in the form of a ‘discount’ or percentage of the value of invoices that are settled early – to buy parts or raw materials they need to keep producing and stay in business. This can prove a vital lifeline at times when such suppliers’ orders and revenue take an unexpected hit or logistical challenges trigger shipment delays. And because the original funding for the programme is lent to the buyer on the back of its typically stronger credit rating, the discount the supplier pays is usually smaller than the interest they would be charged if they were to try and borrow working capital directly.

For buyers, these programmes sometimes enable them to extend payment terms with suppliers, freeing up working capital for other purposes, although this has proved controversial. Automation of invoice payment processes also improves efficiency and can help buyers trim their finance department staffing costs.

Most importantly, supply chain finance hands buyers stronger security of supply. During sharp downturns or times of crisis – such as the one now crippling many sectors – it can help buyers support struggling suppliers whose goods and services will be crucial to their own revival once trading conditions improve. Those suppliers that are left standing after a storm are often inundated with orders at this point – not all of them they are able to fulfil – and buyers that invested in the relationship during tough times will find themselves closer to the front of that queue. Deciding which suppliers’ goods are most critical to a buyer’s own production or business – and therefore which suppliers to prioritise with better payment terms or supply chain finance – is therefore a process that many big names will be going through now.  

Buyers in the UK food industry, for example, have embraced this principle in recent months, rushing to support suppliers as the pandemic knocks otherwise viable businesses sideways. A toxic mix of logistic disruptions and restaurant closures have dragged many food suppliers close to collapse but also opened new opportunities for those that are able to respond quickly to spikes in demand from supermarkets and delivery services. 

Supermarket chain Morrisons attracted praise in mid-March when ahead of a country-wide ‘lockdown’ it pledged fast and even pre-payment to small farmers and other suppliers. While the group’s motives were understandably more pragmatic than charitable – with its CEO noting at the time that the chain was heavily dependent on the ability of such suppliers to function smoothly and manage supply chain disruptions – the approach has helped it keep shelves full and tills ringing during a period of immense profit opportunity for big grocers.

In contrast, a handful of big fashion retailers that reportedly stung suppliers with harsher payment terms and order cancellations as their own revenue dried up may struggle to compete with more supportive buyers for inventory once stores reopen, especially if their old suppliers have gone bust.

Tech-savvy specialists best positioned

This creates a window of opportunity for working capital and supply chain finance specialists to increase their market share. Tech ‘disruptors’ armed with innovative solutions and automation capabilities able to cut programme costs, tackle fraud and inject more transparency into the process will be best positioned to benefit. The coronavirus pandemic has, for example, made the digitisation of trade finance more critical than ever, as office shutdowns and home working slow the processing of paper-based documentation to near standstill.

Critics have often argued that supply chain finance is vulnerable to fraud even during uptrends, given the complexity of many trade finance programmes as well as their reliance on the veracity of invoices. Working capital providers that boast tech solutions for identifying and preventing potential fraud ability will therefore find fresh opportunities in current market conditions.

Aronova’s approach is to leverage tech tools to analyse the historical behaviour of buyers and sellers in a programme, flagging any anomalies for further investigation. It taps a database of over 300 million businesses globally to verify the identity of counterparties in each transaction and applies eligibility criteria for every new invoice and obligor to protect all parties against the risk of unwanted liabilities.

Distributed ledger technology also holds promise, with several providers launching blockchain-powered solutions to streamline documentation processes, eliminate the need for third parties in cross-border payments or enable local currency payments to suppliers. China Everbright Bank, for example, announced in March it has partnered with Alibaba’s Ant Financial to implement a blockchain-based supply chain finance platform.

Now is also prime time for both banks and supply chain finance specialists to grow existing programmes by onboarding a larger pool of suppliers and investing in automation. This helps finance providers and the corporates they serve benefit from the economies of scale and efficiencies that bigger programmes bring.

As with any financial service, supply chain finance is not without its risks. Ratings agencies have, for example, warned in recent weeks that the pandemic may tempt buyers to use the tool to beautify their balance sheets and hide unsustainable debt levels. While there is little evidence that this has happened yet, their comments underscore the importance of transparency, not least during testing times. Supply chain finance may be enjoying its moment in the sun, but with this comes a responsibility to prove such fears unfounded.

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