NEW YORK — International open account trade was once riddled with challenges for companies looking to do business on a global scale. A lack of transparency and concern about "cross-border exposure" made the financial end of doing business difficult.
But a new breed of supply chain trade finance solutions has developed recently that leverages technology and increased visibility. This makes global business not only manageable, but profitable.
David Conroy, global head of supply chain services and trade sales at Citi's global transaction services business, discussed these financial solutions with WWD.
WWD: What are the benefits of open account trade financing?
David Conroy: As the number of companies participating in cross-border trade continues to increase, so does the need for risk mitigation, efficient document processing and financing. In addition to the extraordinary expansion of global trade — volume has doubled in the past 10 years and quadrupled in the last 20 — the trade marketplace has undergone a dynamic shift in transaction formats from both ends of the supply chain, affecting importers and vendors alike. Specifically, there is a noticeable transition from traditional letter of credit [LC] to open account trade, allowing savings and enhanced efficiency throughout the purchasing cycle.
Today, for example, more than 40 percent of companies worldwide trade with eight or more geographies, many with hundreds of individual suppliers. This characteristic of the marketplace, with its subsequent expansion of trade volumes, reinforces the popularity of open account trade because it is most advantageous to industries with a one-to-many relationship between buyer and sellers.
Until recently, major barriers such as a lack of transparency and apprehension about cross-border exposure have limited international open account trade. However, significant improvements in technology and increased visibility into the financial supply chain have diminished these concerns considerably, as both buyers and sellers recognize the benefits available through open account trade. In addition, competitive pressures are forcing participants throughout the supply chain to improve their efficiency and drive down costs.
WWD: How does open account financing differ from traditional letters of credit?
D.C.: By streamlining processes for both importers and suppliers, simplifying and automating documentation review and reducing the cost of working capital across the global supply chain, open account trade can result in greatly improved efficiency and considerable savings in time and costs.
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