Insights for Procure-to-Pay and Finance Leaders

Tradeshift Cash: revolutionizing supply chain finance using blockchain

We’re excited to introduce Tradeshift Cash, a real-time early payments product based on blockchain technology for micro, small and medium-sized enterprises (MSMEs) everywhere in the world.

Tradeshift Cash represents a new principle in supply chain finance. Up until today, the innate qualities of companies have remained dormant and illiquid. Tradeshift Cash taps into these insights to provide companies greater access to cash.

What is Tradeshift Cash?

Tradeshift Cash is the first product on the Tradeshift platform designed to explicitly target the financial needs of MSMEs anywhere in the world. This underserved market makes up the vast majority of companies in most supply chains. The types of financing terms available to large enterprises in developed countries have been largely unavailable to MSMEs. Until now. Tradeshift Cash provides financing on their terms: reducing the cost, time, and rigidity this segment usually encounters.

With Tradeshift Cash, a company can at any point decide when and how much capital it needs. Its request is then backed up with digital assets the company agrees to include in the transaction, like invoices, relationships, and history – anything that can help lower the risk to investors and lower the cost of financing.

We then present the request to our community of investors on an open and competitive market. We leverage our technology to create a hyper-liquid market – something no other cash management solution on the market does

The 9 trillion dollar problem

In terms of access to capital, $9 trillion is at any given time outstanding between buyers and suppliers. The World Trade Organization (WTO) estimates that more than 50 percent of international trade finance requests by MSMEs are rejected. Overall, it’s estimated that only 10-20 percent of outstanding receivables are intermediated by financial institutions. During the financial crisis of 2008, MSMEs were hit hard. The sharp worldwide increase in Days Payable Outstanding (DPO): in some countries rose to over 12 months.

We saw the price companies paid through bankruptcies, lost jobs, lack of capital to finance growth and disrupted supply chains. These challenges are disproportionate between small and large companies and between developing and developed economies.

At the core of the problem for MSMEs is a lack of information. Financing is either inaccessible or expensive to MSMEs because the financier lacks insight into the business of the supplier, the buyer or both.

Digital trade relationships for transparency

We can resolve the whole challenge of unlocking access to global supply chain finance if we can share a richer set of information. Information that reflects the innate worth of companies’ trade relationships to the people making risk decisions on providing finance.

With Tradeshift Cash and our financial services offerings in Pay, our goal is clear: make the billions of dollars flowing through our platform work for all companies involved in trade – no matter their size or location.

Tradeshift Cash is built on the realization that digital trade captures much more than just the transaction itself: it captures trade relationships and histories through time, representing the building blocks of reputation, digitized.

It’s’ not just fuelling new models of financing, but helping create liquidity through open markets. Tradeshift Cash unlocks a whole class of dormant but valuable assets tied up in accounting packages, internal systems, email inboxes, and paper. We believe that long-term, this aids the democratization of access: not only to finance but to new customers and markets.

Using blockchain for positive change in B2B

In modern trade, every transaction is subject to scrutiny. The problem of trust in trade is so ingrained that even imagining an alternative solution seems impossible. But blockchain has the potential to fundamentally change trade expectations: it fosters transparency and trust by bringing multiple parties together in immutable and transparent transactions. Blockchain allows many people to agree on transactions in distributed infrastructures at internet scale, truly a “decentralized network with memory,” as Vitalik Buterin, co-founder of Ethereum, called it.

Tradeshift Cash uses tokenization, the process of converting rights to an asset into a digital token on a blockchain (such as trade receivables), to enable a new class of liquid financial objects. Because of tokenization, blockchain can support settlements directly between parties, based on transparent smart contracts, without middlemen holding the balances.

Instead of all-or-nothing factoring or invoice-by-invoice marketplaces, the tokenization of digital assets allows full flexibility in mixing properties from assets. Both the debtor and creditor can make here and now decisions about the tradeoffs between time, risk, and cost.

Future perspectives

Brand reputation for well-established companies can lead to greater sales and market share. But for small companies, reputation doesn’t travel easily outside of set trade relationships. For the most part, it remains illiquid and dormant.

We want to change that. Tradeshift Cash is the first step in the creation of a marketplace for tokenized digital assets that build on a company’s digital reputation. A market where the history of their actions in real trade, and their relationships with their trading partners will lead to greater access to cash.

In the long run, making reputation digital, accessible and liquid will have real and positive economic impact on businesses, individuals, and society – both in terms of access to capital and access to the market. Democratizing global trade is just another step in our mission to enable commerce for all.

Curious to learn more about Tradeshift Cash? Read all about Tradeshift Cash here.