In an otherwise difficult year for the trade finance sector, providers of supply chain finance (SCF) thrived in 2020 as buyers and suppliers scrambled to free up liquidity in response to unprecedented disruption.

When Covid-19 containment measures were implemented in markets across the world, SCF providers reported a surge in demand. Despite years of warnings that supplier finance programmes may not survive an economic downturn, it appears that funding remained robust throughout last year’s crisis.

However, SCF programmes generally only help suppliers once the goods have arrived at their destination. Unlike with a letter of credit (LC), a buyer has no guarantee of payment and so will generally wait until delivery before approving a supplier’s invoice.

According to Tim Nicolle, chief executive of London-based fintech PrimaDollar, that creates space for so-called “supply chain trade finance”: a hybrid product where features from the traditional trade finance sector are blended with those of emerging technology-driven SCF.

Speaking to GTR, Nicolle argues that traditional trade finance products are due an overhaul, calling for a model that allows suppliers to be paid earlier – at the point of shipment, rather than delivery – without the buyer having to grapple with the complexity of an LC.


GTR: You have described letters of credit as a complex product being used to support a relatively simple process. Why is that?

Nicolle: The proportion of global trade that is financed by LCs has been falling over the years. That shows you there is a problem with this product. But what is that problem? LCs work, they do what they say on the tin.

You could argue they are too expensive. We have calculated with some customers what it actually costs them to import or export under an LC. With all the various fees and charges, it comes out at around 2% or 3% of the face value of the trade, or sometimes more.

But our conclusion is there is a customer journey problem: ultimately, importers and exporters don’t like the LC as a product. With layers of complexity, various fees, and slow processing, customers think trade finance could be made a lot simpler without LCs.

The purpose of the LC is to make sure that the exporter has done its job, to get the exporter paid and to allow the buyer to pay later; you could do all that in a much simpler way.


GTR: You describe PrimaDollar’s offering as a hybrid product, combining LC-like characteristics with SCF. How does it differ from typical supplier payment programmes?

Nicolle: Regular supply chain finance is all about approved invoices, and approval typically happens after the goods have been delivered. Tech-driven SCF platforms are great once the goods have arrived, because the buyer can approve the invoice, but they generally can’t make payments to suppliers before that has happened.

Our platform also collects the shipping documents from the supplier, like with an LC. That gives us a rich set of information about the trade itself, which we can show to the buyer. The buyer can then approve the documents before the goods arrive, and that means we can pay the supplier at the point of shipment instead.

Conceptually, that’s quite a big departure from how SCF has generally been done, partly because the data is flowing back to front: we get all the information we need from the exporter, not from the importer.


GTR: Do you market this product to both buyers and suppliers, or would suppliers be onboarded after the buyers have already signed up?

Nicolle: We market to the buyers, rather than the suppliers, and they’re motivated by being able to pay later, accessing much richer data on their supply chain, and by the cost savings available.

On the supplier side, that means it’s the buyers who would then ask their suppliers to join the platform. If those suppliers want to be paid earlier, they are motivated to do so; in our experience, once the importer has made the platform available to its suppliers, that happens quite quickly.


GTR: You also approach supplier payments differently to many SCF providers. Does that mean you take on greater compliance responsibilities, and if so, does that affect supplier onboarding?

Nicolle: Because we make the actual payments – rather than the funder – the compliance responsibility is on us, and it’s our decision whether or not to onboard a supplier. There are no shortcuts with compliance – we have offices across Asia, for example, with boots on the ground – but we make use of technology to make that easier.

We’ve onboarded and have as customers suppliers in 17 countries, with supply-side offices in six countries. That does rely on our knowledge and understanding, which means avoiding a one-size-fits-all compliance policy, and using our experience working in emerging markets. In some countries you might not be able to ask for a copy of a utility bill, for example.

You also need to carry out sanctions checks, for example by screening the vessel, ensuring the container is on the boat, that the goods on the packing list match the goods on the bill of lading, that the goods are at the right market price and are the right goods for that particular buyer.


GTR: What level of uptake have you had so far?

Nicolle: It’s still a relatively new product. We do have clients in 40 countries, and a lot of activity on the platform, though we’re yet to land a major household name buyer.

Since we were set up in late 2016, we’ve processed approaching half a billion dollars in flows across our platform. We have thousands of shipments going through the platform, and in terms of building out the platform itself, we’re now focussed on improving our processes rather than dealing with the core functionality.