Trade Credit

The direct cost savings of Digital Trade Credit


Last week we published a blog post discussing the need for a new approach to trade credit management. Here, in the next instalment of that series, we explore the direct cost savings of Digital Trade Credit.

One of the primary tangible benefits of integrating a Digital Trade Credit solution is that it combines multiple processes traditionally undertaken by a number of teams using a variety of solutions and external providers. In doing so, it enables suppliers to achieve a number of direct cost savings that fall into three broad categories:

  1. The cost of buying payment and trade credit-related services
  2. The cost of labour
  3. Financial costs

Let’s take a look at a brief overview of each category.

The cost of buying payment and trade credit related services

At each step of the trade credit lifecycle, suppliers must either invest in solutions and services to support their operations or develop the appropriate capabilities and create the associated resources internally. The challenge with the latter is that, for all but the largest businesses, B2B suppliers end up operating a sub-scale cottage industry which cannot keep up with digital best practices.

It is also important to remember that each service brings IT integration costs that must be factored into budgets. Appointing an agency to carry out IT integrations typically starts at around €20k but can run into hundreds of thousands of euros for larger projects. 

Services costs can be split into three categories: pre-trade, trade and post-trade.

Pre-trade costs:

  • Credit scoring
  • Fraud detection

Trade costs:

  • Payment processing fees from payment service providers and banks

Post-trade costs:

  • Accounts receivable solutions
  • Invoice factoring
  • Credit insurance
  • Collections agency fees

The cost of labour

With Digital Trade Credit, suppliers stand not only to make direct cost savings, but also a number of associated labour and time costs. This starts with reducing the burden on procurement or operational leads to run multiple Request for Proposal (RFP) processes and negotiate commercials with several suppliers. The need for ongoing supplier relationship management is also reduced.

From an operational perspective, a single solution approach means that information is centralised. This provides B2B suppliers with easier oversight of customer information and status and reduces the time spent extracting and transferring information between systems – an approach that can also increase the likelihood of errors and internal fraud. 

Labour costs can be split into the same three categories as before: pre-trade, trade and post-trade.

Pre-trade costs include:

  • Credit assessments
  • Limits determination 

Trade costs include:

  • Integrating, testing and monitoring several payment options

Post-trade costs include:

  • Buyer monitoring
  • Limits management
  • Collections and reconciliations

Financial costs

In addition to the cost of solutions and services and labour costs already covered, Digital Trade Credit can bring significant savings to the financial costs associated with traditional trade credit. Often, businesses do not factor these financial elements into cost assessments, but they are an important part of the equation.  

Financial costs include:

  • Credit losses
  • Fraudulent transactions
  • The cost of liquidity:
  1. Working capital implications of offering terms
  2. Large customers expect extended payment terms

In an upcoming white paper, we explore all of these cost savings in more detail, before assessing Digital Trade Credit’s potential to drive additional revenue for B2B businesses. If you would like to be one of the first to receive a copy of the white paper, please register below for early access.