Trade finance in the 21st century

January 18, 2024

Polaris-wcs® transforms trade finance, offering banks and investors an innovative solution to simplify trade transactions and expand the market.

Trade finance, in its various articulations, is traditionally considered a product intended for more structured companies and requires a high degree of technical expertise and evaluation. This excludes the possibility of making it a 'over-the-counter' product, characterised by minimum requirements for preliminary assessment, easily replicable in time and space, and endowed with a consistently low and easily monitored riskiness.

But what if it were possible to simplify and industrialise the product, greatly expanding its potential market?  This is exactly what Polaris-wcs® does, making corporate trade debt eligible for trade finance transactions based solely on the assessment of credit risk towards the debtor counterparty.

But this is reverse factoring! No, it is not reverse factoring because Polaris-wcs® does not envisage the establishment of factoring contracts (ongoing relations assisted by the mass assignment of future receivables by suppliers) between the bank and the supplier, but only the adherence of these two parties (and the debtor) to a marketplace contractual scheme.

What advantages does the bank have in this context? 

  • It greatly widens the potential scope of use of the product, reducing its assessment cost. Once the Polaris-wcs® contractual scheme has been validated, all credit purchase transactions finalised on Polaris are identical and the only assessment required is that of the credit line in favour of the Buyer 
  • Can flexibly profile individual risk contexts by parametrically defining, at the level of the individual debtor counterparty, the eligibility criteria of the suppliers and credits it intends to negotiate 
  • Standardises and simplifies supplier onboarding. As part of the Polaris-wcs® membership process, suppliers provide the standard documentation required for KYC and are validly identified. Polaris-wcs® also structures the operational proxies of the company's representatives, ensuring their correct use in the platform. This information is shared with Polaris-wcs® partners and is systematically updated
  • It reduces the risk of the transaction in several respects. Firstly, all assets traded on Polaris-wcs® are certified as valid by the debtor, who enters them on the platform: no credit risk falls on the supplier/borrower. Secondly, the bank can at any time reduce or revoke the credit line to the Buyer, as well as its approval of the individual supplier, without thereby blocking the operation of the system, which is open, which could generate a potentially major problem. Third, precisely because the system is open, the Buyer has an important incentive to fulfil its obligations, regardless of any transitory difficulties. Fourth, the adherence of all parties to a common contractual scheme makes it possible to overcome the problems arising from the existence of different jurisdictions, in the case of cross-border transactions
  • It can offer its customers an open, digital and evolved product. In this way, the bank can validly enter into relationships with companies to which it cannot independently offer significant credit support, instead presenting an open solution within which it too can operate. A solution that is entirely digital and integrated with the client company's ERP, without therefore impacting on its operating costs

What if the bank does not have the trade finance product in its portfolio? 
Polaris-wcs® simply becomes an investment opportunity on the short-term trade debt of companies with good creditworthiness. An investment opportunity, but also an opportunity to develop customer relationships that can usefully extend along the value production chain at the end of which the Buyer company is located.

But we are not just talking about banks.  
The simple fact of making corporate commercial debt negotiable in a standardised and controlled contractual context makes this asset class also eligible for intervention by other categories of qualified investors (funds, family offices). The reduction and standardisation of risks and the possibility of taking advantage of dedicated insurance cover simplifies the investment evaluation process for these categories of intermediaries and is therefore likely to further expand the market.