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In our connected world, global trade has not only become much more possible for businesses of all sizes, but also much more critical to success. And yet, as buyers and suppliers seek to take advantage of the opportunity to deal with anyone, anywhere, anytime, an age-old problem remains: TRUST.
For businesses considering aligning with new international partners, the concerns are plentiful. Will goods be delivered on time, if at all, and will they match the supplier’s description? Can buyers be trusted to pay in full for their order?
Existing solutions – such as Letters of Credit – are a costly and labor intensive option that fail to take advantage of today’s technology. For too long, these seemingly simple trust issues have lacked an equally simple solution, leaving businesses in the dark, and potentially counting the cost of regrettable decisions.
In Europe, the market for Letters of Credit is worth an estimated $700 bn, globally it totals a massive $2.8 trillion. And yet, despite the vast sums of money tied up in Letters of Credit, they are becoming a less and less adequate solution for the demands of today’s business landscape.
Despite the advances of the digital age, Letters of Credit still demand significant manual input, and – as well as being expensive and difficult to procure in the first place – can be an ongoing administrative minefield. Little wonder that the UK government’s official documentation on the subject suggests it is “often best to avoid using” Letters of Credit for transactions due to the possibility of “expensive delays, bureaucracy, and unexpected costs.” At the same time, simply invoicing and hoping for the best isn’t an appealing alternative for the reasons outlined above.
This open account approach is predominant today in the face of inadequate alternatives, but, as highlighted, is fraught with risks. Likewise, Bank Payment Obligations add a degree of digital automation over Letters of Credit, but lack widespread adoption and incur double bank fees – if a bank even supports the technology. If you’re thinking there has to be a better solution, you are not alone
The service removes the risk of trading with unfamiliar partners, with Traxpay acting as a trusted third-party that collects, holds, and disburses funds according to buyer and supplier instructions. Buyers can purchase with full confidence, receiving and inspecting orders before releasing payment, while suppliers can instantly confirm that customers have “good funds”.
To facilitate the all-important trust between parties, Traxpay Conditional Payments leverages powerful technology designed to adapt to every businesses’ needs’.
Buyers can cut out the paperwork and bureaucracy, while suppliers know their funds are ready and waiting to be released. By establishing a dedicated line of communication and offering optional arbitration services for both parties, the platform also makes problem solving a far simpler and quicker part of the process.
The scenario above outlines how Conditional Payments works in practice between two companies with no previous trading relationship or established reason to trust one another. In the example, Atlantis AG of Germany has agreed to buy €70,000 worth of widgets from Zambezi S.p.A. of Italy.
1. Both parties agree that Traxpay Conditional Payments is the safest and easiest way to complete their transaction. They sign a standard contract which states that payment will be automatically released after a specified inspection period, which begins on delivery of the widgets. Atlantis can stop payment during the inspection period if the widgets don’t meet expectations.
2. Atlantis chooses to make their payment by either obtaining a payment guarantee from their bank, or depositing the full amount into the Conditional Payments account.
3. Zambezi is notified that a guarantee or funds have been lodged, giving them confidence to ship the order. Zambezi then provides tracking information via Traxpay’s platform, including proof of delivery.
4. Atlantis receives their order of widgets, and verifies that the contents are as described. Once the order inspection period ends, payment is made to Zambezi – either by triggering the guarantee or releasing the deposited funds. Atlantis is free to release payment earlier if they are happy with their order, as well as stopping it if they are dissatisfied.
Traxpay also offers a Conditional Payments option extended by blockchain-based smart contracts. Smart contracts empower buyers and suppliers to represent their deals on public or private blockchains to provide additional auditability and provability that replicated shared-ledger systems unlock. For financial institutions, partnering with Traxpay smart contracts unleash a new, future-proof level of service in B2B trade finance.
With lower fees than any other online payment or escrow service, and lightning-fast channels for problem-solving and arbitration, Traxpay Conditional Payments will save your business time as well as money. But the differences between our solution and the status quo don’t end there. Those headaches of applying for Letters of Credit become a thing of the past, you have far less risk than in open account trading, and our Software-as-a-Service approach means no more software upgrades are necessary.
This advanced level of automation removes the overheads involved in initiating, executing, and enforcing standard contracts. All of which means businesses can finally wave goodbye to the paper trail associated with digitizing and authenticating records.
Traxpay Conditional Payments is blockchain agnostic, and can be implemented and tailored to suit specific customer needs.
The most remarkable and unique features of our smart contract extension include: