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Instant payments to free up liquidity in Denmark

Faced with the prospect of supply chains seizing up as a result of the pandemic, the instant payments concept is being applied in an clever way in Denmark. An initiative from the fintech company Tradeshift and EKF Denmark’s Export Credit Agency aims to expedite payment flows between Danish businesses, allowing more SMEs to boost their liquidity.

Currently a large number of Danish businesses are facing dwindling revenues, but stable payroll, rent and supplier expenses. The COVID-19 crisis could threaten their survival, as it will be even more difficult to stay afloat if they have to wait 90 days or more to receive payment for their deliveries.

This need for expedited B2B payments has spurred EKF and Tradeshift to set up the initiative that enables companies to settle their suppliers’ invoices early. The Tradeshift trading platform can assist with the digital infrastructure to facilitate the instant-payment model. Meanwhile, businesses with export turnover are eligible for a line of credit with their bank, to be guaranteed by EKF, in order to keep them afloat if they opt for instant payment of supplier invoices. Tradeshift’s technology also ensures a digital record trail for both the bank and EKF.

“The instant-payment scheme has the potential to be a powerful relief package for these exporters during the corona crisis,” said co-founder of Tradeshift Mikkel Hippe Brun. “Not only does this hold sizeable financial potential in itself, it is also set to arrest the downward spiral caused by all businesses in a value chain delaying payments simultaneously. In addition, we recommend considering the option of rendering businesses cost-neutral for a limited period, to offset the interest rate costs of expediting remittances.”

The export credit agency’s role is to make its guarantees available to exporters who take up the scheme.

“We are keen to do our bit to incentivise instant payment, which is why we are making our solutions available to exporters who opt to expedite payments to their suppliers,” said EKF’s CEO Kirstine Damkjær. “This will allow them to pay supplier invoices early without compromising their own liquidity.”

The inspiration for the instant-payment scheme came from a number of large corporates announcing that they had expedited remittances to their suppliers during the crisis. In this way, large corporates are helping to ensure that smaller enterprises have the cash to make it through difficult times.

Tradeshift estimated the potential with sparring partner Philipp Schröder, Professor of Economics and CEO of the Firms and Industry Dynamics research centre at Aarhus University, and a member of the panel of experts currently advising the Danish Government on the next phase of reopening Denmark. Tradeshift’s estimates indicate that the 250 largest corporates in Denmark could potentially unlock a triple-digit billion DKK amount in liquidity over the next twelve months by expediting remittances.

“This could make a big difference to many of those businesses that are currently struggling to stay afloat in the wake of the coronavirus crisis,” commented Simon Kollerup, Denmark’s minister for Industry, Business and Financial Affairs. “I welcome EKF’s move to assist the businesses who are keen to pay their suppliers, but have until now not been in a position to do so. This arrangement is an excellent example of how partnering between EKF and the fintech industry can bring about real solutions to unforeseen problems.”

“Our member survey from mid-April shows that one in four of our members risks their cash drying up in the space of just two months,” noted CEO of The Danish Chamber of Commerce, Brian Mikkelsen. “So, I am thrilled by this initiative. Increased access to liquidity could make all the difference to many Danish businesses under pressure.”

“The liquidity potential of instant payment is undoubtedly high. This model is particularly promising because it is geared to B2B trade,” commented Philipp Schröder from Aarhus University. “It takes longer for B2B operators with complex value chains to get back into business. Once a component supplier finally succumbs, it takes longer - all things being equal - for a new component supplier to be in play than it would for a new restaurant, say, to pop up. In other words, the risk is that the macroeconomic loss from that one component supplier’s insolvency will be fairly substantial.”


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