UPS Capital is looking to develop trade finance offerings that may provide alternatives to letters of credit (L/Cs) and may be particularly appropriate for small- and medium-sized enterprises (SMEs).

The subsidiary of the shipping conglomerate wants to take advantage of the digital tools it now has at its disposal to precisely track cargoes so that it can use these shipments to unlock capital currently locked up in in-transit inventory.

Unlocking capital

UPS Capital says that for an importer that must prepay for goods yet wait for a shipment to arrive, the time between paying for an order and receiving funds from selling inventory can be 75 days or longer.

This is the locked-up capital in in-transit inventory that UPS Capital is seeking to unlock when companies use its supply chain solutions.

Visible shipments

Typically, importers cannot use domestic financing lines while goods are in transit or outside the country - inventory financing is usually available only when stock is in the importer's own warehouse.

But because it can clearly see goods already being moved by UPS via digital tools, UPS Capital says it is able to accelerate the cash conversion cycles for importers.

L/Cs will continue

President of UPS Capital, Mark Robinson, says he thinks it unlikely that banks will suddenly stop using L/Cs and other legacy trade financing tools.

But he does believe the shipping conglomerate's financing affiliate will provide trade financing offerings particularly important for smaller businesses stepping into the global market for the first time.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.