Trade financing is a critical part of the global economy, allowing businesses of all sizes to access the funds they need to buy goods, expand their operations, and ultimately grow. However, this vital process can be fraught with risk, particularly when it comes to collateral management.
At its most basic level, collateral is a type of security that is used to back up a loan or other financing arrangement. In trade financing, this usually takes the form of goods that are stored in a warehouse and pledged as collateral to a lender.
Collateral Inspection and Evaluation
The process of completing a trade financing deal typically begins with the borrower approaching a lender and requesting funding. The lender will then review the borrower's application and assess their creditworthiness, as well as the value and quality of the collateral being offered.
The Issuance of Financing
Once the lender is satisfied with the borrower's application, they will typically enter into a financing agreement with the borrower, which sets out the terms and conditions of the loan. This agreement will also outline the terms of the collateral, including the type of goods being pledged, their value, and the conditions under which they can be released.
At this point, the borrower will need to transfer the goods to a designated warehouse, which will act as the custodian of the collateral. The warehouse will typically be chosen by the lender and must meet certain requirements, such as having adequate security measures in place.
Once the goods are in the warehouse, the lender will typically use a third-party collateral management company to monitor the collateral and ensure that it remains in good condition. With our Smart Collateral Management solutions, these goods are accurately weighed-in and accounted for in the warehouse, using our Digital Twin Warehouse (DTW) system. DTW enables inventory and access control monitoring with the help of the installation of cameras and proprietary video analytics engine to provide live inventory count and in-warehouse cargo locations. In addition, DTW’s engine intelligently identifies any unauthorised movement or tempering of these cargos, immediately alerting the relevant parties.
Paired with DTW’s other half of the twin - the Scalable Cargo Profiling, LIDAR cameras are activated to capture the geometry of the cargo to calculate cargo volume. This cross-comparing exercise acts as a preliminary check for any adulteration as soon as the cargo reaches the warehouse.
Digital Twin Warehouse Inventory and Access Control Monitoring
Repayment and Settlement
Throughout the financing period, the borrower will be required to make regular payments to the lender, and the collateral will be held until the loan has been fully repaid. If the borrower defaults on the loan, the lender may take possession of the collateral and sell it to recover the outstanding balance.
While the trade financing process can be complex and risky, careful collateral management can help to mitigate these risks and ensure that borrowers and lenders are protected throughout the transaction. By leveraging off the latest technologies such as Ascent’s Digital Twin Warehouse solutions, borrowers and lenders can rest assured that their assets are well-secured and monitored throughout the entire process, creating something even more valuable along the way - trust.
Contact us to find out more about our customisable Smart Collateral Management solution.