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Ten ways DNIs could transform supply chain finance(The Working Capital Forum)

Arqit

Dominic Broom of Arqit offers an introduction to Digital Negotiable Instruments (DNIs) and the role they play in improving liquidity.

Digital Negotiable Instruments (DNIs) are digital versions of well-established trade instruments, such as bills of exchange and promissory notes, which are used to facilitate transactions between buyers and suppliers.

As the world increasingly turns to digital solutions, DNIs could have the potential to transform how global trade operates. They offer businesses a secure, efficient, and flexible way to manage working capital, providing a much-needed boost to the resilience of local and global supply chains.

Why DNIs Matter 

The global trade environment continues to face unprecedented challenges, from heightened banking regulations to geopolitical conflicts in Ukraine, the Red Sea and elsewhere. These challenges have disrupted trade routes, complicated the movement of goods, and made it harder for many companies to access the finance they need to support their business activities.

Traditional Supply Chain Finance (SCF) solutions are often inefficient, siloed and unable to adequately support smaller businesses. DNIs address these issues by offering a more streamlined and secure solution that enable businesses to access deeper pools of available liquidity.

How DNIs could change the face of supply chain finance

  • Improved Liquidity DNIs enable companies to optimise their working capital. By using digital promissory notes (DPNs) within their SCF programs, buyers can both extend their trade payables without altering their payment terms and enable their suppliers to receive early payment at a slight discount. This enables smaller suppliers in particular to access much needed liquidity and maintain a positive cash flow without relying on expensive, traditional financing methods.

  • Seamless Integration DNIs can be easily integrated into existing corporate accounting systems, such as Enterprise Resource Planning (ERP) platforms, and global trade networks. This interoperability minimises the disruption during implementation and makes it easy for businesses of all sizes to adopt digital trade instruments.

  • Enhanced Flexibility Unlike traditional SCF solutions, DNIs offer greater flexibility by allowing corporates to switch between self-funding and third-party funding as their liquidity needs change. This adaptability helps businesses manage borrowing costs more effectively and makes SCF accessible to a broader range of suppliers, thus covering a larger portion of the supply chain.

  • Scalability DNIs democratise supply chain finance by allowing financing to flow based on the credit risk of the corporate at the top of the supply chain, rather than smaller suppliers, as is often the case. This approach, known as deep-tier supply chain finance (DTSCF), helps suppliers across the entire supply chain secure financing, manage cash flow, and scale their operations.

  • Increased Efficiency Digital transactions facilitated by DNIs are faster, more efficient, and less error-prone than traditional paper-based processes. By automating and streamlining approvals and payments, DNIs significantly reduce transaction turnaround times, allowing suppliers to receive funds more quickly and improving overall cash flow management.

  • Cost Reduction DNIs can lower end-to-end transaction costs by up to 80%. They eliminate supplier onboarding costs and reduce operational and administrative burdens for banks. This cost efficiency allows more financial institutions, including smaller local and regional banks, to participate in SCF programs, expanding access to finance for suppliers of all sizes.

  • Sustainability DNIs contribute to environmental sustainability by reducing the need for paper-based documentation. With global businesses increasingly focusing on sustainability, adopting DNIs is a practical step toward achieving environmental, social, and governance (ESG) goals.

  • Regulatory Compliance As global trade moves towards digitalization, regulations are evolving to support the use of electronic documents. The UN's Model Law on Electronic Transferable Records (MLETR) and other similar regulations are being adopted by countries worldwide, enabling the legal use of DNIs in both domestic and international commerce

  • Enhanced Security Digital transactions are less susceptible to fraud compared to paper-based processes. For example, DNIs generated by Arqit's TradeSecureTM solution are digitally sealed, and an immutable record of the DNI is kept on a quantum-safe digital ledger, providing any holder of the DNI with total assurance that it is genuine and unique. The technology ensures complete security and authenticity from source, which reduces risk and therefore also borrowing and credit insurance costs.

  • Interoperability and Simplicity True DNIs are created within a digitally native service either via file transfer from core business systems or by a simple data upload from a CSV file and are transferrable from issuer to subsequent holders using a highly secure digital key exchange. Businesses can easily adopt DNIs within existing workflows and realise liquidity benefits without embarking on a complex IT project.

     

DNIs are becoming an integral part of the forward-thinking corporate treasury toolkit, combining the flexibility of supply chain finance with the certainty of payment afforded by a globally recognised financial instrument. By improving access to liquidity, reducing costs, and enhancing security, DNIs are not just a response to current issues but a future-proof investment for businesses. As global trade continues to evolve, the widespread adoption of DNIs will be crucial in maintaining supply chain resilience and enabling sustainable economic growth.