Public Commentary: The description below shows FG Capital Advisors’ view on tokenizing trade receivables. It is for information only and not a solicitation or advice.
Trade Finance Tokenization – Converting Receivables into Digital Assets
Tokenization uses blockchain to represent trade receivables as digital tokens. These tokens can be sold or pledged to lenders as working capital, speeding funding and opening access to new investors.
Explained Like You’re Five
Imagine you have an IOU from a customer. Instead of waiting weeks for payment, you turn that IOU into digital tickets. Each ticket says “I will pay me $100.” You sell those tickets to someone who gives you cash right away. When the customer pays, the tickets clear and the buyer of the ticket gets their money back.
How It Works
- Portfolio Selection: Choose receivables eligible for tokenization—confirmed invoices, creditworthy buyers, clear payment dates.
- SPV & Token Issuance: An SPV issues tokens on a blockchain. Each token maps to one invoice or a fraction of a pool.
- Smart-Contract Layer: Code enforces payment terms: lock-up, maturity, and transfer rules. When the customer pays, funds flow automatically to token holders.
- Custody & Transfer: A digital wallet or custodian holds tokens. Owners can trade tokens on approved marketplaces or pledge them as loan collateral.
- Settlement: On invoice payment, smart contract routes funds from customer account to token holders’ accounts less fees.
Key Components
| Component | Role |
|---|---|
| Originator | Supplier or exporter that owns the receivables and initiates token issuance. |
| SPV | Bankruptcy-remote vehicle that holds receivables and issues tokens on blockchain. |
| Smart Contract | Digital code enforcing payment triggers, token transfers, and fee flows. |
| Token Holder | Investor or lender that buys tokens in exchange for cash; may be a fund or institutional buyer. |
| Custodian | Entity that safeguards private keys and ensures token transfer complies with regulations. |
Pricing & Credit Enhancement
- Discount Rate: Token sold at X% discount to invoice value based on buyer credit grade and tenor.
- Overcollateralization: Pool value > token value to cover defaults or fees.
- Reserve Account: Small cash buffer for receivable shortfalls or disputed invoices.
- Insurance Wrap: Third-party cover for buyer default or cyber events affecting smart contract.
Potential Benefits & Considerations
| Aspect | Comment |
|---|---|
| Speed | Funding possible within days instead of weeks once infrastructure is in place. |
| Access | Opens receivables to a global pool of token investors, beyond traditional banks. |
| Complexity | Requires blockchain expertise, legal true-sale opinions, and regulatory alignment. |
| Technology Risk | Smart-contract bugs or blockchain outages can delay settlement. |
Implementation Timeline (6–10 Weeks)
Weeks 1–2:
Setup SPV, legal true-sale, choose blockchain network.
Weeks 3–5:
Develop and audit smart contracts; integrate with ERP.
Weeks 6–8:
Token issuance, wallet setup, custodian onboarding.
Weeks 9–10:
First token sale, secondary-market listing, ongoing servicing.
Engagement
Companies interested in creating a tokenized receivables programme may contact FG Capital Advisors. We guide SPV formation, smart-contract design, investor sourcing, and regulatory compliance.
This document is for informational purposes only and does not constitute investment advice or an offer to sell any security. Independent professional advice is recommended before proceeding with any tokenization programme.
