In today's interconnected global economy, supply chains are becoming increasingly complex. While this complexity has led to greater efficiency and flexibility for large businesses, smaller suppliers – particularly those in the deeper tiers of the supply chain – are often left grappling with severe liquidity issues. Deep-tier financing, designed to provide much-needed financial support to these smaller suppliers, ensures the smooth flow of goods and services. However, the deep-tier financing market is rife with challenges that threaten to undermine its potential.

In 2021, the global supply chain finance market was valued at $6 billion, expected to reach $15.5 billion by 2030. Despite this impressive growth trajectory, a substantial $1.5 trillion financing gap persists for small and medium-sized enterprises (SMEs) within the supply chain, leaving many businesses needing access to the liquidity they need to sustain operations. This financing gap widens further as you move deeper into supply chains, where smaller suppliers are often invisible to financiers due to a lack of transparency, limited credit histories, and unreliable financial data.

The Problems in the Deep-Tier Financing Market

1. Lack of Visibility in Multi-Tier Supply Chains

One of the primary obstacles in deep-tier financing is the need for more visibility across the entire supply chain. Financial institutions typically finance direct suppliers (first-tier suppliers), but the challenge of gaining transparency and trust diminishes further down the chain. Suppliers in the second, third, and even fourth tiers often need help demonstrating their creditworthiness, making them ineligible for financing. According to the World Bank, 60% of small businesses experience payment delays, leading to severe liquidity constraints, especially for deeper-tier suppliers.

2. High Financing Costs for Small Suppliers

When deep-tier suppliers manage to secure financing, they often face disproportionately high costs. According to the Asian Development Bank, financing costs for smaller suppliers can be 2-4% higher than those for larger suppliers due to higher perceived risk. Many SMEs in deep tiers need more financial records and credit history that would typically provide financiers with confidence, further driving up interest rates.

3. Fraud and Invoice Duplication

Fraud remains a persistent issue in supply chain finance. Invoice fraud costs businesses an estimated $26 billion annually (Source: PwC). Duplicate or fraudulent invoices are particularly problematic in the deeper tiers of the supply chain, where verification processes are often inadequate. Fraud erodes trust between financial institutions and suppliers, limiting access to much-needed liquidity and increasing financing costs.

4. Delayed Payments and Cash Flow Issues

The Euler Hermes report shows that delayed payments across global supply chains increased by 20% during the pandemic, leaving many smaller suppliers in financial distress. With payment cycles for deeper-tier suppliers extending to 64 days on average and sometimes up to 90 days, suppliers often face severe cash flow issues. These delays force them to choose costly financing options or risk business failure.

5. Limited Access to Financing

Deep-tier suppliers, particularly in emerging markets, struggle to access traditional financing. Deloitte reports that only 18% of SMEs in deeper supply chain tiers receive financing through formal banking channels. The rest rely on expensive alternative lending sources, further exacerbating their financial burden.

What Happens if These Problems Are Not Solved?

If the issues in deep-tier financing remain unresolved, the consequences could be devastating for global supply chains and the broader economy:

• Widespread Supplier Failure: Small and medium-sized suppliers, which make up 90% of all businesses globally, could face insolvency. Without access to affordable financing, many would be unable to sustain operations during cash flow shortages, leading to supply disruptions.
• Increased Supply Chain Instability: As deep-tier suppliers collapse, supply chain bottlenecks become more frequent. This would increase operational costs for larger companies and lead to product shortages and consumer price hikes.
• Rising Costs for Large Buyers: As smaller suppliers struggle to survive, larger buyers face rising procurement costs and increased risks across their supply chains. According to McKinsey, global supply chain inefficiencies could add 5-15% to the cost of goods over the next decade.
• Exacerbated Economic Inequality: Small suppliers, particularly in emerging markets, would face severe barriers to entry, reducing competition and consolidating market power in the hands of large corporations. This would slow economic growth and widen the wealth gap.

How Blockchain is Solving Deep-Tier Financing Problems

Blockchain technology has emerged as a solution to many challenges plaguing deep-tier financing. Blockchain addresses several critical pain points in the market by providing a decentralised, transparent, and secure platform for transaction platform transparency and Visibility.

One of the most significant advantages of blockchain in deep-tier financing is its ability to provide real-time, immutable records of transactions across the entire supply chain. Every transaction, from the issuance of an invoice to the final payment, is recorded on the blockchain, creating a transparent ledger accessible to all authorised parties.

• Data Impact: A Capgemini study found that companies using blockchain in their supply chains reduced payment delays by 25% due to improved transparency. This transparency allows financial institutions to assess the creditworthiness of deep-tier suppliers more accurately, reducing the risk of lending.
• Projection: By 2030, it is projected that 25-30% of global supply chain finance transactions will be powered by blockchain (Source: Deloitte), making financing more accessible to deep-tier suppliers.

2. Lower Financing Costs through Decentralization

Blockchain’s decentralised nature eliminates the need for intermediaries such as banks or factoring companies, reducing the costs associated with financing. Smart contracts on blockchain automatically execute when certain conditions are met (e.g., delivery confirmation or invoice approval), ensuring that payments are made promptly without manual intervention.

• Cost Reductions: According to PwC, blockchain technology could reduce financing costs for deep-tier suppliers by 20-30%. By cutting out intermediaries and reducing administrative costs, blockchain makes financing more affordable for smaller suppliers.
• Faster Payments: Blockchain-enabled intelligent contracts can reduce payment processing times by 40%, enabling suppliers to receive funds within 1-2 days after invoice approval, compared to the traditional 60-90-day wait time.

3. Fraud Prevention and Invoice Verification

Blockchain’s immutability ensures that all records are tamper-proof, significantly reducing the risk of fraud and invoice duplication. Once a transaction is recorded on the blockchain, it cannot be altered, ensuring the authenticity of invoices and preventing fraudulent activities.

• Fraud Reduction: The Association for Financial Professionals (AFP) found that blockchain-based platforms reduced invoice fraud by 75% in pilot studies. Financial institutions can rely on blockchain to verify the legitimacy of invoices, reducing the risk of financing fraudulent claims.
• Case Study: A pilot project involving IBM and Maersk demonstrated a 20% reduction in administrative costs related to fraud prevention and dispute resolution using blockchain technology.

4. Wider Access to Financing through Decentralized Credit Scoring

Blockchain enables the creation of decentralised credit scoring systems that assess the creditworthiness of suppliers based on real-time data from the blockchain. This allows deep-tier suppliers, who may need more traditional credit histories, to access financing based on their transaction history and performance within the supply chain.

• Data Impact: A report by Accenture showed that decentralised credit scoring on blockchain increased access to financing for 30% of SMEs in pilot programs. Using blockchain to track their payment behaviour and trade history, even small suppliers can prove their creditworthiness to potential lenders.
• Projection: According to Deloitte, decentralised credit scoring systems powered by blockchain could reduce reliance on traditional credit reports by 50% by 2030.

Complex Problems Blockchain Can Solve in Deep-Tier Financing

Beyond solving the current challenges in deep-tier financing, blockchain has the potential to tackle more complex issues that are likely to emerge as supply chains continue to evolve.

1. Supply Chain Resilience and Risk Management

Global supply chains are vulnerable to disruptions from natural disasters, geopolitical events, and economic crises. Blockchain can enhance supply chain resilience by real-time tracking and verifying goods and transactions, allowing companies to identify and respond to risks quickly.

• Data Impact: A study by WEF found that blockchain-based systems improved supply chain resilience by 35%, allowing companies to manage risks better and reduce the impact of disruptions on deep-tier suppliers.

2. Sustainability and ESG Reporting

As companies face increasing pressure to meet environmental, social, and governance (ESG) standards, blockchain can provide the transparency needed to verify sustainability claims across the supply chain. By tracking the origin and journey of raw materials and finished products, blockchain ensures that suppliers comply with ESG requirements.

• Projection: According to Forbes, the demand for blockchain-based ESG reporting solutions is expected to grow by 40% annually through 2030, driven by the increasing importance of sustainability in global trade.

3. Tokenization of Assets for Liquidity

Blockchain enables the tokenisation of invoices and other assets, allowing suppliers to receive financing by selling tokenised versions of their holdings on decentralised finance (DeFi) platforms. This opens up new liquidity options for deep-tier suppliers, particularly in emerging markets.

• Data Impact: According to Accenture, tokenisation could add $3 billion in liquidity to the global supply chain finance market by 2030, enabling more suppliers to access affordable financing.

Conclusion: The Future of Blockchain in Deep-Tier Financing

The challenges facing deep-tier financing are substantial, but blockchain technology offers a clear path forward. By improving transparency, reducing fraud, lowering costs, and expanding access to funding, blockchain can help solve the deep-rooted issues that have long plagued the supply chain finance market.

As the market for supply chain finance grows from $6 billion in 2021 to an expected $15.5 billion by 2030, blockchain will play a central role in ensuring that deep-tier suppliers are noticed. With 25-30% of global supply chain transactions expected to be powered by blockchain by 2030, the technology will solve today's problems and address more complex challenges in the future.

In the long run, blockchain’s ability to provide decentralised, transparent, and secure financing solutions will help create more resilient and sustainable supply chains, ensuring businesses at all levels can thrive in an increasingly interconnected global economy. By reducing financing costs, improving liquidity, and enhancing trust across the supply chain, blockchain will revolutionize deep-tier financing and unlock significant value for suppliers and financiers.