Small and medium-sized enterprises (SMEs) will boost supply-chain transparency and make trading across borders cheaper, faster, simpler and more sustainable by embracing a unified system of global “business fingerprints” or legal entity identifiers (LEIs), according to a recent report.

LEIs – 20-digit combinations of letters and numbers – are similar to a company number, with each unique sequence corresponding to a particular business, thus creating a global standard for cross-jurisdiction party identification and a shared identity framework for international trade, notes the Scaling the Use of Digital Identities in International Trade report, published by the International Chamber of Commerce United Kingdom (ICCUK), the World Trade Board and the Global Legal Entity Identifier Foundation.

As well, LEIs allow governments, regulators, banks and businesses to better understand global trading ecosystems. This strengthens visibility to supply-chain risks and opportunities for businesses of all shapes, sizes and geographies, the report argues, “helping to enhance trust, lower risk, cut administration processes and reduce costs”.

In the current system, banks, companies and governments have to separately verify and authenticate the identity of every buyer or seller in a heavily paper-based, overly complex and fragmented environment. As a result, a single cross-border trade can take up to three months to transact, involving 30 parties, 40 documents and 200 data elements. This outdated way of doing business ultimately passes the financial burdens of inefficiency onto consumers and SMEs, forcing them to pay higher prices to trade and purchase goods.

With the implementation of the Electronic Trade Documents (ETD) Act in the UK last year, companies there can now eliminate paper-based processes and begin standardizing the trading system in ways that were previously impossible.

LEIs make it easier to understand global supply chains, identify trading parties, onboard new businesses seeking to export and import, and closely monitor suppliers of critical goods and services as businesses move from paper to digital trade processes. Therefore, embracing a common identity framework, the report states, is key to strengthening critical supply chains and underpinning the way companies will trade internationally in the future.

“The passage of the ETD Act into UK law was a paradigm shift in international trade, but far more must be done to realize the benefits of this long-overdue modernization,” says Chris Southworth, the ICCUK’s secretary-general. “Current identity infrastructure is not fit for purpose and is stalling trade digitalization.

“Governments – in the UK and abroad – must do more to incentivize the uptake of LEIs as business fingerprints across the trading community and their global supply chains. Without a wholesale change in approach to accelerate adoption, creating an efficient, data-driven trade infrastructure fit for the 21st century will be too slow to capture the economic benefits on offer.”