How disruptions with Russian financial systems will affect B2B trade

Several large financial systems have disconnected from Russia in response to the nation’s attacks on Ukraine. The unsettling situation has created waves that extend far beyond the current geopolitical issues.

Businesses that are involved in global B2B trade may be affected by these disruptions, so it is wise to plan ahead.

Today, we will provide a little background on the financial disconnections and sanctions with Russia before discussing how this could affect businesses that partake in cross-border B2B trade. To wrap things up, we’ll cover a few actionable tips on how B2B sellers can navigate these uncertain times.

Disconnections between SWIFT and Russia

One of the most significant disconnections is Society for Worldwide Interbank Financial Telecommunication (SWIFT). This financial messaging system is headquartered in Belgium, but it facilitates financial interactions throughout the world.¹

Since SWIFT is a financial messaging system, the severance between the organization and Russia makes it very difficult for any communication or transfer activity to occur with banks in Russia. It does not make it impossible to transfer money since there are other means of communication. However, since communication via SWIFT is notably safe and secure, an equivalent alternative is very difficult to find.²

By cutting off Russia, SWIFT made a statement that was heard around the world. As a response to SWIFTs severance with Russia, sanctions and other financial restrictions have been put into place by the United States, Canada, the United Kingdom, New Zealand, Australia, and Japan.³

Since SWIFT has a strong hand in international electronic fund transfers, the organization’s suspension of relations with Russia is causing disruptions with the global flow of cash. Manufacturers and wholesalers who use electronic fund transfers as a primary payment method could face delays in receiving their funds. This, in turn, could back up orders.

Other related issues for global B2B trade

In addition to the restricted flow of global payments, the turmoil with Russia is causing a slew of other issues related to B2B trade.

Risk premia

The instability of this situation alone poses issues in a global economy that has been rolling with the punches for over two years while dealing with COVID-19.

Uncertainty breeds risk premia. This phenomenon decreases the value of assets in high-risk situations as compared to the same assets in low- or no-risk situations.⁴ As a result, the cost of capital is driven up, and profit margins are deceased.

Risk premia can be quite discouraging to investors. When investors pull out, stock prices take a tumble, and businesses lose their funding. When these disruptions occur at the manufacturing or wholesale level, supply chain disruptions are in store.

Increased shipping costs

Russia is amongst the world’s top oil producers. Since the United States has placed sanctions on Russia, gas prices in the United States have skyrocketed. The rest of the world is yet to follow suit, but if further sanctions are placed by other global leaders, the high gas prices will become more widespread.

Increased fuel prices would also drive up shipping costs. This could continue to contribute to inflation and stagflation, and it could affect retailers’ willingness or ability to source items as usual.⁵

Aside from the economic cut-offs, many nations are forbidding Russian aircraft from entering their airspace. This could cause further disruption in shipping to any of the countries that are still open to trading with Russia.

With the rise of gas prices comes increased expenses for energy to power facilities and business operations. These increased costs tend to lead to inflation since somebody has to absorb the costs.

Inflation with possible stagflation

Inflation in the absence of economic growth breeds the phenomenon of stagflation.⁶ Although the situation is still developing, stagflation often results in increased unemployment.

While much of the economic distress is focused in Russia at this time, it is reasonable for those around the world to brace themselves for the worst-case scenarios.

How global B2B can navigate these disruptions

While it is difficult to navigate the unknown, your best bet is to prepare for a variety of scenarios.

When it comes to finances and cash transactions in particular, it is smart to have backup options to transfer money. If you usually use electronic fund transfers, consider exploring alternative payment methods. Using a third-party service, like Stripe or Paypal, might be a bit more expensive, but it is good to have options.

Right now, a lot of the financial disruptions are concentrated in Russia and a few other countries. However, this could affect you even if your business does not deal directly with any of those countries. For example, a supplier of a specific material that you use might do business within an affected country. Their delays and problems will trickle into your business.

As you can see, there is potential for the supply chain issues that we saw last year to come back in full swing. One way to prepare for this is to be strategic and diligent with your inventory planning. Consider investing in inventory management software if you haven’t already.⁷

If there is something that you know your business will need, stock up while you can. If there are materials or products that you’re struggling to source, find suitable alternatives.

As a B2B seller, it is also important to communicate with your customers through the process. They rely on you to stock their shelves, so if there is a foreseeable disruption, be upfront about it.

At the very least, stay informed about the geopolitical happenings and any offshoots of the issues that affect your industry.

Prepare your business with Alibaba.com

With the current conflicts at hand, it is important to prepare your B2B operations for multiple outcomes. Setup backup options where possible to ensure that you’re prepared to carry out cross-border trade as close to normal as possible.

If you aren’t already using a B2B e-commerce marketplace, now is the time to do so. These platforms are set up to support businesses like yours through thick and thin.

It’s best to find alternatives for traditional payments, just in case your preferred payment method is compromised due to uncontrollable issues.

Alibaba.com is an online B2B marketplace that offers a variety of features that global sellers can tap into in order to protect their businesses in times like these. We offer a special program called Trade Assurance that protects all transactions that are carried out in our marketplace.

Our platform also supports a variety of tools to assess trends and make demand forecasts. These resources are readily available to sellers who need additional guidance through difficult situations like the one at hand.

Sign up for Alibaba.com to tap into our collection of powerful B2B selling tools.