Blockchain: An Accounts Receivable Fixer Upper?
In all honesty, I spent at least twenty seconds wondering whether I should use makeover instead of fixer upper for the title of this blog. It was a close call. Nowadays, both are indeed SEO effective. I finally chose “fixer upper” in an attempt to gain traction from those millions of American viewers, who every week swear by Chip and Joanna Gaines on HGTV and try to emulate their success. That’s until some of them find themselves stuck with a new mortgage, which they couldn’t afford in the first place, and that ends up being used to pay for a ruin that sits in a flood area, and whose complete renovation won’t leave much choice but to urgently call a contractor, if defaulting on the second mortgage isn’t the sole viable solution…
Enough pop “culture” for now. In what aspects can Blockchain technology be a disruptor in the world of accounts receivable? I assume you must already be familiar with the benefits your organization draws from having implemented an ERP system and (maybe) an e-invoicing solution as well. So, what advantages does Blockchain bring to the table compared to what you already have?
The efficiency that pertains to the way your organization processes invoices today depends on the level of automation in place. Each time human intervention is required, the efficiency decreases. It makes sense. Manually-handled tasks increase the likeliness of being confronted to human errors, which are oftentimes identified and then corrected much further down the road, with consequences that can be highly detrimental to (future) relationships between the supplier and the customer.
The invoicing process is straightforward. The buyer sends a purchase order to the vendor. The vendor sends an invoice to the buyer. The buyer reconciles the invoice against the purchase order initially sent. The buyer approves the invoice or not. If approved, the buyer pays the invoice. If not approved, the buyer disputes the invoice. Each step requires approval and review. No automation infers extremely slow process that is prone to human errors. Automation thanks to an e-invoicing solution means faster process that still requires some human intervention to interact with the application’s workflow feature, if needed.
Blockchain and Invoicing
Blockchain can dramatically increase the speed of the process and bring greater transparency and accuracy, while bypassing any form of human intervention:
The buyer has authority over one node in the Blockchain and the vendor over another node. This implies that the vendor’s AR system is connected to the buyer’s AP system via the Blockchain network, in which both the buyer and the vendor are participants.
The buyer accesses the vendor’s catalog via an app and submits an order.
The data inherent to the order is pushed to the Blockchain, which triggers and executes a smart contract that in turn immediately sends the proper information to the vendor.
The latter instantly triggers and executes a smart contract that generates an invoice. The proper information is immediately sent to the buyer.
The latter triggers and executes a new smart contract that sends an alert along with the payment’s terms and the vendor’s banking information to the buyer’s financial institution.
Given Blockchain technology’s benefits:
All data pertaining to each transaction is stored inside the Blockchain, is viewable by all parties, and cannot be altered.
The code behind each smart contract is also stored inside the Blockchain and is immutable. Moreover, the code was initially created in agreement between the vendor and the buyer, therefore it eliminates the risk of dispute.
No human intervention is required. Reviews are unnecessary. Approvals are immediate.
Blockchain and Invoicing: Fantasy Island?
In old English, a fantasy is similar to a hallucination, a perception of objects with no reality. The ability to engineer the invoicing process by leveraging Blockchain technology is a reality today. This is what we’re about to deliver to the Oil and Gas industry through Ondiflo, our joint-venture with ConsenSys. However, we’re an exception in an ocean of skepticism. An immense barrier to Blockchain adoption lies in the conception people have of the new technology: unstable, unreliable, and prone to hacking and money laundering scandals. That’s somewhat true, but only when referring to public Blockchains and the speculation that affects some of the most hyped cryptocurrencies, like Bitcoin. Blockchain-based B2B processes have nothing to do with public Blockchains. They’re automated inside private Blockchains. There lies a major difference.