Blockchain, the technology that powers cryptocurrencies and is being used in a variety of other financial services capacities, promises to be the next technological revolution in invoicing and invoice financing.
The advanced encryption of data, transparency to participants in a transaction, and low costs make this a technology well suited to the processing of invoices and, ultimately, invoice financing.
However, what is blockchain, and why is it so suitable for invoice processing? Blockchain is a record of individual transactions that, once stored on the blocks, the proof of work cannot be tampered with by outside parties. A person wanting to create a fraudulent entry on the blockchain would need to fool all the participants on the blockchain to succeed in doing so.
In essence, a chain of blocks of information is built that become an immutable distributed ledger. The supplier and buyer and any other parties that need to keep informed can access the data using keycodes as it moves securely from one point to another along its journey to its ultimate destination.
Each block is time-stamped, verified, and linked to the block before it to ensure that the information carried on these blocks cannot be altered. Any changes that do need to be made have to be agreed upon by all parties. Adjustments are then made on another block, which will also be date and time-stamped.
Given this robust functionality, blockchain is well-suited to the invoicing process, transferring transactional information the supplier to the customer, given the fast and secure delivery and immutable nature of the data.
Innovations in blockchain technology are also enabling functionalities that will identify discrepancies between partial orders and complete invoices – an often experienced challenge, particularly in the manufacturing sector. The blockchain will adjust these differences to reflect how many goods were delivered and what the invoice should reflect, among other things. This evaluated receipt settlement process reconciles purchase orders with the settled goods receipts on the blockchain. Processing invoices in this way will vastly reduce the possibility of mistakes in the invoicing process and the time it takes to identify and then rectify these, given that it will happen automatically and not as a result of human interaction.
Blockchain becomes particularly powerful when conducting business across international borders, with invoices that need to be issued and settled in other geographical jurisdictions and foreign currencies. In this event, the invoice payment facility, such as a digital wallet, would be incorporated into the blockchain and would be far cheaper than the cost of foreign exchange transactions fulfilled by banks. Processing transactions in cryptocurrencies is an option, with the benefit of them being much less expensive and faster payouts than traditional methods of payment.
As with digitisation of invoices, the blockchain alternative also offers attractive environmental and cost benefits given the shift away from paper to invoicing on the blockchain.
The technology is making the entire invoicing process much more comfortable to track, and it is possible to see when an invoice has been received and paid. As a result, the business sending the invoices can get a much better picture of the state of their income receivables book. It allows them to plan if they are going to need to consider financing some of the invoices because they are likely to be paid late or issues are pushing out the timeline on a transaction.
The invoice finance company can also rely on the invoice data contained on the blockchain to avoid specific challenges it faces, which include companies refinancing invoices and other fraudulent activities. The blockchain enables the finance company to access the verifiable invoice data, and the company seeking the finance can get decisions even more quickly from finance companies regarding whether they will approve financing on their invoices based on their invoicing history.
With the bulk of invoicing still taking place manually, it is likely to be while before businesses shift over to blockchain technology. However, it is well worth considering as an option if you are a small, agile business that doesn’t have a legacy invoice processing system that would need to change completely.