Blockchain Will Revolutionise Invoice Finance

Financial technology will transform supply chains. As early-stage businesses strive for longevity and sustainability, cash flow management is one of their main challenges. The introduction of revolutionary online invoice finance platforms which utilise AI and Open Banking, make it easier than ever for suppliers to unlock cash tied up in outstanding invoices by providing real-time analysis of their business performance. However, we still have a long way to go. Invoice fraud and credit risk analysis still prove to be major barriers in scaling access to invoice finance for smaller suppliers, so how can blockchain technology boost access in the future?  

Blockchain safeguards users and builds trust and a high level of security within any given platform. For investors, the benefits of using a platform that utilises a decentralised ledger include: 

  • A permanent record of every invoice uploaded by a supplier including the date and time it was submitted. 
  • A permanent record that proves the end-customer (the debtor) has received the goods/services, including the date and time of the delivery. 
  • Confirmation and verification of the invoice using credit bureau information as well as KYC, AML and CFT statutory due diligence checks which provide the basis for funding to be advanced to the supplier. 

Invoice verification also helps prevent fraud because the blockchain record is unchangeable. For example, there would be no basis for a double payment for a single invoice. The risk of invoice dispute and/or non-payment is also mitigated by these records.  

For small businesses the implications of blockchain technology for their supply chains are far-reaching. Firstly, if large buyers know that their performance data is available publicly on an invoice finance platform, this may incentivise them to acknowledge and confirm invoices more quickly. The buyer’s own track record would be visible on the blockchain to their suppliers which could in turn help small business owners to determine payment terms and pricing. Payment history can also be used to determine both credit limits and debtor limits. 

Blockchain could be the missing piece of the puzzle for invoice finance. It enables us to use smart contracts that streamline the entire invoice finance process. In a peer-to-peer scenario invoice buyers and sellers are directly linked and smart contracts immediately distribute the allocated funds once the investor acquires the invoice. The smart contracts will then automatically pay out returns to investors once the invoice has been settled by the end buyer. Therefore, the performance of credible transactions without the need for third party verification could make the entire invoice finance process more efficient and less “paper heavy”.  According to Blockdata, Blockchain adoption could reduce costs of traditional invoice finance by up to 35%. 

2020 will be the year to watch as blockchain begins to take up space within the invoice finance industry. Join the conversation on blockchain and invoice finance by commenting below or find us on LinkedIn – DiasporaFinance 

To stay updated with the latest advances in invoice finance, and for information on our products subscribe to our newsletter by the form below.