With Blockchain, an invoice is alive, shareable auditable asset. This not only dramatically simplifies the invoice financing process but also reduces the lender’s risk. CFO’s who enable this in their organizations can expect the cost of capital to fall and financial resilience to increase.
Finance is at a tipping point. Blockchain will soon redefine the role of the traditional CFO. Unfortunately, a lot of senior finance professionals still relate Blockchains exclusively to cryptocurrencies and fail to recognize the transformational impact that this technology can have on the finance function. The key opportunity: Enable CFOs to focus on strategic initiatives by freeing them up from tactical operations with Blockchain-based auditable automation.
Originally conceived as a ledger to securely store Bitcoin transactions, Blockchain has evolved into a platform to store any kind of information that may need to be shared in a secure, trusted way. Blockchain-based platforms enable the creation of digital ecosystems for managing transactions related to trade and commerce, including finance processes such as payables, receivables, and compliance. There are startups that are enabling such solutions with ready-to-use enterprise platforms built ground up on Blockchain
Procure-to-Pay & Bottomline Impact: In a F&A department, an inordinate amount of time is wasted reconciling the supplier’s data with the buyer data. At the heart of the issue is the long, painful process that organizations follow to align finance with operations. As supply chain operations proceed, multiple documents are emailed back and forth and manually entered into each organization’s ERP/CRM system. To ensure accurate payments, information across orders, shipments received, SLA terms, rebates, bonuses & penalties must be reconciled before payment is made. Transactions that are not in agreement require time-consuming research, repair, revision, reconciliation, negotiation and hopefully settlement.
The fundamental value proposition of Blockchain is simple: Having both parties share access to a single source of truth can eliminate such inefficiencies. With blockchain-powered auditable automation, B2B transaction settlement could conceivably be completed in minutes instead of days taken by today’s document-based coordination. Blockchain can also reduce the cost and friction involved in repetitive finance tasks, cutting both errors and delays.
The bottom-line: Blockchain allows for seamless, instantaneous coordination between operations & finance. A smart contract automates payable-receivable settlement backed with an audit trail of operations data – this significantly reduces or even eliminates duplicate payments, re-issued invoices and potential billing discrepancies.
Order-to-Cash & Topline Impact: Like for the Procure-to-Pay payables side of transactions, Blockchain has the potential to significantly impact OTC processes.
Blockchain-based smart contracts ensure that invoices are always consistent with the pricing & SLA terms embedded in the order. Ensuring that invoices are consistent with the contractual terms & operations data reduces a huge amount of reconciliation effort across organizations. In fact, smart contracts make the manual generation of invoices obsolete as the shared transaction information from a smart contract automatically trigger the creation of pre-conciled invoices backed with auditable transaction record and requiring almost no human interaction.
A Blockchain-powered solution not only dramatically simplifies finance operations but also directly impacts revenue by plugging any leakages due to incorrect billing. This also reduces disagreements & disputes. By providing an immutable audit trail of transactions— digitally signed by all participants involved—Blockchain ensures that one CFO’s screen matches that of their counterpart on the other side of a transaction. By giving finance leaders a real-time picture of transactions across enterprises Blockchain equips CFO’s to improve their decision-making.
Cash flow & Financial Resilience: One key learning of the COVID pandemic has been the importance of supply chain agility & resilience. The traditional metrics of cost, quality and delivery when developing supply chain strategies will no longer be enough. Going forward, business leaders must consider the 3Rs: Resilience, Responsiveness, and Reconfigurability.
As we learn to live with a supply chain susceptible to disruptions, there will be a growing imperative on CFOs to ensure the financial resilience of the whole supply chain. Access to capital is one of the primary challenges for business partners. Lack of timely access to capital invariably ripples through to large enterprises who work with SMEs directly or indirectly. When a SME must delay its delivery due to lack of capital, it impacts the deadlines of the organization.
The practice of large enterprises enabling access to capital for smaller partners is already well-established. The challenge is the cumbersome process that must be followed: supply chain financing requires documents, confirmations & approvals emailed back and forth between multiple F&A departments and the bank. Given the complexities, enabling completely digital financing for business partners beyond Tier-1 is not even considered feasible.
All this is set to change. With Blockchain, an invoice is alive, shareable auditable asset. Any organization which has access to the invoice can validate its authenticity. In a B2B transaction, the buyer, the seller and the lender all can track the invoice as it is created, accepted, borrowed against & paid. This not only dramatically simplifies the invoice financing process but also reduces the lender’s risk. CFO’s who enable this in their organizations can expect the cost of capital to fall and financial resilience to increase.
Key Takeaway: Perhaps the best way for CFOs to think about Blockchain is a new form of accounting: triple-entry accounting. With blockchain, a B2B transaction is recorded not only on the ledgers of each of the parties but also on a shared ledger between them. This transaction record on the blockchain network is the truth accepted by both parties since any modification to it, must be digitally signed by both parties. These modifications are timestamped creating an audit trail creating a record that is practically indisputable. This not only improves the integrity of digital accounting reports for companies but also simplifies and speeds up F&A work while reducing errors. The real promise is to enable CFOs to focus on strategic initiatives by freeing them up from tactical operations with Blockchain-based auditable automation.
https://cfo.economictimes.indiatimes.com/news/how-cfos-can-use-blockchains-for-bottom-line-impact/85319427
