Friday 18th August 2017,
Payables Place

Blockchain for Accounts Payable – An Introduction

Blockchain for Accounts Payable – An Introduction

In this exciting new article series, we will take a look at Blockchain and how it can be utilized as an enabler of Procure-to-Pay (P2P) and Accounts Payable (AP). In Part 1, we provide an overview of Blockchain and how it is utilized today.

In the ever-evolving world of business, the role of the accounts payable (“AP”) profession stands in an enviable position. Spending smart and saving more has given the AP function a new level of strategic importance and a scope of responsibilities not seen years ago. And, with the speed of innovation occurring today, it presents a great opportunity for AP departments to deliver even more strategic value to the enterprise.

One outlet of innovation that has the potential to completely change the way enterprises conduct business is Blockchain technology. For those that are unfamiliar (click here to read about Blockchain for talent management and here to read about Blockchain for procurement), the concept of Blockchain may be hard to grasp, but after this introduction and background of Blockchain and how businesses are utilizing it today, it will be easy to see why business networks like SAP Ariba are partnering with digital ledger companies, like Everledger, to advance the technology further. Blockchain has the potential to change the way all transactions are handled…and within AP and procurement that would be a real game-changer.

What is Blockchain, and How Could it Work for AP?

Blockchain is a digital database that captures and aggregates records (or “blocks”) that can function as a ledger used to facilitate business processes involving multiple parties. It is a technology that can record transactions between two parties efficiently and in a verifiable and permanent way. Each block contains a time stamp and link to a previous block, so as the record is updated it creates a chain. It was originally devised as a core component of the cryptocurrency Bitcoin to serve as the public ledger for all transactions. An unknown person (or group of people) referred to only as Satoshi Nakamoto conceptualized and implemented Blockchain technology in 2008 to make a database that was both secure and did not require a trusted administrator to manage the transactions. Information that was held on a Blockchain existed as a shared and continually reconciled database. As Bitcoin transactions have grown exponentially since they were first introduced near the end of 2008, Blockchain technology utilization has grown as well.

The traditional way of sharing payment documents meant that a single document would be sent to a recipient for revision, and is only visible to one party at a time (the other party cannot make updates until the first party has completed their work). In the Blockchain database, documents (e.g., requisitions, purchase orders, invoices) are not stored in a single location, which means that the records are public and verifiable. There is not one centralized version of the information that could be corrupted. Much like a Google Doc spreadsheet isn’t controlled by one single entity but is shared and can be regularly updated by all users, the Blockchain stores blocks of information (which are identical) across the network (chain) and the data is accessible to any user and any update or change creates a new public record.

Final Thoughts

It is easy to see the potential that Blockchain technology has in the world of finance. The tools utilized today to send contracts, invoices, and other types of B2B transactions are still based in the traditional means of document management. Blockchain provides a great opportunity for individuals, enterprises, and even machines to interact with each other directly in a completely digital and secure database. In the next installment of this series, we will look at the immense opportunity Blockchain technology presents as an enabler for P2P and what the future holds for how AP departments leverage this new and innovative platform.

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