Thursday 18th January 2018,
Payables Place

Blockchain Technology for B2B Payments: More than Meets the Eye

Blockchain Technology for B2B Payments: More than Meets the Eye

Spending smart and saving more have given leaders within supply management a higher purpose and new responsibilities that were not there 15 years ago. With the amount of data and innovation available today, it collectively presents a great opportunity for Accounts Payables (“AP”) and other financial leaders to deliver real value to their enterprise. Considering what the future holds for those within the AP and procurement spectrum, one innovation that has the potential to completely change the way enterprises conduct business is Blockchain technology; we can already see the effect it is having within B2B operations.

Contracts, transactions, and keeping records of them are essential elements within the global economic system. Within AP specifically, there are many tools available that enable users to organize and manage the millions of transactions that organizations process each year. But the systems in place to regulate and maintain control of this financial structure have not kept pace with the digital transformation of the global economy. While most organizations have digitized their systems, payment systems are still mostly centralized. This means that for transfers to occur, they must first be cleared by one organization. This process can take days or even weeks for everything to be approved and cleared. Every organization keeps its own records privately; records are distributed across internal units and functions. But a major issue is that keeping track of individual and private ledgers takes time and is prone to error.

Blockchain technology has the potential to provide a solution to many of the issues mentioned above. Blockchains, which are distributed digital ledgers, can settle transactions in minutes or even seconds. The digital ledger is replicated across multiple identical databases that are maintained by all the relevant parties. A change in one copy updates all copies across all databases. Records and changes occur instantly and are permanently entered in the ledger.

The use of a distributed ledger can simplify transaction networks between financial institutions. Most large banks and card companies already utilize Blockchain and distributed ledger API, and collaborate to made B2B transactions faster and more efficient. Bank payments made from one bank to another sometimes take three days to settle. Those payments can be settled in minutes through Blockchains, which decrease risk and transaction costs, and loosen up internal capital. Organizations within the financial sector have to be able to share data; fortunately, Blockchain ledgers allow for multiple parties to review data in a fast and trustworthy way.

Final Thoughts

While it is encouraging to see how Blockchain impacts B2B collaboration, it is hard to say that it will change the way business is done and redefine economics as we know it. It is important to understand that it will take time for this innovation to mature and see wide-scale adoption. While there are effective use cases, Blockchain is more of a foundational technology than a disruptive one; at least at this point. There must be widespread acceptance within the economy in order to truly reap the benefits that Blockchain technology provides. It will take a high degree of participation and coordination for something like “smart contracts” to be implemented. Right now, the notions that ledgers do not need to be maintained by a company, and that a de-centralized record-keeping system can be just as safe seem radical. But a system of record-keeping that would be protected from errors has its benefits and could completely change the global financial system as we know it.

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