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Will COVID-19 Accelerate Blockchain-enabled Invoicing and Payment?

This article is the sixth in a series that looks at how suppliers can successfully navigate these uncertain economic times in the age of coronavirus.

I had the opportunity to read an interesting article published in Supply Chain Brain titled How COVID-19 Is Impacting Blockchain and Cryptocurrency. For quite some time, I’ve believed that blockchain technology will slowly make its way into the Order-to-Cash (O2C) space, but perhaps the current pandemic is accelerating that process. What many want to know is how fast will blockchain technology drive O2C and what components will be impacted first? My crystal ball is in the shop this week, so I’ll simply have to provide my opinion based on what’s occurred in the last year or so and what’s been happening since the lockdown.

Is blockchain the solution or simply the channel?

One of the features blockchain offers is the reliability of data exchange using a distributed ledger platform. If entity A wants to engage in an exchange with entity B, depending on the blockchain platform being utilized, the two parties can skip much of the process that now requires strict verification. This would include invoicing (and related POs, submission confirmation, collections) and payment (customer approval, payment processing), as the distributed ledger already has this information and the interaction can occur almost instantaneously via smart contracts. So, another question is whether the individual processes separately sit on top of blockchain or whether blockchain replaces those individual processes altogether. My thinking is that blockchain will eventually replace them, but there are a few things that have to happen first.

Practitioners and interested parties are still trying to figure out how blockchain can work effectively in O2C. All aspects of O2C should be viewed as being ripe for refinement on whatever blockchain platform is best suited for an organization or industry. What I’m saying is that it doesn’t make sense that all O2C processes remain basically the same, but blockchain is likely the evolution and new way to think about these processes. And, if blockchain does not have the speed bumps sometimes associated with aspects of O2C – some of which have been exacerbated by the lockdown, then transactions can run smoothly regardless of a pandemic.

What this could mean for invoicing and payment

While both invoicing and payment are handled in ways that incorporate different methodologies and platforms, payment disparity appears to be heading toward a resolution. In other words, fewer payment methods are being used with greater success to incorporate speed, accuracy and cross-border capability. While there are still competing methods in place (ACH, check, credit cards), the move toward consolidation and simplification is market driven. That’s the key. Invoicing, on the other hand, is not as market driven when compared to payment. Because of this, different organizations have developed their own platforms in which to submit invoices, and they continue to grow. There has been significant progress in methods such as electronic invoicing (EIPP for example), but it’s not mostly being driven from the bottom up. It’s set up to be driven from the top down. As a result, e-invoicing meets significant resistance with a large percentage of suppliers. This is changing, but is it changing fast enough? And, as these changes are being pondered, different entities are building individual platforms they hope will lead to ubiquity.

Don’t get me wrong; many small and mid-size businesses see electronic invoicing as highly beneficial for a number of reasons, including speed of submission, ability to confirm that submission, reduction of DSO, etc. The issue is that there remain too many who still don’t see the benefit to it. Granted, certain markets take longer to shift than others. What’s important to understand is that market driven change, resulting in full and willing adoption by the vast majority of users, occurs much faster than change by fiat.

Cross border trading is critical

Cross border trading is a significant benefit of blockchain enabled engagement. An acknowledgement I hear regularly is that one could travel by plane from London to New York with a bag of money faster than an “electronic” transaction occurs across the same divide. This seems outrageous in 2020. Since traveling from country to country is more difficult because of the lockdown, no one will be traveling with a sack full of cash right now. Nevertheless, solutions such as Ripple, a real-time gross settlement system, currency exchange and remittance network, positions itself as the best way to instantly move money to all corners of the world.

Other blockchain platforms showing promise for O2C and, by extension, supply chain, are IBM’s Batavia, a global trade finance platformed created by IBM in concert with five banks, and Ethereum, a pioneer in developing smart contract capability among multiple parties.

In addition to Batavia and Ethereum, there are a host of stablecoins; cryptocurrencies intended to mitigate volatility of the price of the coin. Stablecoins can be pegged to a variety of assets, including precious metals or fiat currency. Examples of stablecoins include Digix Gold Tokens, Tether and the proposed Libra by Facebook.

These platforms are intending to make it nearly impossible for practitioners and decision makers to look at O2C the same way 5 to 10 years from now. That’s not to say that this change is guaranteed. But, if instances like the COVID-19 lockdown will continue to disrupt traditional operations and processes, and blockchain proves to be a better solution when they occur, it could change the way we look at Order-to-Cash and supply chain processes forever.

Ernie Martin is Founder and Managing Director of Receivable Savvy. He brings over 25 years of experience in financial supply chain management, marketing and communications and draws upon his extensive experience to share knowledge and best practices with AR professionals. He previously chaired the Vendor Forum of the Federal Reserve Bank of Minneapolis and his resume includes time at several well-known brands and companies such as Tungsten Network, Delta Airlines, CIGNA Healthcare and Georgia Pacific, as well as a number of years as an independent consultant.

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