Many people have heard of blockchain in connection with cryptocurrencies like Bitcoin and Ethereum. Digital currencies are one of the most popular applications of the technology after all.
However, not too many people may be aware that the technology offers a lot more useful applications that just cryptocurrencies. Blockchain platforms can significantly improve the record keeping process for businesses by making them accessible online, very secure, and incredibly reliable.
Problems with Cash Flow and Spend Management
Businesses rely excessively on transactions between multiple parties that must be recorded properly and accurately. These transactions must also be easily available for auditing.
Consider a case where Company A regularly sells raw materials to Company B. The invoices for the products are issued at the time of delivery of the products.
Company B issues payments to Company A 30 days after the delivery of products. Once the invoice is sent it remains on the system of Company A as Account receivable. Once the invoice is received by company B they record a corresponding Account payable.
When the payment is issued through a fund transfer, Company B would write off the Account payable. Company A would only write off their Account receivable once the payment for their products has actually been received.
There is also the possibility of delays in payment clearance if the transaction takes place through a third-party, such as a bank.
Obviously, there is a delay between issuance and receipt of invoice as well as issuance and clearance of the payable account. This can cause errors and miscommunication between business partners. A system that can instantly transfer funds from one account to the other and record it on a public ledger that is viewable by both parties would significantly improve the whole process.
Cash Flow Improvement
A blockchain based distributed ledger system being created by Calero.io can record instant payment of invoices rather than waiting for several authorizations from multiple companies and intermediary banks.
As soon as an invoice is issued, everyone from the supplier to the inventory and quality control department at the buying company would know about the purchase.
Similarly, the accounts departments from both firms would be aware of a transaction as soon as a payment is issued. This would significantly improve cash flow planning for both companies.
Reduction in Intermediaries
Banks have played a central role in generating business activity for centuries. Banks facilitate transactions between different companies but also charge a fee for their services.
A blockchain platform has the potential to completely remove the role of banks by directly connecting sellers with buyers. This would improve the spend management for businesses by removing the costly intermediaries.
Better Inventory Management
Business cash flows are dependent on inventory cycles and supply chains. In trading and manufacturing businesses, the working capital is heavily invested in goods or raw materials. These goods are later sold and converted back into cash.
One of the problems in supply chain management is the accuracy and authenticity of the inventory data. A number of tools have been developed to account for inventory over the years but nothing comes as close as blockchain in providing an accurate ledger account. The blockchain provides a complete record of inventory and improves supply chain in a number of ways.
Ø Blockchain is openly accessible and inventory data can be viewed by anyone from anywhere. Inventory information can be adjusted automatically as products are sold and transferred from one location to another.
Ø Blockchain allows a complete record of inventory from production to final sales. This allows data accuracy and easier tracking of individual batches of products.
Ø The inventory data entry on a blockchain is encrypted, making it much more secure than a regular database.
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Ways to Improve Your Company’s Cash Flow and Spend Management
