Blockchain implementation for invoice finance users
Businesses of all sizes and industries have experienced the frustration of overdue invoices. Due to the nature of a business, overdue invoices can occur depending on the structure of supply chains, sales, receivables and inventory cycles, or operational practices that are customary in their industry, other times to human error.
In either case, the effects on the party that is owed payment are the same: for Small to Medium-sized Enterprises (SMEs), if enough invoices are in default, working capital becomes a problem. This common problem has led to the rise of invoice financing, a practice in which businesses sell their outstanding invoices to a third party, for a discount, and in return receive up to 95% of the liquidity they need to stay in business.
Many SMEs often face quite intractable problems obtaining access to finance. Dating back to the 1930s when the MacMillian Report noted the difficulties SMEs encounter when obtaining finance, the issue of SME funding has been a strong concern for UK policy makers for almost a century (Hughes, 1997).
The acclamation of invoice factoring and invoice discounting has become increasingly widespread. Alternative funding such as peer-to-peer lending appear to offer a significant challenge to the operational models of traditional bank and equity funding. Factoring concerns the acquisition of accounts receivable by an investor known as a factor.
The invoice factoring industry is estimated to be worth around 3 trillion US dollars as of the first quarter of 2018. However, the traditional method of invoice factoring includes some barriers to entry such as high lending fees for businesses or invoice owners, labour-intensive invoice duplicate checks, fraud prevention, among others. SMEs need timely access to finance in order to expand and grow and research demonstrates that this can only be achieved with access to funding.
At the core of the Populous World invoice discounting platform is the Ethereum blockchain technology. The idea behind Populous World is to provide a global, peer-to-peer (P2P) platform built on the Ethereum network that connects borrowers and businesses selling invoices, with lenders and businesses that want to buy them. With blockchain implementation, users can bid on an invoice that is for sale, and the seller decides whom to sell it to; essentially making Populous World a decentralised platform for invoices.
From a technical standpoint, the use of immutable blockchain implementation offers transparency, and significantly reduces the risk of human error or tampering with invoice records, and automated payments on the platform via smart contracts keep everything running smoothly.
There is also an assurance provided by the blockchain that duplicate invoices will not be funded. This is automatically done with the use of smart contracts and does not require small scale invoice investments to be charged further fees for a labour-intensive and costly manual the invoice clone checking process.
At Populous World, we implore businesses to explore the right invoice financing method to ensure they have the most suitable facility.
Alternatively, you can contact Alex Oritogun at [email protected] for a bespoke facility tailored towards the needs of your business.