A Deloitte study takes a closer look at how business blockchains – which are currently being used to help reinvent how transactions are managed – help streamline procure to pay processes, also aiding treasury within finance departments.

Besides one familiar use of blockchain technology – trading and managing cryptocurrencies – the other main use of blockchain that we’ll focus upon is for managing transactions related to trade and commerce, including finance processes like payables, receivables, and compliance. Enter business blockchains.

Time and cost-related advantages 

Business blockchains are being used today to help reinvent how transactions are managed. They can take time and costs out of almost any process, enabling near real-time operations. And they deliver a high degree of accuracy and control, with much less risk than many alternatives. Blockchains perform recordkeeping using automated, low-cost mechanisms. They enable asset transfer through secure, real-time methods. And they provide governance in the form of smart contracts. Smart contracts enforce contract terms such as payment, and thus enable greater trust to the record keeping. 

Common finance applications for blockchains include procure-to-pay, order-to-cash, trade finance, intercompany transactions, and reconciliation. Processes that extend beyond finance, such as supply chain management, asset tracking, warranty

service, and regulatory compliance can also be streamlined using blockchain technology. Business blockchains can operate as standalone solutions, but the value realized increases significantly when they are combined with other technologies, such as machine learning or Internet of Things, to reimagine an entire end-to-end process.

Market trends

If we take a look at the market and how it performed over the past year, we see a strong trend in the attitude towards usage of blockchain-based applications. Deloitte’s Global Blockchain 2019 survey showed that more businesses see compelling use-cases with blockchain as an enabler. The survey showed that 91% of respondents believed they would achieve measurable, verifiable return on blockchain investments within 5 years and respondents’ overall attitudes toward blockchain have strengthened meaningfully, with 83% seeing compelling use cases. Moreover, 86% or more of respondents agreed with each of the following statements: Blockchain can enhance our integration toward more “touchless” business processes, Blockchain will enable new business functionalities and revenue streams in my industry, Blockchain technology is broadly scalable and will eventually achieve mainstream adoption.

How business blockchains help streamline procure to pay processes

The authors of Deloitte’s study believe that business blockchains will help companies overcome challenges in the procure to pay process (P2P) by improving communication between entities and their individual systems. Industry experts see business blockchain for finance as an enabler to create a transparent communication platform with verified and aligned data across entities. A distributed database that provides a unique single source of truth between buyer and seller (and others), which can help overcome communication challenges. In other words, one single source of truth between buyer and seller enabled by a shared and distributed platform and an enclosed record of transactions.

In a corporate world where information is decentralised across companies, it is unavoidable that information sometimes is not aligned. Inconsistency between databases can occur because of manual registrations of information from e-mails, or missing updates of master data. On the other hand, business blockchains are distributed databases shared between participants. Since blockchains only appends data, not changes, consent materializes across the network. It consequently provides a full and verified record of transactions in a chronological format, shared in real-time.

Moreover, business blockchains provide the possibility to use smart contracts. Smart contracts can minimize manual errors by automating actions and validation and can execute data transfers to the stakeholders’ ERP systems. In essence, smart contracts are macros running on the blockchain that perform a process when certain conditions are met, for example payment after 30 days. Execution of data transfer to the ERP systems happens via smart contracts when buyer and seller agree on for instance price and payment terms. The entities will now have the correct, updated master data in their systems to base their orders and pricing on, removing the risk of errors originating from master data that is either poor or has not been updated. This also optimises the reconciliation process afterwards.

How business blockchains aid treasury within finance departments

According to the same Deloitte study, blockchain can enhance corporate treasury functions by bringing all parties across companies into a single platform to allow sharing of real-rime information and automated intercompany reconciliation. Even so, key challenges in treasury still exist. As per Deloitte’s 2017 Global Corporate Treasury Survey, treasury departments struggle with a variety of challenges that have persisted throughout the years. Over 200 corporates participated in the survey, and three of the key challenges experienced by the respondents were: problems with FX volatility/fluctuations (53 per cent), visibility into global operations, cash and financial risk exposures (43 per cent), problems with either cash repatriation or liquidity (40 per cent).

28 per cent of the companies in Deloitte’s 2017 Global Corporate Treasury Survey stated they have no system in place for FX and interest rate risk management, and 7 per cent had developed their own solution. Adding to this, knowledge about next-generation technology enablers was scarce, as 54 per cent were still trying to understand or did not at all understand the concept of blockchain.

A challenge also arises with the actual transfer of money between the trading companies. Nowadays, it can take a bank 1 to 5 days to process a money transfer transaction, depending on the countries involved and the banks used for the transfer. This can create a gap in the audit trail of the money flow, gap which poses a problem as it complicates reconciliation, it impacts liquidity and visibility, and bank fees are increased due to high volumes and high frequency of transfers.

Blockchain technology to the rescue

Keeping in mind the above mentioned issued, we see blockchain technology as a tool for bringing all parties involved in intercompany settlement onto the same platform. Deloitte’s study reads: “On a blockchain, both parties need to agree on a transaction before it is recorded. The process is simplified with smart contracts enforcing an agreed set of fixed rules within the companies. All transactions on the blockchain are distributed to all parties in the company and are immutable. Since all transactions are visible on a need-to-know basis, a common source of truth appears within the companies, and miscommunication is minimised. We see business blockchain for treasury as an enabler for creating a transparent communication platform with verified and aligned data across multiple entities – a distributed database that provides a unique single source of truth between parties across companies.”

Modex BCDB, a game-changing solution

Currently, the majority of blockchain solutions present on the market are oriented towards blockchain as a service, limiting themselves to a rigid view and application of the technology. A company or the CTO (Chief Technology Officer) of a company can come to the realization, after a bit of study that their business can solve several issues and streamline back-end processes by implementing blockchain. The problem is that in order for a company to implement blockchain technology only through its own tech team, they need to invest a significant amount of time and resources to study what type of blockchain is most suited for their needs, and commence a lengthy process of learning the development specificity of the respective blockchain, as well as scouting for developers proficient in the technology.

Modex BCDB is a new take on blockchain technology which removes the need to invest resources in blockchain training and facilitates fast adoption of the technology in businesses. The solution proposed by Modex is a middleware that fuses a blockchain with a database to create a structure which is easy to use and understand by developers with no prior knowledge in blockchain development. As a result, any developer who knows to work with a database system can operate with our solution, without needing to change their programming style or learn blockchain. Through our blockchain component, Modex BCDB is able to transform with minimal changes any type of database into a decentralized database which holds the same valuable characteristics inherent to blockchain technology: transparency, increased security, data immutability, and integrity.

Modex BCDB doesn’t work by deleting the existing database or data entries. The database is maintained intact throughout the process, data integrity is ensured by calculating the metadata of the records and storing it on the blockchain. The system does not restrict access to the blockchain or to the database, so when a developer needs to make a reporting or ETL transformations, they can perform warehouse analytics by accessing the database directly. This is because Modex BCDB has been purposely designed to be agnostic. With our solution, clients are able to set up a network, regardless of the type of database employed. In a consortium, each company can maintain what type of database they prefer and connect them through a blockchain-powered network to ensure cohesion while protecting corporate interests.