Blockchain and the Transformation of Purchase to Pay

Posted by Pete Loughlin in Blockchain, Procurement Best Practices, Procurement Process, Purchase to Pay 04 Nov 2016

Blockchain is everywhere. Wherever you turn there’s a new application of this remarkable technology. It is already disrupting the financial services industry and some banks are even issuing their own cryptocurrency accounts apparently in direct competition to their own traditional core business. But the impact will go much further than that and I believe it will fundamentally alter the way we do business with each other not only the way we use money.

Site LogoThe principle that makes blockchain so powerful is the fact that it creates an indisputable record of transactions. In the case of cryptocurrencies, transactions can be guaranteed in such a way that there is no need for a bank to act as the trusted third party or arbiter of who owns what and if this principle is applied to purchase to pay it could strip out layers of bureaucracy from supply chains and dramatically reduce the cost of doing business.

Take a simple purchasing transaction and its associated documents: a purchase order, a delivery note and an invoice. When it comes to paying, typically, an administrator checks that the invoice matches the P.O. and the delivery details. This is important because there maybe discrepancies – an over or under delivery or a price variance for example. But suppose we performed purchasing transactions using a blockchain platform, there is no need to check because if the records – the order, the delivery confirmation etc. – are stored in the blockchain, the provenance, authenticity and accuracy of these records are guaranteed. If that is the case, there is no need for an invoice. Payment can be made as a logical step following delivery.

This may seem farfetched – even fanciful – but so did internet shopping in the early 1990s. Let me remind you of what the world was like then. The internet was a new type of robust network. It was used for communication. Email was the killer app. Academics used the world wide web to share information. Its potential to reach into the home was recognised early but it was communication and content consumption that was seen as its primary purpose. Online shopping was seen as inappropriate – why would anyone buy something via the internet when they can buy it from a store? And in any case there were practical, contractual and legal obstacles. Old world paper processes such as signatures would just create duplication of effort and there were of course security concerns. Yet despite the cynicism and the mountain of conventional thinking that had to be overcome, in less than a decade e-commerce had taken over the world.

This is where we’re at with blockchain. The killer app, bitcoin, has proved that blockchain is robust and reliable and more and more applications are emerging all of the time. Most are derivatives of the concept of cryptocurrency but others, such as those that relate to supply chain, are quite original. They’re hard to understand and they seem to tip traditional business process on their head. As they do so, old skills will become archaic and new ways of thinking will have to be embraced. Not everyone will be equipped for the change, indeed there will be many who actively resist change. There will be the ignorant cynics who will pour scorn on the possibilities but so will there be the imaginative and agile who will accept with enthusiasm the new order.

All very exciting but the world won’t change overnight. I think that before the world of purchase to pay is revolutionised and accounts payable teams become obsolete, there are going to be a number of industry specific and niche applications of blockchain that will emerge just as there was with e-commerce in the 1990s. I can see some obvious opportunities in manufacturing supply chains where there is no room for error in the supply of direct materials. I believe that the health industry is uniquely placed to take advantage of the synergies between care providers and their suppliers and I know that there is a compelling case for governments to use blockchain thinking in the collection of indirect tax such as sales tax and VAT. But the most interesting applications of all are likely to be those that we can’t even imagine just yet.

Pete Loughlin can be found on twitter @peteloughlin

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