Addressing the global problem of late B2B payments will likely take a combination of technology, regulation and behavioral change. The issue is a complex one, factoring in suppliers’ struggle to accept payments other than sluggish checks, corporate buyers’ unwillingness to pay faster in order to hold onto capital longer, the challenge for regulators to enforce their late payments policies and more.
A new report coming out of South Korea, however, suggests that blockchain technology has the potential to address late and delayed supplier payments.
The Korea Small Business Institute (KOSBI) released its report discussing how blockchain technology – and smart contracts in particular – may be able to relieve small suppliers of the painful wait for invoice payments.
According to KOSBI research fellow Park Jae-sung, the security of blockchain combined with the speed of cryptocurrency is an ideal match for B2B payments.
“To create such an environment, it is imperative that a kind of public blockchain be developed and set up so it can be used by companies,” Jae-sung said, according to Yonhap News reports from Sunday (March 11).
According to the research fellow, blockchain would allow for cryptocurrency payments of an invoice to be negotiated at the time of purchase, and included in a contract. That payment “preset” means a large corporate buyer would not be able to withhold payment on an invoice even if it wanted to.
The most glaring barrier to adopting this process, however, is getting corporate buyers to actually agree to these terms. There is, of course, the other major hurdle of getting companies on both ends of a transaction to use blockchain technology and cryptocurrency in their dealings.
Small business suppliers and government contractors could be the first users of this process, Jae-sung told the publication, and government adoption could be the catalyst for widespread use.
“Successful use of such deals will lead to this kind of arrangement becoming more widely adopted,” he said.
KOSBI is not the first group to suggest using blockchain for B2B payments for procure-to-pay processes.
This month, blockchain startup Centrifuge announced $3.8 million in new funding by Mosaic Ventures and BlueYard Capital. The company is developing a blockchain-based protocol to enhance the efficiency of invoicing and B2B transactions as a whole, with a particular focus on delayed invoice payments.
The solution relies on the unlocking of data to identify opportunities in the supply chain to spot payment bottlenecks, free up liquidity and use smart contracts to set up payment when goods are delivered or services are performed.
Another startup, Crowdz, is developing a blockchain platform to facilitate B2B trade and payments on its eCommerce portal. The company revealed earlier this year it is working with the Creative Destruction Lab accelerator program to roll out its Smart Transaction Networks blockchain tool.
But while Crowdz identified several areas of friction in B2B trade – manual operations, reliance on paper, outdated electronic data exchanges – late supplier payments were not among them.
Other players in finance and FinTech say blockchain has the potential to enhance visibility of supply chain data and facilitate trade finance, an alternative finance approach that enables corporates to delay invoice payments while ensuring that small suppliers have access to capital while they wait. Among the most recent to explore this tactic is HSBC, which recently revealed plans to test its blockchain-based trade finance solution. This approach, however, means that delayed and late payments endure.
In a recent interview with PYMNTS, though, Richard Garnier, managing director of Euler Hermes' new insurance brand Credable, expressed doubts over technology's ability to address late payments challenges.
“I don't think that technology is really the solution,” he said. “This is about habit – and it may take a generation to change.”