How Blockchain Technology is Transforming Supply Chain Finance

How Blockchain Technology is Transforming Supply Chain Finance

Blockchain technology has the power or can say potential to change multiple industries in many ways. It offers decentralization, transparency, and immutability, which are attractive to businesses worldwide. The finance industry is utilizing the blockchain industry on a large scale now.

Blockchain technology has moved beyond just digital currency and is now being used in a variety of different industries, such as automotive, telecommunications, insurance, retail, entertainment, and healthcare. These sectors are taking advantage of the features of blockchain to power services, from billing and payments to logistics and planning. However, the most common use of blockchain is in supply chain finance.

Let’s Understand Supply Chain Finance

Supply chain finance is an innovative approach to help both buyers and their suppliers. By using a supply chain finance provider, buyers can pay their suppliers in advance and extend their payment terms. Not only does it support buyers in optimizing their working capital, but it also provides an affordable way for suppliers to receive cash. However, despite its advantages, supply chain finance does not solve everything. For instance, it is usually just available to the biggest suppliers, leaving out small and medium-sized enterprises. This is just because these companies could benefit hugely from early payments. Thankfully, the relevant stakeholders are aware of these problems and have been researching different tools to improve supply chain finance. A variety of proposals have been made, but none are better (at least currently) than using blockchain to improve supply chain finance.

Now Let’s understand the working of blockchain.

Blockchain is a secure, open, and almost immutable public record that keeps track of exchanges across a network of computers. It allows for secure and reliable currency transfers in finance. The blockchain provides an accurate history of transactions that is nearly impossible to alter or erase on hundreds or thousands of computers simultaneously.

The combination of supply chain finance and blockchain technology has incredible outputs:

Blockchain technology has the potential to drastically improve supply chain management. It can speed up and reduce the cost of product delivery, make it easier to track products, facilitate better collaboration between partners, and provide access to financing.

Let’s see How Blockchain Technology is Transforming Supply Chain Finance

Blockchain And Smart Contracts

Smart contracts are a major benefit of blockchain technology that can provide a solution for Supply Chain Finance (SCF) problems such as verifying credit cards, bill of lading, factoring, and reverse factoring. These contracts are relatively secure and transparent, as sellers, buyers, and financial institutions can view the encrypted ledger data, which is protected by modern cryptography. Blockchain smart contract technology is automated, meaning that smart contracts are coded into data and given a unique hash code. This data is then stored, recorded, and executed automatically using an encryption key. This offers a huge opportunity for SCF to automate financial transactions and payments in accordance with the time the physical transaction took place.

supply chain finance

Blockchain And Payment Transparency

Supply chain finance involves a vast network of stakeholders, such as buyers, suppliers, and middlemen, to name a few. With so many participants, the exchange of information is often not transparent. Each interest group can prioritize its own loyalty over that of others, leading to slow supply chain processes. Blockchain technology can help to resolve this problem. By using a shared ledger that is made accessible to all members of the network, blockchain provides an unalterable record of transactions, ensuring accuracy and credibility. Additionally, blockchain’s immutability allows businesses to verify invoices and approve payments with greater trust and confidence. All in all, blockchain has the potential to revolutionize supply chain strategies and speed up the entire process.

Blockchain In the Financing Market

Financial institutions are an essential part of the buyer-supplier supply chain financing market. They provide payments to suppliers on behalf of customers and create a repayment plan that includes the borrowed amount, a fee, and interest. While financial institutions are important contributors to buyer-led supply chain finance, blockchain technology has the potential to open up participation to various stakeholders. Corporate foundations and individual investors could also be involved in supply chain finance and make a return on their investment.

Blockchain And Trading

The use of blockchain in international exchange and trade financing has been extensively studied. Blockchain allows data to be shared between participants in a transaction without relying on physical records. An important concept when considering blockchain is the use of smart contracts, meaning algorithms based on computer code stored on a blockchain. Additional advantages include privacy protection, an unrivaled level of security and fund transfer, as well as 24/7 availability.

The Bottom Line

Blockchain has already proven to be extremely valuable in many different areas. Entertainment, banking, and payments have all seen great potential in blockchain, and this potential is only expected to grow in the coming years. It won’t be long before blockchain technology and supply chain finance are combined to revolutionize the industry. The team at Webcom Systems recognizes the importance of blockchain in supply chain finance. Their knowledgeable and experienced staff works to identify issues facing this major sector of the economy and provide the best possible blockchain development solutions and infrastructure management services for supply chain finance.

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