8 ways blockchain will change finance & accounting

Blockchain is rapidly evolving from hype to high-value technology with real-world applications in business. In 2017, blockchain began making its way onto the roadmap of business process services. Now it is emerging in full operational deployments and disrupting fundamental business processes related to buying and selling and converging into mainstream accounting technology used to record business transactions.

The inherent attributes of blockchain technologies – distributed ledgers, decentralized databases, the elimination of third-party intermediaries, high-quality encrypted/notarized transactions and transparency – meet key requirements of finance and accounting (F&A) operations. Integrating blockchain into F&A operations can increase transactional trust, reduce fraud and risk, lower transaction costs and accelerate processing times.

 Here are the key Blockchain enablers for F&A processes:

Smart Contracts & Smart Assets

A smart contract is a computer program running on top of a blockchain. The program establishes rules for the contract and automatically enforces the agreement when these rules are met. This allows computer protocols to verify and enforce an agreement, which radically reduces transactional costs related to reaching, formalizing and enforcing an agreement. The rules within smart contracts define smart assets, which are unique virtual tokens that represent tangible and intangible assets. Blockchain technology, which allows these assets to be tracked in real time, is revolutionizing trade finance, working capital and supply chain management.

Expedited Processing (for Clearing, Settling and Payments)

Digital records that incorporate blockchain can allow for real-time settlements via the network, which can create huge savings in overhead costs. The current status quo for clearing and settlement is three days. Blockchain replaces this norm with near-instant settlements, which are favorable to business by contributing to working capital and reducing payment overhead costs and error-related delays. Even traditional banking systems are evolving to integrate similar technology. Some key examples include J. P. Morgan’s Interbank Information Network (IIN) and SWIFT Global Payments Innovation (GPI).

Digital Identity Management

 In some instances, blockchain may be the solution to challenges related to identity management within business. These challenges extend across a range of areas such as fraudulent data, General Data Protection Regulation (GDPR) compliance, data privacy leaks, identity theft and identity authentication. A blockchain network allows for encrypted and rigorous checks and balances, which ensure data authenticity and protect all parties involved.

There are a number of ways Blockchain can transform F&A processes, but here are the top eight:

  1. Streamlined procurement processes. Tamper-proof smart contracts will allow for efficient purchase order (PO) matching and invoice management. This will eliminate PO validation and approval, invoice processing, two- or three-way matching, and the entire backend request-to-receipt processes.
  2. Integrated, secure accounts payable invoicing. Blockchain will allow for seamless e-invoicing and payments made automatically from the buyer to a seller through secure encrypted channels, making it easy to track and monitor transactions transparently and ensuring an audit trail that can be downloaded from the blockchain.
  3. Elimination of accounts payable discrepancies. Verifiable real-time audit trails of suppliers’ goods will reduce accounts payable price and quantity discrepancies.
  4. Automated travel and expense (T&E) processing. Smart contracts and automated blockchain settlements will eliminate the need for cumbersome tasks such as expense report submission, audit and other tasks typically associated with T&E processing.
  5. Seamless payment processing. Payment processes can be greatly transformed and seamless using the blockchain settlement networks and equivalent banking settlement platform innovations, such as JP Morgan’s IIN and Swift’s GPI.
  6. Automated order-to-cash processes. Smart contracts will enable automated and accurate pricing and discounting. They ensure total compliance when it comes to transparent transactions by providing a thorough audit trail. These contracts also facilitate accurate receivables, reducing the need for manual cash applications, deduction and disputes management.
  7. Efficient record-to-report validation processes. A blockchain network requires all parties to be pre-validated, which eliminates the need for separate supplier master data and customer master data.
  8. Accurate record-to-report and reconciliation processes. Distributed ledgers can reduce time spent on reporting and reconciling while simultaneously increasing accuracy. Blockchain allows for closer integration of customer and supplier data, which enhances controls and facilitates scheduled real-time auto-balance reconciliation. Interconnected ledgers via blockchain reduce dependencies and automate financial processing. The distributed ledger system within blockchain can also transform intercompany processes between internal buying and selling entities.

While some say that the blockchain bogie has just departed the F&A train station, others argue that blockchain is fundamentally an accounting concept that has evolved from time-tested bookkeeping practices. Nevertheless, it is clear that blockchain for finance has arrived, and when combined with other levers such as robotic process automation, artificial intelligence and machine learning, blockchain can significantly disrupt F&A processes as we know them today.


Sam-Victor-headshotSam Victor is a Senior Business Process Services Solution Architect at DXC. He consults with a global client base regarding business process transformation in the areas of finance, accounting and supply chain. Sam has over 20 years of experience in industry verticals in delivery, solutions and sales across billion-dollar revenue businesses.

Comments

  1. Jonathan Sproule says:

    Thanks for the article. Exciting times. Similar to a decentralized access control model where the decision points are pushed outwards and everyone can see the ACL. Would be great to see Blockchain in the music industry. I haven’t seen this yet.

    Like

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