Why Blockchain for Supply Chain Financing
The traditional Supply Chain Finance is the process where Suppliers sell their approved invoices to the bank or lender at a discount to prevent the delays in supply chain due to lack of funds. This mode offers buyer freedom to pay later and the supplier to secure the funds, and the intermediary bank deals with the buyer to receive the funds. Supply Chain Finance serves the purpose of easing the funding challenge for suppliers, and at the same time, enabling both buyers and the sellers to manage their working capital.
While Supply Chain Financing offers ease of operations, it suffers from a number of challenges, mainly due to the lack of automation in the payment processes. The approvals from buyers and delayed responses from the banks often result in glitches to the supply. Forgery of bills by suppliers is another major challenge, crippling Supply Chain Financing.
The answer to all these major pain points in Supply Chain Financing is the disruptive Blockchain Technology. Being an immutable, decentralized and shared ledger, this technology has found its use across various verticals and industries. In the case of Supply Chain Financing, Blockchain is able to address the challenges through its smart contracts. These automated and fool-proof contracts enable all the participating parties of the chain to share a single shared ledger. A shared ledger cuts down on time for suppliers to wait for the approvals of buyers on the bills. The three major concern areas of Supply Chain Financing, lack of visibility, demand management and process optimization, are streamlined and addressed through this disruptive technology. Blockchain offers a transparent ecosystem for participants to interact freely and work in tandem, without the fear of forgery, creating a secure and trustless process.