How Blockchain Technology is Accelerating Supply Chain Finance?

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A set of technology-based business and financing processes linking various parties in a transaction to boost efficiency and lower financing costs, supply chain finance (SCF) provides short-term credit thereby optimising working capital for both the buyer and seller.

With a proper SCF in place, businesses can foster stronger relationships with their suppliers, decrease currency risk and improve liquidity. At the same time, it’s important for firms to adopt solutions of Supply chain finance that are secure, transparent, efficient, reliable and fast. This is where blockchain is playing a crucial role.

Blockchain: Changing the dynamics of SCF

A distributed digital ledger, where all parties in a transaction can view and access the records without being able to make any modifications in it, blockchain deploys smart contracts which get triggered when a predetermined event takes place. Blockchain will result in:

  • Increased trust between all parties involved in a transaction

As an immutable ledger is shared between all parties – buyers and sellers – involved in a transaction, blockchain increases trust among all the parties and prevents a single entity from having too much control. While buyers will rely on sellers to provide them with quality products, sellers will depend on buyers to pay the required invoice on time.

Since SCF involves multiple parties making a large number of transactions, having trust is imperative for maintaining an efficient supply chain management and accelerate the entire process. Blockchain is helping in doing exactly that.

  • Enhanced and intelligent security

The security algorithm of blockchain is known as consensus protocol, which is used to validate transactions and create new blocks. The blocks can’t be deleted, erased or modified and as there’s an increased visibility and traceability of information, the same results in enhanced security and acceleration of SCF solutions.

Also, a blockchain-based SCF is more specific where all the parties work on a single shared ledger, thus bring efficiency into operations.

  • Prevention of supply chain disruption

Generally, supply chain disruptions occur when sellers don’t have adequate resources to fulfil the buyers’ demand. While this can be addressed through SCF, if the SCF is distrusted, the supply chain gets affected in the process. Also, when buyers default on payment of goods already delivered, SCF suffers a blow.

Blockchain helps address these pain points by storing historical demand data, which help in accurate prediction of consumer buying and payment cycle. Also, smart contracts ensure that the outstanding balance from the buyer reaches the seller within the stipulated time frame.

  • Increased control, speed and reliability

SCF solutions as of now are still yet to come out of the traditional paper-intensive process which can eat up a lot of time. Blockchain can change all of it as smart contracts can carry out the entire transaction within seconds.

Also, payments done can be monitored by all the parties in the supply chain and a reduction in the transaction time will result in greater control, speed and reliability. In the long-term, the same would create more robust supply chains. The inventory management, which is the part of supply chain management also plays a vital role to lift the system up managing the whole inventory of yours.

A platform where every partner in the supply chain can interact without any reservation or restriction in a transparent eco-system, Blockchain not only eliminates paperwork but also reduces information asymmetry.

With increased settlement at lower costs at pivotal points of the supply chain management, SCF is all set to witness major changes in the coming days thanks to blockchain, whose market is estimated to be worth USD 23.3 [1] billion by 2023, growing at a CAGR of 80.2% [2] during 2018-23 period. As adoption of new technology grows, SCF will become available to smaller and diverse entities, effective management of which is possible through blockchain.