Blockchain allows for invoice securitization
As Applied Blockchain and Tallysticks progress with their invoices-on-blockchain project, the prospect of a new form of short-term capital markets funding for companies emerges.
When Euromoney first encountered Adi Ben-Ari – a veteran of enterprise IT in the telecoms sector and at Lloyds Banks, and now the co-founder and chief executive of Applied Blockchain, a small group looking for new practical applications of distributed ledger technology – his company was trialling a system for companies to process their invoices on blockchain.
Oh, the glamour of it all.
The work flows involved in issuing and receiving invoices – confirming the identity of a sender, checking the authenticity of the invoice details, approving and authorizing payment, making that payment and ensuring acknowledgement of receipt of payment – is a dense, complex, often paper-heavy and largely manual one.
Applied Blockchain’s attempt, working with another small fintech company called Tallysticks, of which Ben-Ari is also a co-founder, to run those workflows end-to-end across a distributed ledger is ambitious.
It marks a move towards the second-generation deployment of a technology that banks at the start of this year still saw as a futuristic means to time-stamp and immutably record transfer of ownership in financial assets.
Applied Blockchain and Tallysticks trialled the technology with a UK SME called Emplas that makes windows. When Euromoney catches up with Ben-Ari in October, payments integration is being finalized.
Tallysticks is already working with one of the big banks – rather than trying itself – to attract more users. “Barclays have introduced a number of their partners to the product and we are talking about linking some more of these partners as well as clients up to the system,” says Ben-Ari.
Invoices, especially those due from large and well-rated companies, have always been a useful source of secured funding for smaller companies that might struggle to raise working capital from banks on the basis of their stand-alone credit.
Ben Ari now sees new applications that can translate the improved verification of invoice details and immutable record of ownership beyond backing for bank loans and into the capital markets.
“Our platform may now allow for securitization of invoices as the underlying for bond issues,” Ben-Ari tells Euromoney. “It brings transparency as to the ownership and establishes the provenance of invoices for bond buyers in ways that the existing processes and technology simply did not allow.
“We are now working through all that is required to bring the processes onto a trusted platform from which it might be possible to issue short-term bonds backed by invoices.”
It is a small, concrete example of how new technology, by bringing a step-change in efficiency of back-office processes, might lead to a useful new form of financing for companies and of how seemingly small fintech innovations might have a big impact on the capital markets.