Finance and Accounting

How blockchain is enhancing supply chain finance?

Digital currencies are the first thing that comes to mind when you hear blockchain technology. However, this distributed decentralised digital ledger technology has far wider implications and has been a game changer in many industries. As a result, experts estimate that the global blockchain industry will be worth $163.83 billion by 2029, growing at a CAGR of 56.3%. Additionally, global investment in blockchain solutions is set to reach $19 billion by 2024.

Supply chain finance is another innovative solution that helps businesses optimise their working capital to improve business efficiency. The global supply chain finance market is also set to grow from $5.65 billion in 2022 to $6.23 billion in 2023 (10.1% CAGR) and $8.86 billion in 2029 (9.2% CAGR). But how can blockchain – a digital ledger that brings transparency to transactions – help enhance supply chain finance solutions? Let’s find out.

What is supply chain finance?

Supply chain finance is a network of financing procedures and tech-based businesses that connect various supply chain stakeholders and financial institutions to reduce financing costs while improving business outcomes. It relies on large financial institutions to offer short-term credit to supply chain partners, allowing them to optimise their working capital.

With the recent developments in finance and blockchain technology, blockchain-driven supply chain finance models have been gaining popularity. These models can not only allow various supply chain partners to easily link with each other but can also simplify –

• Securitisation
• Payments and settlements
• Smart contracts
• Clearance and settlement systems
• Syndicated loans
• Digital asset custody

As a result, you can increase security and reliability – in asset, money, or information transfer, reduce fraud risks, facilitate faster financial transactions, and improve business outcomes.

Improving supply chain finance with blockchain

As we have seen in the section above, both supply chain finance and blockchain have demonstrated remarkable benefits for the stakeholders involved. Integrating blockchain technology into the supply chain can help you reap these benefits while helping you improve your supply chain operations. Here are some ways blockchain technology can help enhance supply chain finance:

Increasing supply chain authenticity

Supply chain finance involves a vast network of stakeholders, from buyers and suppliers to intermediaries. As each stakeholder prioritises their needs, the information exchange may lack transparency and potentially trigger delays across supply chains. Blockchain can eliminate this problem by making the same digital ledger available to all stakeholders who can access and update the information in real time. This facilitates transparency and authenticity in the supply chain network.

Promoting ecosystem inclusivity

Blockchain technology has the potential to address current shortfalls of the supply chain finance ecosystem, especially when it comes to financial inclusivity. Many supply chain financiers prefer to fund the top ten to fifty suppliers of the buyer, which often excludes small and medium-sized enterprises. This may be counter-intuitive as early payments can be more beneficial to smaller suppliers. Blockchain technology in supply chain finance can facilitate sending funds to all suppliers while recording each transaction to promote inclusivity.

Redefining financiers in supply chains

Large financial institutions are the primary financers in buyer-led supply chain finance. Although they will remain relevant, blockchain can open up financing opportunities to other stakeholders – like corporate foundations or individual investors.

Enhancing supply chain functionalities

Information exchange between various stakeholders has been one of the biggest challenges in supply chains. Inaccurate information is a significant challenge in supply chain finance that blockchain can help resolve. The immutable digital ledger can track all the information, from assets to product quality, to help smoothen the supply chain, reduce lags, and save time and money for the stakeholders involved.

Although blockchain technology is novel, it has already demonstrated its utility across different industries. Supply chain finance is no exception, where it can derive immense value from blockchain technology. It is only a matter of time before digital finance services merge supply chain finance solutions with blockchain technology for better business outcomes.

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How can Infosys BPM help?

Infosys BPM Digital Finance Service enables a paradigm shift in your finance and accounting operations by leveraging next-gen technology and analytics capabilities. Our solutions can help you embark on a transformative digital strategic journey with Infosys BPM digital finance services and facilitate “real-time finance”.