How Blockchain Invoice Processing Transforms AP

Blockchain is more than just a buzzword - it’s poised to fundamentally transform invoice processing in accounts payable. Just as early predictions about the internet reshaping daily life proved true, blockchain is now driving a similar shift in financial operations. By enabling secure, transparent, and automated workflows, blockchain invoice processing has the potential to redefine how businesses manage payments, reduce fraud, and streamline AP functions.

Why the hype Around Blockchain Invoice Processing?

The excitement around blockchain invoice processing stems from its ability to create a secure, tamper-proof record of every transaction. With encrypted, shared ledgers, blockchain eliminates the need for intermediaries to verify invoice data or payment ownership. When applied to purchase-to-pay processes, this technology can streamline approvals, cut out manual checks, and significantly reduce administrative costs. It’s this potential to simplify and secure AP workflows that fuels the growing hype.

Wherever you turn there’s a new application for blockchain technology. It is already disrupting parts of the financial services industry and some banks have even issued their own cryptocurrency accounts apparently in direct competition to their own traditional core business, to speed up back office settlement systems. But the impact is predicted by many to go much further than financial services and I believe it will fundamentally alter the way we do business with each other – not only the way we use money.

How Blockchain Invoice Processing Builds Trust and Transparency (was as revolutionary as online shopping)

Take a simple purchasing transaction and its associated documents: a purchase order, a delivery note and an invoice. When it comes to paying a supplier, typically, an administrator in the buying organization checks that the supplier’s invoice matches a corresponding Purchase Order and the delivery details. This is important because there maybe discrepancies – an over or under delivery or a price variance for example. But suppose we performed purchasing transactions using a blockchain invoice processing platform. There would be no need to check that the invoice matches because if the records – the order, the delivery confirmation etc. – are stored in the blockchain, the provenance, authenticity and accuracy of these records are guaranteed. If that is the case, there is no need for an invoice. Payment could be made as a logical step following delivery as long as the delivery details match the P.O. details. 

It may seem farfetched – even fanciful – to imagine that by using blockchain technology in invoice processing business could dispense with a fundamental business document – the invoice – but internet shopping also seemed unfathomable in the early 1990s. Let me remind you of what the world was like then. The internet was a new type of robust network. It was used for communication. Email was the killer app. Academics used the world wide web to share information. Its potential to reach into the home was recognized early but it was communication and content consumption that was seen as its primary purpose. Online shopping was considered inappropriate – why would anyone buy something via the internet when they can buy it from a store? And in any case, there were practical, contractual and legal obstacles. Old world paper processes such as signatures were deemed essential and there were of course security concerns. Yet despite the cynicism and the mountain of conventional thinking that had to be overcome, in less than a decade e-commerce had taken over the world.

Reducing Fraud and Errors Through Blockchain Automation (was The future of finance with blockchain)

But blockchain invoice processing does not only have the potential to create big changes at a macro level – it will also impact at the coal face. Consider for example how much more effective the accounts payable function could become if it were relieved of the routine manual matching process required today to approve payments by a smart contract. Greater focus could be applied to reporting and analysis. Rather than simply approving payment, questions could be asked about the timing of payment. If payment approval is triggered immediately through a blockchain-based invoice processing smart contract, why not pay immediately and claim a discount from the supplier? Indeed, the smart contract could be managed to become part a new strategic financial operations team, managing DPO and cash flow and helping to mitigate supply chain disruption by collaborating more closely with suppliers on payment terms.

Consider for example the impact of a single, transparent shared ledger of B2B transactions across a supply chain. Using modern data mining, artificial intelligence (AI) and predictive analytics, unparalleled value could be extracted from that information. But that is only the tip of the iceberg – why limit this to a single supply chain of one buyer and its many buyers. It could extend across a whole industry or even a whole economy. Real-time automated audits of business transactions could make tax collection more efficient and more effective.

But blockchain does not only have the potential to create big changes at a macro level – it will also impact at the coal face. Consider for example how much more effective the accounts payable function could become if it were relieved of the routine manual matching process required today to approve payments by a smart contract. Greater focus could be applied to reporting and analysis. Rather than simply approving payment, questions could be asked about the timing of payment. If payment approval is made immediately as part of a blockchain managed smart contract, why not pay immediately and claim a discount from the supplier? Indeed, the smart contract could be managed to become part a new strategic financial operations team, managing DPO and cash flow and helping to mitigate supply chain disruption by collaborating more closely with suppliers on payment terms.

Blockchain Invoice Processing in Action Today

It is difficult to underestimate the effects that these new technologies will have. They have the real and immediate potential to transform the finance function in a fundamental way, creating greater transparency and predictability. 

Is all of this possible today? Perhaps not. Invoices remain a legal requirement in most economies; however, the opportunity is a real one and it will be possible in the foreseeable future. But there is something that can happen today. Applying blockchain principles to purchase to pay allows the accounts payable function to have a much more strategic dialogue with the wider finance and supply chain communities about how they can play a more central role and move away from the back office to the forefront of the business.

It is a mistake to think that a “watching brief” is the action for today. To “keep a close eye on blockchain” isn’t an action in response to the opportunity, it’s an excuse for no action. Many of the purchase to pay applications of blockchain are possible now and indeed many organisations are preparing specific plans to take advantage of the opportunities at hand. All finance functions, all CFOs should be doing the same.