Invoice Discounting with Blockchain

Invoice discounting is the practice of using a company’s unpaid accounts receivable as collateral for a loan, which is issued by a finance company.

Discounting is a multi-trillion dollar industry

The forthcoming business will have instant access to the funds to help their cash flow which will only pay interest on the amount they borrow in case their suppliers are not aware of the agreement.

However, duplicating an invoice is now possible. Following which the duplicate invoice payments occurred far more frequently than most organizations realize. On an average, approximately 0.1% to 0.05% of invoices paid are typically duplicate payments — which for a medium-size organization with annual costs of $100 million over a three year of the period can depict a loss of $300,000.

This mere solution is not much of a help now, especially for the SMEs because of this blasphemy and treachery involved in the process.

Challenges in current System

· Double Financing: As mentioned earlier; on an average of approximately 0.1% to 0.05% of invoices paid are typically duplicate payments. Invoices are easy to duplicate as we have seen that being leveraged in the case of Businessman Vijay Mallya.

· Banks not readily giving loans: Because of a massive amount of work involved in checking the legitimacy of each invoice, demoting the scope for duplication and human error.

· The growth of SMEs is stagnant: Usually, only large invoices from well-established companies are taken as collateral due to the massive amounts of work involved in checking the legitimacy of invoices received from the SMEs.

· Reducing Popularity: Due to better alternative schemes standing in the financial market, the traditional ID (Invoice Discounting) market is experiencing a reduction in clients.

Advantages incurred with blockchain

Invoice Discounting on Blockchain: Peer-To-Peer (P2P) invoice finance platforms provide solutions allowing SMEs to get immediate advances on trade receivables, rather than waiting for customers to pay invoices with long remittance terms.

This Invoice discounting platform represents sophisticated and structured specialty finance services which automate the whole process from generation of Invoice to paying back the investors.

As a result, the economy will heave ahead as whole potential liquidity will become available to the SMEs that need it.

· The reliable credit history of IF seekers: Credit history of IF seekers can be stored on the blockchain, which will build trust within investors.

· Improved GDP: As soon as potential liquidity becomes available to SMEs, the economy of the country will get availed.

· Reduced Fraud: With the advent of the blockchain, there will be no chance of fraud due to its features such as immutability and audibility.

· Time-saving: Previously, time involved in approval of invoice to the legitimacy of the invoice was really long but now, the whole process is getting automated.

· Better investment: The platform will create competition between the potential investors, thereby enhanced investment.

Advantages of Auxledger over existing blockchain solutions

There are thousands of potential financial institutions who can sanction loan on Invoice. To claim 100% fraudulent-proof system, you need to bring every potential investor onto your platform, which is nearly impossible.

· Interoperability between different Financial Institutions: With Auxledger, every financial institution without risking its privacy can run its own blockchain along with the assurance of no fraud. The architecture of Auxledger blockchain allows interchange transaction following which banks can interconnect and avoid any fraud.

· Transaction speed and cost: Transaction speed of existing blockchain like ethereum is very slow; moreover, the cost depends on the market dynamics. Whereas, the self-regulating economic model of Auxledger proposes simple gas philosophy i.e. “no limitations, but pay for what you consume” and doesn’t depend on the market dynamics.