Blockchain and Bill Discounting

Snapshot

• Understanding the Concept of Bill Discounting
• Bill Discounting Pros
• Bill Discounting Cons
• Usage of Blockchain for Bill Discounting

Understanding the Concept of Bill Discounting

Assume that an organization, name A, makes a credit sale to another organization, name B. The timeline for the credit period is three months, but in between organization A faces a cash crunch and is in desperate need of money. A can ask B for the money, but B is not obligated to pay the money for three months. In such a situation, organization A can ask for the money from a bank, by giving them the credit bill as leverage. The bank will verify the bill and will pay organization A the money after deducting its commission/fees. The bank will collect the money from organization B at the end of the credit period. This whole process is known as bill discounting.     

Bill Discounting Pros

Pros of using bill discounting are

• Instant availability of cash
• Decreases the chances of bad debts
• Better interest rates in comparison to an unsecured business loan
• Frees working capital 

Bill Discounting Cons

The cons of Bill discounting are

• Small and Medium size businesses may not be able to utilize this facility as banks only approve bill discounting when the invoice amount is large, and the payer has a reputation. 
• The verification process can be tedious
• Cases of duplicate invoices have been witnessed in the past, leading to duplicate financing, causing frauds.

Usage of Blockchain for Bill Discounting

Over a blockchain platform, distributed or shared ledger technology is implemented. This technology runs on a peer-to-peer network, making it impossible to tamper with the records stored on this network. Usage of blockchain for bill discounting will offer various benefits.

• Smart contracts can be used for the execution of bill discounting arrangements. Many crypto networks like Ethereum offer the smart contract feature.
• Blockchain will also save the credit history and credit rating of the participants on its network.  
• The funds would be available quickly because blockchain will ensure faster processing, by automating most of the process. 
• This facility will be enjoyed by all sorts of businesses, small and medium businesses in particular, who also have their presence on the blockchain.  
• Blockchain’s security and high transparency will eliminate any chances for fraud and duplicate invoices.
• Tracking of transactions on a real-time basis.
• All the parties involved in the discount bill will be able to access data at any point, thanks to the distributed ledger feature of blockchain.   

Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.

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