This blog will explain how companies can use new blockchain technology to prevent and reduce defaults in their business operations.
Introduction: Non-payments, a common problem in companies.
Non-payment is a common problem faced by many businesses. Often, non-payment of invoices can have a domino effect on a company’s finances, which can lead to difficulties in paying suppliers and employees, and in extreme cases, even to the closure of the company. According to the report of the National Federation of Self-Employed Workers’ Associations (ATA) in Spain, 53.2% of SMEs suffered delays in the payment of their invoices in the first half of 2020, and the average payment period was 88 days.
In this context, blockchain technology can be a useful tool to help prevent defaults. Blockchain technology enables the creation of immutable and decentralised transaction records, which can ensure transparency and security of transactions. This could have a major impact on the prevention of non-payment, as invoice and payment records on the blockchain could ensure transparency and traceability of payment processes. In this way, participants in the supply chain, from suppliers to buyers, could have access to up-to-date information on the status of payments and invoices.
In short, non-payment is a common problem faced by many businesses. However, blockchain technology can be a useful tool to help prevent defaults by providing greater transparency and traceability of payment processes. In the next section, we will explore what blockchain projects are and how they can help in the prevention of defaults.
What are blockchain projects and how can they help in the prevention of non-payment?
In recent years, blockchain technology has gained much popularity due to its ability to provide greater transparency, security and efficiency in the management of transactions and data. In addition, this technology has proven to be useful in the field of corporate default management, enabling greater agility and confidence in debt recovery.
One of the main new blockchain projects in this area is the use of smart contracts, which are computer programmes that are automatically executed when certain predefined conditions are met. In the context of default management, smart contracts can be used to create agreements between the parties involved in a transaction, setting specific terms and automating the process of payment and debt recovery.
For example, if a company has a supplier contract with another company and a default occurs, smart contracts can be used to automatically set payment terms and debt deadlines. If the debtor does not comply with these conditions, the smart contract can automatically trigger a debt recovery process and penalties.
Another interesting new blockchain project in this area is the use of cryptocurrencies to manage payments and debt collections. Cryptocurrencies, such as bitcoin or ethereum, are decentralised digital currencies that use blockchain technology to ensure security and transparency in transactions. By using cryptocurrencies in default management, businesses can reduce transaction costs and times, and avoid problems associated with traditional banking systems, such as high transfer costs and time and amount limits.
It is important to stress that these are still emerging technologies and that, like any other technology, they also present challenges and risks that need to be carefully considered and addressed.
Examples of blockchain projects to prevent payment defaults
Blockchain technology is used to prevent and reduce corporate defaults through projects such as smart contracts, decentralised credit registers, blockchain-based factoring and more secure and efficient international payments. Smart contracts eliminate the need for intermediaries and ensure contract enforcement, while the credit registry allows lenders to better assess the credit risk of loan applicants. Blockchain-based factoring improves process management and reduces the risk of fraud, while international payments are faster, safer and reduce the risk of non-payment.
As more blockchain-based projects and applications are developed, new ways of addressing this problem and improving financial management in general may emerge. Here are some examples of new blockchain projects to prevent defaults:
- Byppay uses blockchain technology to secure payment agreements on more advantageous terms. In addition, using Byppay Token (BYTO) makes Byppay payments even cheaper and faster. So we issue this instrumental token to be paid when due or on terms satisfactory to customers and suppliers, without wasting time with banks.
- Nash21 is a short-term housing rental platform that uses blockchain technology to create smart contracts and ensure secure payment for guests. The system works as follows: when a guest books a property on the platform, a transaction is made with cryptocurrencies through a smart contract. The money is kept in a safe deposit and is automatically released once the stay is completed and everything is verified to be in order. This avoids the risk of non-payment or fraud by guests.
- On the other hand, Reental is a platform that uses blockchain technology to facilitate the rental of housing and guarantee secure payment for tenants. The platform takes care of creating smart contracts that include all rental conditions, such as price, duration of the contract and obligations of both parties. Tenants make payment via cryptocurrencies, which are held in a secure deposit until the contract is completed and everything is verified to be in order. This avoids the risk of non-payment and ensures that transactions are secure and transparent for both parties.
- Sweetbridge: This company offers a blockchain-based solution that enables companies to obtain real-time funding for their operations, reducing the risk of non-payment and improving liquidity management.
- ModulTrade: A platform that uses blockchain technology to offer international e-commerce services, reducing the risk of non-payment in transactions between companies in different countries.
Advantages and disadvantages of implementing blockchain projects to prevent non-payments
The implementation of new blockchain projects to prevent defaults has several advantages and disadvantages to consider. In terms of advantages, firstly, there is transparency, as all parties involved have access to the same information, thus minimising the possibility of misunderstandings and conflicts. Secondly, the immutability of records on the blockchain provides greater security, as the data cannot be altered or deleted, making the information more reliable. Thirdly, smart contracts allow many processes to be automated, which saves time and reduces costs.
On the other hand, disadvantages include the complexity of blockchain technology, which requires adequate training of staff. In addition, the implementation of blockchain projects can require significant upfront investment, which can be an obstacle for some companies. In addition, the decentralisation offered by blockchain technology can make decision-making slower and more difficult. Finally, blockchain technology is still under development and scalability and interoperability issues have not been fully resolved, which can be a challenge for its implementation in large enterprises.
Despite the disadvantages, the implementation of blockchain projects to prevent non-payment can be a very effective and beneficial strategy for companies, as it helps to reduce the risks of non-payment and improves transparency and security in business processes.
Final considerations: Is it right for my company to implement a blockchain project to prevent non-payment?
Before deciding whether to implement a blockchain project to prevent non-payment in your company, it is important to consider several factors.
First, you should assess the size of your business and the volume of transactions it handles. Blockchain projects may be more suitable for large and complex companies, as the cost of implementation can be high.
You should also consider whether your suppliers and customers are willing to use blockchain technology and whether they have the technical capacity to do so.
In addition, it is important to assess whether the benefits of implementation outweigh the costs. While blockchain projects can improve the transparency and security of transactions, they can also be complex and require significant investment in time and resources.
Ultimately, it is important to carefully analyse the costs and benefits of implementing a blockchain project to prevent defaults in your company before making a decision.
For more information on blockchain technologies, see this link.