The more complex a finance system, the more frequently disputes will arise.
Blockchain, however, could spell an end for that rule. When applied to financial ledgers, the technology can eliminate a huge proportion of inter-party disputes – and give CFOs huge amounts of reclaimed time and cost savings in the process.
Today’s financial systems involve numerous suppliers, partners, and transactions, operating under compliance requirements that are more intensive and varied between markets than ever before.
The sheer amount of complexity not only makes disputes more likely to occur, but also makes them harder to resolve.
Unravelling the system, and working out why both parties disagree on a certain transaction, ties up huge amounts of CFOs’ time and capital whenever a dispute occurs.
And every additional day spent trying to resolve each issue puts the business at greater risk of encountering non-compliance penalties and litigation.
One obvious solution is a single, incontrovertible system of record, one which all parties agree to be always comprehensive and true. Easy to say, nearly impossible to do – at least until now.
Blockchain’s ledger-based system operates on the premise that once any record (or “block”) has been added to its ledger (or “chain”) and accepted by all parties, it can’t be altered. And if transactions can’t be changed after they’re recorded, most disputes can be resolved simply by referring to the ledger’s history – or cease to materialise altogether.
Greater transparency of transactions
Blockchains are also, by nature, decentralised: instead of being controlled by one party, each ledger can be viewed and added to by all parties involved in a transaction. That creates a high degree of transparency in transactions, extending all the way from invoice to cash.
No matter how complex a finance system may be, this transparency allows CFOs to quickly pinpoint where a dispute may stem from, and clarify which party’s claim is justified.
The decentralised, “distributed” nature of blockchains also helps ensure all parties agree to the accuracy of the finance system’s records. After all, each party not only makes their own inputs to the blockchain, but can clearly see what all others do as well.
When disputes do occur, they tend to happen far more promptly, making it even easier for CFOs to resolve the issue while the transaction is fresh.
Much has been made about blockchain’s potential for the finance sector, but the technology’s dispute resolution capabilities have already gone from prediction to fact.
CFOs can, and should, act now to bring blockchain to their finance systems, or risk being overwhelmed by the sheer complexity of dispute resolution at scale.
Faster, simpler dispute resolution at scale
Large, highly complicated finance systems stand to gain the most from a blockchain makeover. IBM’s Global Financing division (IGF), for example, typically encountered around 25,000 disputes every year, each requiring an investigation and some sort of settlement.
IBM’s channel network includes more than 4000 suppliers and partners, conducting 3 million transactions worldwide – making resolution of thousands of issues an incredibly taxing task for IGF’s financial controllers.
It took IBM only two months to integrate blockchain into its financial operations – some of the most complex of any organisation, both from an IT and process standpoint. Early pilots suggest that when activated across all markets, IGF Blockchain will cut the division’s time spent on resolving disputes by a massive 75%.
With the division holding more than US$100m in outstanding capital at any given time, those time savings are expected to make a big difference to the underlying cash-flow of IBM’s partner network – and the health of relationships with those vital partners.
CFOs need to work closely with their CIO counterparts if they want to apply blockchain to their finances. The technology remains relatively new to most businesses, and its unique ledger-based model requires a rethink of not just IT systems, but also the fundamental processes of record-keeping and financial accountability.
Those CFOs who can grasp and master blockchain, however, will find themselves with far less disputes – and far more valuable time – on their hands. That’s an advantage that any finance system can do with.
