Blockchain

Procure-to-Pay Process – Using the Blockchain

By June 5, 2018 No Comments
Procure to Pay

Blockchain, the technology that enabled the safe exchange of Bitcoin is causing disruption in many industries. The aim is to digitise processes and create a digital identity for physical objects on the blockchain so that they can be tracked and traced all the way back to the source of their origin.

Blockchain helps minimize the inefficacy in today’s Peer to Peer payment system. If two organisations do business that involves the exchange of money among each other, the process is not completely straightforward. Let’s visualize the process.

Business A wants to purchase a product from Business B.

  • Organisation A prepares a Purchase Order (PO), records it and sends it to Organisation B. Organisation B, in turn, records it in the form of a Sales Order.
  • Organisation B then delivers the product to Organisation A and takes the confirmation in the form of a delivery note. Organisation A keeps a record of the delivery note in the form of a Goods Received Note (GRN).
  • Now based on confirmation of delivery, Organisation B sends an invoice to Organisation A. Organisation A then checks the invoices against the PO and GRN and then approves the payment.

The above-mentioned activities come under a process called Procure-to-Pay (PTP). It is a multi-party process that connects a client with one or more service/product providers and allows for identification as well as authentication of stake holders, invoicing, payment settlement and other functions of significance. The businesses follow this time consuming and inefficient process to make sure that everything matches as they don’t trust each other. They need to have significant proof to account for things and record them.

Some of the limitations of the above process are:

  • Maintaining 2 paper based copies of the same transaction by the client and the supplier is time consuming and cumbersome. A Purchase Order for a Client and a Sales Order for the supplier represents the same thing. Yet they are stored in different ledgers and both the parties need to ensure that the terms mentioned are the same in both the documents.
  • Most organisations use multiple ERP systems, which further makes it difficult to have a single and integrated source of truth for supplier and business data.
  • Many systems require human intervention which leads to higher cost.

PTP Process through Blockchain

Imagine a situation where we record all steps in the PTP process in a single ledger rather than in multiple ones – a Blockchain – an immutable, indisputable set of records that can be trusted by all stake holders, thereby negating the need for parties to trust one another. In this case, there would be no need to have physical records in the form of invoices or sales orders. They would become redundant.

Some important advantages of using Blockchain for the P2P process are as follows:

  • Authorisation of Vendors: Blockchain Apps have a developed front-end system for authorising vendors, placing a purchase and defining new Catalogues.
  • Improved Authentication and Validation: Blockchain technology enables quick distribution of authentication rights along the P2P chain, helping in fraud prevention and improving security.
  • Accelerates Sharing of Purchase Order: Purchase order and receipt data can be exchanged on the Blockchain at a quicker pace when compared to current system.

        

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