With new technology comes new opportunity for business.  The expanding markets of blockchain and cryptocurrency bring many changes and benefits for financial industries – especially factoring financing.

WHAT IS ETHEREUM?

Bitcoin is a major buzzword for digital currencies and blockchain. Yet there are over 100 different cryptocurrencies – including Ether which is the currency of Ethereum.  Building on the ideas of Bitcoin, Ethereum has created a platform even more scalable and robust.

Ethereum is an open-source blockchain platform running any decentralized application without any possibility of downtime, fraud or third party interference.  Simply stated, Ethereum let’s companies easily build a wide variety of apps that streamline and automate business processes with smart contracts.  

Smart contract is the name given specific computer code that can facilitate the exchange of data, money, property, shares, content, or anything of value. A smart contract on a blockchain is like a computer program that automatically executes a contract between parties when specific conditions are met.  This is extremely beneficial for the financial industry which is heavily reliant on data to make decisions, forms and contracts.

HOW ETHEREUM CHANGES THE FACTORING INDUSTRY

Though Ethereum was only launched in 2015, it has quickly become the second largest digital currency behind Bitcoin and is already influencing a wide variety of financial markets, including factoring or invoice financing.   As companies build lending or factoring apps on Ethereum, they can create a global market where sellers and buyers of invoices can meet without a middleman.  

For example, a U.S. company that needs a quick influx of cash for payroll and has outstanding invoices could sell those invoices to an investor in the U.K. – instantaneously without the use of a third-party.  These apps can utilize unique industry measurements and data to make accurate predictions, like public records, credit scores, and the Altman Z-score for predicting business bankruptcies.  

Factoring apps built on Ethereum have the power to create effective, efficient auctions of invoices while still protecting debtors and investors through careful, deep analysis of the company’s financial strength.  Watch these factoring apps using Ethereum and blockchain: Populous and Hive.

HOW ETHEREUM BENEFITS THE FACTORING INDUSTRY

The factoring industry benefits from the properties of blockchain technology, as well as Ethereum’s ability for smart contracts.  Benefits include:

  • Autonomy – There are no third parties that have to confirm the contract, like a broker or lawyer, which provides time and cost savings. Changes to the data cannot be made by any third party and censorship is impossible as all apps on the network are formed around the principle of consensus.  

  • Backup – Your documents are encrypted on a decentralized, shared ledger.  No one can say they lost or deleted it. Imagine if your bank lost all its data – like your accounts and account balances. On the blockchain, your documents are duplicated many times over.

  • Security – Cryptography, the encryption of websites and online data, keeps your documents safe and prevents duplication of selling of invoices. There is no central point of failure and are only a few cases of hacking to date.  

  • Speed – Manually processing documents takes time and resources. Smart contracts use software code to automate tasks, thereby processing much faster.

  • Savings – Smart contracts are automated and require no third party or intermediary – like a notary to witness the document signing.  They also take less time to execute and potentially have a larger pool of applicants and companies so economic costs are driven down.

  • Accuracy – Automated contracts are not only faster and less costly but also avoid the human errors that happen when manually filling out forms.

  • Data-based Decision Making – Apps and smart contracts can utilize criteria specific to the factoring industry to provide the best judgments on lending.  Real-time data in invoices auctions can immediately reflect the best pricing give the buyer and seller the best, current deal.

  • Zero Downtime – Apps never go down and are never switched off.  This makes a global market continue truly function 24/7/365.

With the many benefits of using Ethereum and blockchain technology, we expect the factoring industry, as well as many others, to take advantage of a larger, more accessible global market.


Bjorn Peterson is the Owner of Flex Business Capital.  Flex Business Capital offers small businesses factoring financing to solve cash flow problems without debt, so they can focus on growth and success.  Apply for funding for your company here.