By Tim Laehy
(Third in a Series of 3 articles on this topic)
Over the next few years, blockchain technology could upend how many businesses and marketplaces operate.
CFO Guidance re Blockchain
While blockchain today is still a new and developing technology and is not yet fully formed, now is the time for all CFOs to start paying attention to its potential benefits and understand how blockchain may begin to impact their companies as well as the finance function itself. Sooner or later, your organization will be impacted by this technology including your management of the finance function. And if you’re trailing competitors in terms of cost, or want to leapfrog to new performance levels, blockchain could be an effective and opportunistic strategy for your company.
The most strategic CFO’s know that blockchain has the power to transform their finance organizations—and maybe their whole business—in the years ahead. They see significant efficiency and control benefits on the horizon, and they’re evaluating options now, so they can capture savings sooner. These CFOs place a premium on their role as catalysts for business transformation in their companies. And while not every CFO can justify investing in blockchain due to low transaction volumes and/or higher cost structures, all CFOs will benefit from understanding how blockchain will change the competitive landscapes and supply chains they interact with.
As a strategic partner to the CEO, CFOs must be on the front lines of blockchain, proactively evaluating the potential of this technology to change business processes, transactional speed, record keeping and cost.
Blockchain’s Application within the Finance Function
Blockchain has strong potential to reshape processes that are defined inside the finance function, primarily because of its benefits in terms of reduced costs and enhanced controls.
Within private enterprise-specific blockchains, legacy technologies and systems remain in place. A blockchain simply shares data you select with specified parties so they can see the same information you’re seeing at the same time. Therefore, blockchains can be used to improve almost any finance process: procure-to-pay, accounts receivable, accounts payable, general ledger, reconciliation, and even payroll.
Finance applications for blockchain apply across almost any kind of transaction processing:
- Self-validating sub-ledgers for receivables and payables
- Intercompany accounting and consolidations
- Order-to-cash and procure-to-pay integration
- Revenue cycle management
- Trade finance
- Working capital and cash-cycle improvement
- Fraud and risk detection
- Warranty accruals and management
- Capital planning and performance management
In an enterprise, the “sale” of goods and services across internal legal entities also involves reconciliation, transfer pricing, internal audit, and similar transactions. Using blockchain for these purposes can give you as a CFO the chance to learn about this technology in a manageable way. And in many cases, this kind of intercompany solution is cost-justifiable all on its own. An intercompany blockchain to document agreements, confirm receipt of goods and services, facilitate settlement, and process payments for example, can cut manhours and the cost of processing these transactions by half or more.
A CFO’s Blockchain Checklist
So how should a CFO take action to stay on top of this evolving but important technical “heatwave”?
Here are our best recommendations for CFO’s tracking blockchain:
- Stay plugged in. Blockchain is moving fast. Keep up with developments in this technology in specific sectors and transactional types.
- Stay networked. Monitor what leaders are doing in your industry around this technology. Meet with a few of your supply chain partners to find out how they’re thinking about blockchain opportunities.
- Size Up the Opportunity. Identify a handful of specific business/technology opportunities for your business where the efficiency gains of blockchain are the most obvious. Assess the business case for each. Start small. Blockchain has the benefit of scalability.
- Team Up. Assign a team to stay on top of blockchain developments in finance and accounting. Include both technical and business people. Make sure your Chief Risk Officer is tracking regulatory and compliance issues related to blockchain.
At FLG Partners, we make it our business to stay on top of evolving trends especially when it comes to transactions, our bread and butter. Blockchain is a welcomed breakout technology with huge potential. We look forward to continuing to work with our clients to leverage blockchain opportunities to their advantage.