The accounting profession is on the cusp of a major transformation, and blockchain accounting is leading the charge. With its ability to track and record transactions securely and transparently, blockchain technology is poised to revolutionize the way businesses operate. Here are 5 ways that blockchain accounting will change the future of business:
- Increased security and transparency.
- Greater efficiency and cost savings.
- Improved auditability and compliance.
- Faster payments and settlements.
- A level playing field for small businesses.
Let's take a closer look at each of these benefits.
1. Increased security and transparency
Businesses lose millions of dollars each year to fraud and accounting errors. Invoice fraud, for example, can happen when a dishonest vendor submits a false invoice for payment. With blockchain-based invoice tracking, businesses could see that they lack a track record with the vendor, preventing them from being scammed.
Even when the right vendor submits the right invoice, there's still room for error, such as a man-in-the-middle attack where an invoice is intercepted and changed before it reaches the business.
For instance, a bad actor might change the account number on an invoice so that the payment is routed to their own account instead of the vendor's. Blockchain-based accounting systems would help prevent these types of errors by directly connecting the business with the vendor, reducing the chances of interception and fraud.
Another common form of fraud is misappropriation of funds. This occurs when someone unauthorized uses company funds for personal gain. With blockchain accounting, businesses can track each transaction and see exactly where their money is going. This would make it much harder for bad actors to commit fraud.
2. Greater efficiency and cost savings
Back-office accounting functions are often manual, time-consuming, and error-prone. There are dozens of touchpoints along the way where data can be entered incorrectly, resulting in costly mistakes. For example, a business might lose track of invoices and end up paying late fees, or an employee might make an error when entering data into the accounting platform.
The A/R process, too, is often manual, with businesses relying on paper invoices and spreadsheets. This can lead to inefficiencies, such as late payments and duplicate invoices. With blockchain-based accounting, businesses would have a single, tamper-proof record of all transactions. This would streamline the A/R process and save businesses time and money.
3. Improved auditability and compliance
The Sarbanes-Oxley Act (SOX) was enacted in 2002 in response to a number of corporate scandals, including Enron and WorldCom. SOX requires public companies to maintain stringent financial controls and undergo regular audits. Yet despite these measures, corporate fraud still occurs.
One reason for this is that traditional financial audit procedures are often inadequate. For example, auditors typically rely on sampling techniques when reviewing a company's financial statements. However, sampling can miss material errors, which can lead to undetected fraud. In addition, auditors often lack the resources to thoroughly review a company's entire financial picture. As a result, they might not catch red flags that could indicate fraud or other problems.
With blockchain accounting, businesses would have a complete and immutable record of all transactions. This would allow for a more thorough and effective audit process, helping to detect and prevent fraud.
4. Faster payments and settlements
The speed of business today is lightning fast, but the back-office accounting functions that support them are often stuck in the past. Consider accounts payable (A/P). A typical A/P process might involve invoice approval, data entry, check processing, and mailing. This can take days or even weeks, which can slow down a business's cash flow.
With blockchain-based A/P, businesses could automate many of these steps, resulting in faster payments and settlements. For example, invoices could be automatically approved based on predefined criteria. In addition, data entry could be done through smart contracts, which are self-executing contracts that automatically populate the blockchain with transaction data. This would eliminate the need for manual data entry, saving time and reducing errors.
5. A level playing field for small businesses
Small businesses often lack the resources of larger businesses when it comes to accounting and finance functions. They might not have the same access to accounting software or the same number of employees dedicated to back-office accounting tasks. As a result, they can often be at a disadvantage when competing for business.
With blockchain accounting, small businesses would have the same access to powerful accounting tools and technologies as larger businesses. This would level the playing field and give small businesses a fighting chance.
The benefits of blockchain accounting are clear. By increasing security and transparency, reducing costs, and streamlining back-office accounting functions, blockchain technology has the potential to revolutionize the way businesses operate.
Join Bulla Network's Discord or sign up for a free demo to learn how you can take advantage of this technology today.
