How the blockchain revolution is transforming order-to-cash processes

Blockchain has found its way into everyday language recently due to the media coverage of the recent cryptocurrency boom. Those who were entrepreneurial enough to buy Bitcoin only a couple years ago have got rich quick, and this has rapidly established a market for distributed ledger currency.

So, it's no surprise that there's also been a lot of speculation about how the same distributed ledger technology could revolutionize B2B commercial transactions with smart contracts. Digitizing the terms of a buyer-seller relationship and placing those terms on a distributed ledger would make it possible to automate everything from order fulfillment to account settlement, regardless of contract complexities.

In short, smart contracts could completely reshape traditional contracting and the order-to-cash (OTC) process, while overcoming all the inefficiencies that most B2B organizations currently face. So far, though, benefits have been minimal and the technology uptake has been slow. Nonetheless, recent experience suggests that we're on the cusp of a smart contract revolution.

OTC is critically important in every enterprise – the place where the commercial rubber hits the revenue highway. It's where sales and marketing efforts not only turn into fulfilled orders but, eventually, money in the bank. What's more, it's often at the heart of delivering superior customer satisfaction.

Yet most large B2B corporations still face significant challenges in this cross-functional process, where inefficiencies or inaccuracies can tie up as much as 7%–12% of total revenue. No synchronization between price and product master data, coupled with incomplete calculations of off-invoice discounts, lead to pricing discrepancies and customer invoice disputes. That common scenario requires far too much manual effort to manage and resolve. The result is major delays to invoice settlement, enormous collection costs, and significant negative impact on cash flow. In fact, many organizations spend as much as 60% of total OTC effort managing exceptions and resolving disputes due to billing discrepancies.

That's why there's been so much excitement about blockchain smart contracting.

What are smart contracts? It's simple: They're coded programs that automate transactional events based on contractual terms. Like traditional contracts, smart contracts depend on both parties consenting to terms. But a distributed ledger environment such as blockchain manages these terms.

Just imagine a world where:

• Product pricing and discounting are calculated automatically and accurately based on all available data
• There is distributed visibility of all transactions, fully recorded and validated in real time, with a complete audit trail and 100% compliance
• Receivables are accurate first time and every time, with no need to invest valuable people hours in reviewing and resolving pricing and invoicing disputes
• There is no longer a need for cash applications or deductions management
• Account payment – requiring no action from your customers – arrives on time and in full

Smart contracts may sound too good to be true, but the technology is already in place to make them a reality. And we're convinced they'll soon be the new OTC standard for forward-thinking organizations.

Case in point: Genpact recently worked with a large multinational life sciences company to develop a smart contract solution. Our client already had a world-class end-to-end OTC process. The company was efficiently issuing more than 300,000 invoices annually and collecting global receivables from more than 7,000 customers. Yet almost one-quarter of the firm's receivables still hadn't been paid after 90-plus days due to customer disputes. And billing inaccuracies originating upstream caused nearly 80% of those disputes.

The enterprise wanted to improve its end-to-end process to free up $2 billion in cash flow by reducing past-due to below 7%. It also hoped to eliminate 60% of the manual effort that resolving these disputes required – a move that, if successful, would translate into $50 million in incremental operating profit.

So, we went to work on a distributed ledger smart contract solution that took less than six months to design, build, and test. Today, it provides full visibility and accuracy through a common ledger between our client and its key customers. What's more, the automated system is now primed with triggers to deliver touchless settlement and 100% auto-cash application.

This is one of the first examples of large corporate blockchain smart contracting. But it proves that this new technology platform can revolutionize the way we think about contracting and traditional OTC processes.

As a contract management specialist in life sciences, Genpact can help you develop a road-map for digital transformation in Commercial and Contract Operations, ensuring that you achieve maximum business impact in the bargain. We do this by combining our strengths in contract operations outsourcing and digitizing business processes for contract management and order-to-cash.