How blockchain could help to pay to your subcontractors faster?

Thanks Kristian Raue and Rolands Puhovs for the time they devoted to me as well as for inspiration to write this article.

Advertising agencies want to work with the best subcontractors and freelancers. Still they have to wait for months until their invoices are paid. Why?

1. Long chain of payment flow. Big companies hire advertising agencies, advertising agencies hire subcontractor agencies (design, media planning, film shooting, web design, etc.), and subcontractor agencies sometimes hire freelancers. So, from a perspective of a freelancer it takes three stages to accept work (subcontracting agency, advertising agency and the final client) until payment is made by client and it takes three stages until payment is received: (1) client makes payment to the advertising agency, (2) advertising agency to the subcontracting agency, and (3) subcontracting agency to the freelancer. Let’s imagine if the acceptance of work does not go smoothly and if the client sets the term of payment 90 days, then when the freelancer will get paid?
2. Manual reconciliation. There is a ladder of invoice and payment reconciliation. When the advertising agency gets paid from its clients, it still takes time to reconcile invoice sent by subcontractor and make the payment happen. It could take days or weeks. The same happens with the invoice freelancer sents to the subcontractor. Manual reconciliation makes the payments even more slowly.
3. Invisibility of value chain. Banks, factoring, and supply chain financing companies are evasive to finance creative industries due the lack of “hard” assets to collateralize and invisibility of value chain. Invisibility makes credit scoring and due diligence very complicated.

What could be the solution? How to speed up payments? I would propose recipe from three ingredients:

1. Blockchain for contract storage. All contracts could be digitized, stored in an immutable way and trackable by involved parties.
2. Algorithms (or smart contracts) to automate information reconciliation. If the IT systems of all parties are connected via blockchain, then we can start automate orders, deliveries, calculations, invoicing by the help of algorithms. They could replace a lot of manual work and will foster faster payments.
3. Linked contracts. We could automatically link contract settlements. For example, when an advertising agency receives money from client, it automatically triggers payments to subcontracting agency, and from subcontracting agencies triggers payments to the freelancer. It would speed up payment flows.
4. 3rd parties financing to speed up payments. If we created trust in data and parties, then it would be possible to streamline faster payments by using factoring or supply chain financing options. New owner of an invoice will be registered in a blockchain and its payments will be automatically routed to the new owner.

I see the future where standard contracts are settled by technology. If you are eager to assess costs and benefits from using this solution, I am ready for an up to 45 min Skype talk or meeting you in person. You are welcome to send me an email to sandris.murins@gmail.com.