Cryptos In 3 Mins — Populous

Peer-to-Peer Invoice Factoring

December 22, 2017

Everything Else

Every company, whether a sole proprietorship, a limited partnership or a multinational corporation charges for their services and/or products. The actual document that serves this purpose is known in the business world as an invoice.

Invoices are the literal bloodline of companies because they directly tie to a companies cash flow — an invoice sent out means a company can pretty much guarantee future cash income at a certain date. However, the majority of invoices are not immediately paid or settled but normally paid 30 days, 60 day or even 90 days afterward. Since invoices guarantee payment at a later date, a company, if it finds itself in need of liquid cash, can go ahead & seek out a loan with terms tied to the outstanding invoice.

Invoice financing, a form of funding that unlocks cash tied to outstanding invoices at some interest, is a multi-trillion dollar business. Traditionally banks & lending institutions both create the marketplace & act as the invoice buyers. Business owners who need cash quickly offer their invoices at a discounted rate; invoice buyers purchase the invoices at a discount & are paid the full invoice amount at a later point in time (when the invoice is finally settled).

Let’s continue forgetting about cryptocurrencies & blockchains for a second. The traditional lending market itself has seen massive disruption in the last decade regardless of anything crypto — Upstart, Funding Circle, SoFi & Lending Club. What financial service do all of these popular consumer apps offer?

They all offer Peer-to-Peer loans because they’re p2p lending platforms.

On these relatively new platforms, the loaners are no longer the usual suspects, banks & lending institutions. Now, any* recreational investor can sign up on to offer loans for a higher interest rate than other forms of fixed income (bonds etc..) since they’re riskier forms of debt.

Peer-to-Peer Lending + Invoice Factoring

Populous, the platform, is the cross-breed offspring of p2p lending & invoice factoring; it’s an invoice marketplace that leverages a blockchain to globalize what is now a very exclusive & centralized marketplace. By creating a marketplace of invoice smart contracts Populous is able to directly connect business owners with invoice buyers by eliminating the need for third-party financial institutions.

But why does this need a blockchain?

Four key reasons:

  1. The pre & post due diligence process is often complex & costly
  2. Contract structuring requires massive legal resources
  3. Only banks have access to business owners & their networks
  4. Due to local currencies, fiat-to-fiat swaps are necessary

Auditing an invoice is no easy task for an accountant, let alone a recreational lender. A platform that guarantees an appropriate amount of due diligence prior to an invoice hitting their marketplace is a decentralized heaven-sent for p2p lending. Additionally, what happens after the invoice settlement date if the invoice seller defaults on his/her loan? How & what does the invoice buyer (p2p lender) receive in return? Having a transparent blockchain ledger that details the due diligence results of invoices greatly helps circumvent a traditionally high barrier to entry.

Second, following our previous train of thought, since defining & carrying out the operational due diligence is costly, we can only begin to imagine the accompanying legal costs. In this particular case, a blockchain of smart contracts makes intuitive sense; without transparent, secure template contracts, recreational lenders would need to shell out tens of thousands of dollars in litigation engagements & fees. Again, creating a historically high barrier to entry for consumer lenders.

Third, until recently only lending institutions & banks had access to these networks of business owners. By offering a dizzying amount of financial services, these gatekeepers [banks & friends] managed to keep the market for invoice buyers particularly tight; while previously they were needed to broker business relationships across the globe, these days a recreational investor is a few clicks away from finding a discounted invoice. Providing recreational lenders with a globalized, unbiased, yet transparent marketplace of invoice factoring opportunities (as recorded & presented on a blockchain) is paramount to providing the “little guy” with an even starting point.

Last but certainly not least, is the fiat settlement issue: I, an American buy an invoice from a Japanese business owner. How would this work currency-wise? I only have access to dollars yet he needs his advance in Japanese yen. This is where Poken, the aptly-named Populous ERC-20 token really shines.

Poking Around Fiat Swaps With Poken

Poken is the cryptocurrency used to execute the invoice-factoring smart contracts within the Populous platform. It is utilized by both the invoice sellers & invoice buyers.

Pokens are pegged 1:1 with the national government currencies” involved in a given transaction. For example: $9 USD are represented by 9 Pokens (USD). The use of the custom, local & stable Pokens shields the invoice buyers & sellers from market volatility. They also allow users to participate from any part of the world without the need of third party exchanges.

Closing Thoughts

Invoice factoring is a mammoth of a market & the Populous team is (at least conceptually) properly leveraging blockchain technology. In the current state of crypto-frenzy, it’s refreshing to see an ERC-20 token disrupting a previously exclusive industry. However, the Populous team has an enormous uphill battle — invoice factoring has existing high barriers to entry that will require a substantial amount of resources to open the gates. From continuously overcoming regulatory hurdles to staffing a large enough smart contract to handle everything that can go awry with invoice factoring, the Populous team has a long road ahead of them.

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