Invoice Factoring Registration Based on a Public Blockchain

Abstract

Invoice factoring is a very useful tool for developing businesses that face liquidity problems. The main property that a factoring system needs to fulfill is to prevent an invoice from being factored twice. In order to prevent double factoring, many factoring ecosystems use one or several centralized entities to register factoring agreements. However, this puts a lot of power in the hands of these centralized entities and makes it difficult for users to dispute situations in which factoring data is unavailable, wrongly recorded or manipulated by negligence or on purpose. In this article, we propose an architecture for invoice factoring registration based on a public blockchain. To solve the aforementioned drawbacks, we replace the trusted third parties for factoring registration with a smart contract. Using a smart contract, we record digital evidence of the terms and conditions of factoring agreements in explicit detail, allowing auditability and dispute resolution. Relevant information is highly available on the blockchain while its privacy is protected. The registration is optimal, since it needs only one blockchain transaction and one key-value storage per invoice factoring.

Decentralized Factoring for Self-Sovereign Identities

“…In the second step, the distributed-ledger technology motivated us to search for a solution based on this technology to completely prevent double-factoring while satisfying the other requirements. We reviewed several works which implemented new generation invoice factoring protocols using distributed ledger technologies [2,5,7,8]. However, as we discuss in detail in Section 6.2, none of them was completely able to fulfill the requirements.…”

“…In reference [2], the authors introduce a framework for factoring registration based on the use of a public distributed ledger. The proposed protocol is designed to reduce the buyer's involvement in the factoring process.…”

“…2a. 2 The buyer keeps the VC and salt for further reference and replies to the factor with P F . Note that having the value of P F , the factor can compose his/her credential (C F ).…”

“…Invoice factoring has been a popular way to provide cash flow for businesses [1]. There are several issues and challenges in the traditional invoice factoring process [2]. For example, it often requires several manual steps, and the information is dispersed among different systems and databases [3,4].…”

“…Several works have been proposed in the literature to implement new generation invoice factoring protocols using distributed ledger technologies [2,5,7,8]. However, as we discuss in detail in Section 6.2, none of them is completely able to fulfill the requirements that such a new generation ledger-based protocol should cope with.…”