Coronavirus is spreading, and that’s bad news for business. The main issue isn’t staff being off work sick – although that is a concern – it’s cash flow issues. And companies up and down the supply chain already see problems.
The economic data coming out of China this week – the epicenter of the virus – is dire. Satellite maps of factory pollution output are way down from their January levels, and urban congestion has barely recovered from its Chinese New Year lows.
The Problem For Supply Chains
Unfortunately, the virus couldn’t have broken out in a worse place. Even though China doesn’t have many global brands of its own, it is home to around 30 percent of the world’s total manufacturing capacity. The country, therefore, is fundamental to practically every supply chain on Earth. When there’s a hold up in China, the world feels the economic consequences.
The impact on individual companies from the virus is likely to be high. If companies can’t source the parts they need from China because the CCP has shut down the factories, then that will have a knock-on effect on their ability to deliver goods and services. Firms won’t be able to sell the products they need to generate invoices to create healthy cash flow. And for companies without vast reserves, that’s a complete and total disaster.
Can Crypto Technologies Save The Day
Emerging technologies, however, might help to ease business pain – at least for a while.
The problem we have right now is that a lot of companies aren’t able to collect on their invoices, usually because the downstream company is missing one part or another. That’s a problem, but with cryptocurrencies factoring, it is not such a big one.
The idea here is simple. Instead of getting the downstream company to pay the invoice directly, the upstream firm sells the invoice to a third-party “factoring” company, which then collects the debt. Thus, executives keep the money flowing, even in situations where their clients can’t (or won’t) pay.
Cryptocurrencies take this process to the next level. This type of factoring allows companies to bypasses the mainstream banks and financial institutions and just deal directly with each other. It’s all done peer-to-peer and securely, dramatically lowering overall risk.
So the basic story here is a good one. Even though coronavirus is causing massive disruptions in supply chains, it is not stopping businesses from collecting on their invoices. Factoring companies are a kind of insurance mechanism that means that firms get paid, even if their regular clients can’t afford to hand over the money (perhaps because of supply chain problems of their own).
Add crypto to the mix, and firms can lower their risks even more. This new virus outbreak might lead to instability in the traditional finance system, putting it under strain that eventually causes it to buckle and break. By trading directly with each other, companies can bypass this risk and get back to work sooner.
Cryptocurrency tools, therefore, could see their value rising again if the world’s financial system begins to falter.