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Ever wanted to leave the lawyers out of your client transactions? Now you can.
5 min read
Opinions expressed by Entrepreneur contributors are their own.
Blockchain technology has led to the development of cryptocurrencies and smart contracts, and supports the global economy by streamlining transactions. Indeed, the experts at Market Research Future predict that the smart-contracts market will have a compound annual growth rate of 23 percent and reach $300 million by 2023.
Related: How Will Blockchain Redefine Digital Marketing
While this is exciting news for international corporations, small business owners are struggling to identify practical applications for this system. Yet despite these reservations, opportunities for small and mid-sized companies to leverage smart contracts for success are out there. Here's what you need to know:
Smart contracts in a nutshell
Even the most basic business contract requires a lawyer or a broker to oversee its completion; and meeting the terms of the agreement necessitates additional actions such as invoicing, delivery scheduling and payment.
Smart contracts eliminate the middleman and allow the two parties to define their own terms. First, the contract is registered with a database and is legally cleared as a valid agreement. Each step of the contract is then automated and triggered to be completed when a specific event occurs.
Related: Why Blockchain Matters to Small Businesses
For example, when delivery of a product is confirmed, payment is automatically paid without the need to send an invoice. With smart contracts, the parties have the freedom to agree to their own terms, with safeguards in place to protect their interests. This results in fast, accurate and safe transactions that save time and reduce operational expenses.
Practical applications
Smart contracts can streamline processes across nearly every small business. These contracts can assure that your company has the resources it needs to fill orders, or the information that's needed to deliver a service. Specific applications of smart contracts include:
Automated payments. Like most small businesses, yours probably requests that clients allow you to keep their credit card information on file for automated payments. With smart contracts, however, you can provide better data protection to your customers.
The blockchain technology that the contracts are built on makes clients' financial information more secure. This builds the level of trust and confidence between you and your customers, and that sets you above your competition. Smart contracts are also the most secure way to pay your own expenses, and a contract ledger feature automatically records when and what you paid for.
Engagement contracts. If you provide a service such as consulting, event planning or even child care, a smart contract keeps everyone clear on what, when and how you will deliver what you promised and how much and when you will be paid. Break out the project into discrete units and create a smart contract that identifies when the unit goals have been met; that will automatically trigger payment. This process can improve customer satisfaction and your cash flow.
Real estate. If you are a Realtor, consider smart contracts to streamline the process and reduce costs. The entire transaction, from escrow to closing, can be managed remotely regardless of where the parties live. Each phase of the buy/sell process is managed, including title clearance and registration and closing costs. Once the purchase price is paid, either in full or through a mortgage company, the buyer receives the deed. There is also a growth in mortgage companies using smart contracts to manage financing, and rental companies using them to create digital leases.
Employment contracts. Entering into a smart employment contract means that your employees know exactly what is expected of them and the compensation they will receive for their work. This level of transparency keeps you and your staff on the same page, since the agreement is registered and can help improve relationships. Wages can be paid through the contract itself, with requirements that specified hours be logged into the system before predetermined funds are transferred into the employee’s account. The contract can also be rewritten to reflect promotions and changes in responsibilities, and these are tracked so you can monitor an employee’s professional growth.
Supply chain management. Smart contracts allow you to improve communication and coordination with your suppliers. The terms are already set and your order signals the provider that you need his or her goods or services. Each step in the process is automated, including payment, so you have what you need when you need it. When your supplier has smart contracts with still other suppliers, the entire system runs smoothly and efficiently, which saves everyone time and money.
Creating smart contracts
For many small businesses, another challenge smart contracts present is their creation and registration. Most smart contracts are written in the Ethereum programming language which few business owners have the time and inclination to learn. Fortunately, there are resources available, such as Modex, Zeppelin Solutions and Applicature, which can help you transform a traditional agreement into an enforceable, registered smart contract. All you need to do is define your agreement terms, and these companies can manage the process from there.
Related: How Blockchain Is Creating a New Future for Digital Marketing
Bottom line
Smart contracts aren’t just the future of business; they are already in play. These agreements save time and money while improving communication and transparency. And you don’t need to be a programmer to get in on the action.
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