Many consumer-oriented businesses offer credit when they sell goods and services to their customers, breaking the total amount into smaller payments over a specified period. This makes it easier for those who cannot or do not want to pay the full amount upfront.
Some payment gateways, aware that many companies might show interest, began a few years ago to incorporate a "buy now pay later" option as a complementary service for large customers, such as airlines or large retailers, to the point where today the possibility of paying in installments has become ubiquitous, including the option to do so interest-free.
From the companies' point of view, applying this financing model is not without risk: in exchange for the possibility of attracting more sales, collection is delayed and the risk of non-payment is significantly increased. To mitigate these risks, the most common scenario so far has been to anticipate receivables, a strategy that is beginning to be replaced by an improved alternative: tokenizing these receivables.
Viewed from a balance sheet perspective, accounts receivable are assets. To mitigate the risk they carry, companies resort to debt anticipation services, which consist of loans for all or part of the receivables value, with an interest rate attached. This type of loan arose because of the cash flow difficulties experienced by many of the companies that offer the option of paying a product or service in installments.
In a context in which payment in installments has become widespread, not offering it means giving up sales that competitors who do offer it will gain. On the other hand, offering it means giving up the present value of part of the sales, incurring a margin cut due to interest payments and further losses due to defaults. Additionally, the process is not without administrative burden and paperwork, including, of course, the invoices themselves.
That is why the possibilities offered by tokens are attracting the interest of the market, due to their flexibility, security and profitability. Instead of relying on the help of a financial institution to loan the value of receivables, companies can convert the receivable asset into tokens tradable in the primary market, as well as in secondary markets such as Token City.
This way, instead of being beholden to the terms of a lender, companies have the flexibility to structure the transaction themselves. Investors in the primary market can acquire tokenized portions of debt in exchange for a monthly return, with the possibility of divesting through secondary markets, selling their receivables to other investors.
The advantages of applying this system at scale are so powerful that, in fact, major banks are testing an even more advanced version, in which financial institutions would share a tokenized record of liabilities. For technology or financial enthusiasts, the concept was recently described by Citi, here.
Token City is the ultimate bridge to the tokenized economy (tEconomy), in which tokenized companies (tEnterprises) create their cryptoasset markets (tMarkets), open to global investors (tCitizens).