Dear Crabby,
My name is Bernice and I’m the office manager at a small scrap recycling business.
At first blush, scrap recycling probably doesn’t sound too exciting, but our specialty is the retrieval of large elevator motors and generators which contain significant amounts of silver and copper, both precious metals.
In our business, we not only remove the metals from the equipment, but we also process them to make them into a raw material that can be more readily used for manufacturing. As a result, we have created a nice niche within the scrap metal industry that sells a recycled product that is virtually ready for reuse.
For decades we have concentrated on selling our recycled scrap metals to established customers within the US market. We have shipped on credit at net 30 days and have been paid with a check. I think over the past twenty years we have had only a couple of small bad debts.
But recently we received an inquiry from a very large reputable scrap buyer in Germany who is interested in our finished product for resale and willing to pay much more than market price. We have been negotiating various credit and payment terms which are new to me and one of them is to be paid in cryptocurrency. I don’t have a clue about this payment method and the prefix, “crypto,” scares me. I do know about Letters of Credit and I’m willing to go that far, but I’m also thinking that maybe I’m missing the boat by not accepting a new payment method.
How familiar are you with cryptocurrency and is this payment method something that I should get on board with?
Signed: Afraid of the word “crypto”
Dear Crypto,
Your letter was particularly interesting to me because I believe that most credit risk management professionals are not familiar with cryptocurrencies.
In fact, after getting your letter, I needed to consult with a few major players in the scrap metal recycling industry to get a handle on what they are doing with cryptocurrency.
First, the scrap recycling industry has started exploring the use of cryptocurrency to enhance various aspects of the business.
Secondly, let me give you some important definitions.
Cryptocurrency is a type of digital or virtual currency that uses cryptography for security. Unlike traditional currencies such as dollars or euros, cryptocurrencies operate on decentralized networks based on blockchain technology.
Cryptography is the practice and study of techniques for securing communication and data from third parties or adversaries. It involves the use of mathematical algorithms and computational techniques to transform information into a form that is unintelligible to anyone except the intended recipient. The primary goal of cryptography is to ensure secure communication and protect the confidentiality, integrity, and authenticity of data.
Blockchain technology is a distributed ledger that records all transactions across a network of computers. Each transaction is stored in a “block,” and these blocks are linked together in a chronological chain. This technology ensures the integrity and transparency of transactions.
With the latter in mind, here’s how the scrap recycling industry is incorporating cryptocurrency into its transactions:
Transparency and Traceability: Blockchain technology can provide transparency and traceability to the scrap recycling process. By recording transactions and movements of scrap materials on a blockchain, stakeholders can trace the origin, processing, and distribution of recycled materials. This transparency helps in ensuring the authenticity of recycled goods and promotes ethical recycling practices.
Supply Chain Management: Blockchain technology can streamline the supply chain management in the scrap recycling industry. It allows different parties involved in the recycling process, such as collectors, processors, and manufacturers, to share data securely and in real-time. This transparency and efficiency in supply chain management can lead to reduced fraud, errors, and delays.
Payments and Transactions: Some scrap recycling businesses have started accepting cryptocurrencies as a form of payment for scrap materials. Cryptocurrencies offer a secure and efficient way to conduct cross-border transactions, making it easier for international buyers and sellers in the scrap industry.
Smart Contracts: Smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller directly written into lines of code, can automate various processes in the scrap recycling business. For example, smart contracts can automate payments when certain conditions, such as the delivery of a specific quantity of scrap material, are met.
While the adoption of cryptocurrency and blockchain technology in the scrap recycling industry is still in its early stages, these technologies offer promising solutions to some of the challenges faced by the industry, such as transparency, traceability, and efficient transactions. As the technology matures, more recycling businesses might explore and adopt these solutions to enhance their operations.
Since I know the above is a lot to digest, I would take your time and do plenty of research to see if this payment method would not only fit the current potential transaction out of Germany, but other future domestic and international transactions as well. From what I’ve read and gathered, it will most likely be the payment method of the future.
Please let me know what happens.
Crabby
Dear Crabby is a credit, collection, and human resources advice column by Nancy Seiverd President CMI Credit Mediators Inc. Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
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