Lloyds Bank is bringing a 4000-year-old debt instrument into the 21st century, completing the UK's first transaction using a digital promissory note purchase.
Promissory notes have been around for millennia, enabling transactions to be competed in lieu of cash by letting sellers get paid based on the creditworthiness of the purchaser. However, under the UK's Bills of Exchange Act, notes need to be a physical entity, meaning it can take a week or more for businesses to be paid.
Lloyds says it has managed to address this, developing a digital promissory note that works within contract law and utilises the International Trade and Forfaiting Association’s dDOC specifications, under the Digital Negotiable Instrument Initiative.
This week, the bank worked with Swedish digital documents firm Enigio to carry out a pilot, completing a transaction involving the sale and purchase of land worth £48 million between several UK businesses in a day.
Lloyds says that removing the need for transferring physical notes creates a more affordable, safer, more flexible, more sustainable, and transparent online solution that could be applied to other types and sizes of transactions.
Gwynne Master, MD, lending and working capital, Lloyds, says: "The digitisation and simplification of this solution finally opens this form of payment discounting to potentially millions of small businesses, improving their ability to manage their working capital and the cashflow of their suppliers by fulfilling invoices more quickly."
Merisa Lee Gimpel, MD, solution development for working capital and lending products, adds: "We are also working on a series of pilots to test the interoperability of digital Bills of Lading across international borders."