Can smart contracts built on blockchain solve late payments?

It is a fact that late payments are usually due to decisions by human beings working in your customers' companies. And communication and maintaining relationships with your customer can be important in terms of being the first in line to get paid. But is it possible for technology to replace this?

Blockchain, which uses a decentralised database to record assets and transactions between two parties, functions as a public record of what, who and how it is done. The transaction history in the database is stored in blocks of data, grouped and encrypted. The result is an immutable and unforgeable record of all the transactions of a network.

One way companies can use blockchain to reduce late payments is by committing to smart contracts. A smart contract is built on blockchain and acts like a secure escrow with a third party, in which the funds can be released once the parties involved meet the conditions of the contract.

Imagine being able to receive payment immediately after delivering the goods, without asking your accountant to follow up with emails and phone calls pestering the customer for payment.

Smart contracts would be used everywhere in a perfect world because it executes without trust. This means that instead of relying on the other party to fulfil their part of the bargain, a smart contract executes what is supposed to happen on time and in an objective way. There is no need for "trust", because the computer executes the conditions of the contract.

Sounds good, right?

The catch is that smart contracts are not very smart, really. They work well for simple cases, but for more complex business scenarios, unspoken expectations or unforseen circumstances, they would fall short.

Entrepreneur Jimmy Song wrote on his Medium page: "A truly intelligent contract would take into account all the extenuating circumstances, look at the spirit of the contract and make rulings that are fair even in the most murky of circumstances. In other words, a truly smart contract would act like a really good judge. Instead, a 'smart contract' in this context is not intelligent at all. It’s actually very rules based and follows the rules down to a T and can’t take any secondary considerations or the 'spirit' of the law into account."

Song uses the example of how a smart contract would not know to kick out renters who are behind on their rental payments, but would likely lock the non-paying renters out of their apartment.

While the nitty gritty details of smart contracts and how they are written and expected to behave according to real-world situations need to be figured out, you are going to have to deal with real human beings who make decisions triggering payments for some time.