Payment and Financial issues in EB

1. Payment and Financial issues in EB Dr. CK Farn 2004 Spring

2. Electronic Payments1 • COD • Cash on delivery • Or, pay at a convenient store • Credit cards, Debit cards • Only customers with Cr/Db cards can be served • Security concerns 中央大學。范錚強

3. Electronic Payments2 • Electronic Fund Transfer • Clearing through clearing banks • Checks • External services to issue checks • Can be replaced by EFT? • Electronic Checks • Do we still need checks? • What to do with people without bank accounts? • Problem with Pre-dated checks 期票 • Hybrid of payment and financing 中央大學。范錚強

4. Electronic Payments3 • Payments for transactions with long durations • Problem: TRUST among payer and payee • Escrow services • Escrow, L/C (letter of credit) • Trusted 3rd Party involved in transaction 中央大學。范錚強

5. Electronic Payments4 • Micro Payment • Membership– fixed cost • Limited service to members only • Prepaid mechanism • Distributed accounting (telephone cards) • Centralized accounting （台北市悠遊卡） • Smart Card • Electronic wallet, e.g. Mondex 中央大學。范錚強

6. Electronic Payments5 • Innovative alternatives to cash • Boundary of usage • One company • Across companies • Problems with monetary policy of a government • Mechanisms like Coupons 禮券 • Individually identifiable coupons • Mechanisms like Bank Accounts • Based on account balance 中央大學。范錚強

7. Other Payment Problems • The time difference between payer and payee • Is there any financing needs? • Financing • Changes of needs and risks at difference stages in a life cycle • Order • Goods received • Invoicing • Account payable • Is there any good mechanisms to resolve financing problem? 中央大學。范錚強

8. The value of ePayment • Payer • Cost of payment • Encumbrance of accounts • Payer • Cost of collection • Encumbrance of accounts • Financing 中央大學。范錚強

9. Traditional Financing • Cash: the basic life blood of a company • Mortgage: financing with collaterals • Financing based on predated checks • Present value of the check amount • Transaction-based financing • Loans against contracts • In the US, transactions-based financing can sometimes costs up to 20% annual rate, even today • Credit-based financing • High financing transaction costs 中央大學。范錚強

10. Cash Flow and Financing • Payment is a relatively minor issue compared with financing • How to obtain financing, in cases where cash-to-cash conditions cannot be improved • The requirements: • For suppliers: low cost financing • Banks: manageable risk • Innovative financial instruments (or products) • Exploiting “Visibility” with IT • Transaction-based financing at various stages 中央大學。范錚強

11. Financing needs of Suppliers Business transaction process Order Procurement Delivery Receiving A/C Closing Predated Check Production Payment AP account Pre-delivery Financing Post-delivery Financing ※Before, in a transaction cycle, the SME supplier can only obtain financing, after delivery and received a pre-dated check from the buyer. ※It is difficult to obtain financing (to procure materials) before delivery.

12. Multiple Financing Products at Different Stages 1 2 3 6 7 4 5 8 Supplying Process Supply Status Order Payment Pull instruction VMI Delivery Invoicing A/P Financing Items 中央大學。范錚強

13. With Transaction Visibility, Can dynamically judge the Risk involved. Rate can be linked with risk. Lack of Visibility, can only assess risk based on past history. Rate is unrelated with risk. eFinancing, Risk and Visibility High Risk: Decline Rate Low Risk: Provide Incentives Risk 中央大學。范錚強

14. e-Financing • Pre-order Financing • Financing based on the inventory level in VMI. • High risk. • Requires remote monitoring mechanisms. • Order-based Financing • The bank is provided by PO information by the focal buyer • No need of collaterals • Lower risk than credit-based loans • Can provide much lower interest rates 中央大學。范錚強

15. e-Financin2 • Financing after goods delivery • Can be converted from order-based loans • Lower risk than order-based loans • Proportion of loan can increase • Higher interest rates • AP/AR financing • Can be converted from financing based of delivery • Reduced risk • Proportion of loan can increase • Higher interest rates 中央大學。范錚強

16. Benefits to banks Financing condition 1: Verification of Transaction Transactions Financing Focal Bank Supplier ？ Payment Financing condition 2: Secure source of payment 中央大學。范錚強

17. 3. Order Inquiry 5. Loan 6. Payment 2.Loan Request 4. Order Info 1. Order eFinancing in C-plan Financing Based on Order Transactions Bank 7. Balance Payment Focal Buyer Supplier 中央大學。范錚強