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

中央大學。范錚強 2 Electronic Payments 1 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 Payments 2 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 Payments 3 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 Payments 4 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 Payments 5 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

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

中央大學。范錚強 12 Multiple Financing Products at Different Stages SupplyStatus Delivery Order VMI Supplying Process FinancingItems Pull instruction 8 Invoicing A/P Payment

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

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 Financing condition 2: Secure source of payment FocalBankSupplier Financing Payment Transactions ？

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