System and method a risk based purchase of goods

Details System and method a risk based purchase of goods System and method a risk based purchase of goods

1998-03-17

2004-08-31

Trammell, James P. (Department: 2761)

Data processing: financial, business practice, management, or co

Automated electrical financial or business practice or...

Finance

C705S026640

Reexamination Certificate

active

06785661

ABSTRACT:

FIELD OF THE INVENTION
The present invention relates to a system and method for enabling buyers and sellers of goods to transact with each other. More particularly, the present invention provides the transactional capability to buyers of goods to have open account trade credit with a plurality of sellers and provides sellers of goods with improved risk assessment and decreased credit costs for buyers of the goods.
BACKGROUND INFORMATION
Corporate procurement processes involving relatively low value purchases, generally defined as less than $25,000, represent a significant percentage of corporate procurement transactions. The processing of such low value transactions, however, is plagued by timely and costly processing of paper requests for quotations (RFQs), purchase orders (POs), invoices and payments.
In corporate to corporate transactions between major trading partners, such as two large corporations well-known to each other, the practice of the selling party providing credit, or trade terms, to the buyer, is firmly embedded in tradition and creates strong relationships between such major trading partners. The same practice, however, creates significant problems where the buying party is not a major trading partner, but is a buyer heretofore unknown to the seller.
The selling party in such a transaction may be unwilling to commit marketing resources to seek and/or close transactions with these anonymous buyers. The selling party also may be reluctant to absorb the cost of analyzing and approving credit exposure, as well as the cost of absorbing credit losses. The expenses associated with expending marketing resources and making informed credit decisions may keep many corporations from exploiting the large but relatively unknown and unpredictable universe of small buyers. The selling corporation must also contend with the problem of collecting payment from numerous small buyers.
In practice, corporate sellers must expend significant resources to make appropriate credit decisions with regard to their minor trading partners.
The above arrangement poses problems for the minor trading partner/buyer as well. The buyer, for example, is often faced with limited access to new vendors and encounters delays in effecting purchases. Moreover, if a vendor to whom the buyer is unknown is unwilling to extend trade credit, the buyer must go through the complex and time-consuming task of obtaining third-party financing (e.g., through a letter of credit, working capital loan or other means) to effect its purchase. However, these methods require negotiations with a lender, usually a bank or a finance company, and carry high transaction-costs. They are therefore inappropriate or uneconomical for small to midsize purchases. As a result, many purchases are made from “the usual” vendor, not from a new but unknown vendor who may actually be the most efficient supplier.
As mentioned earlier, in corporate to corporate procurement transactions, it is customary for the transaction to involve some form of credit. This credit, often referred to as “open account trade credit,” is provided by the seller, generally at no charge to the buyer, for a set period of time, normally 30 days. Buyers generally do not explicitly pay for the receipt of open account trade credit and consider this free credit part of the established seller/buyer relationship.
In addition to open account credit terms offered by the selling party, there are several other types of commercial credit options. One option for relatively small purchases is a commercial credit card. Credit cards operate by having the institution issuing the credit card, the merchant bank, provide the cardholder with a revolving line of credit that can be used to buy goods from sellers who accept the credit card. The revolving line of credit allows the cardholder to pay for credit card purchases over a period of time at an interest rate set by the merchant bank. For example, VISA® and MASTERCARD® Bankcard Association cards represent typical consumer credit cards offering a revolving line of credit.
Once a buyer makes a purchase with the credit card, the seller is paid by the merchant bank, less a predetermined service fee, often referred to as an “interchange fee,” and the merchant bank then invoices the buyer for payment. As an example of a typical commercial credit card transaction, if a cardholder makes a $1,000 purchase, the merchant bank then pays the seller $1,000 less the amount of the interchange fee. For example, if the issuing institution charges a 2% interchange fee, then the seller would be paid $980, with $20 remaining with the merchant bank, the interchange fee usually being shared with the Bankcard Association.
Another type of commercial credit option is a travel and entertainment card. An example of a consumer travel and entertainment card would be an AMERICAN EXPRESS® card or DINERS CLUB® card. Unlike a credit card, a travel and entertainment card is considered open-ended credit with payment in full due at the time of billing; it does not extend a revolving credit line to the buyer/cardholder. A seller paid by a travel and entertainment card receives the amount of the transaction less a predetermined discount fee, in a manner similar to payment received from a credit card purchase. Often, however, the discount rate for a travel and entertainment card is higher than the discount fee for a credit card because travel and entertainment cards are not finance charge driven.
Credit cards and travel and entertainment cards provide a uniform level of risk assessment to the seller; the seller pays a predetermined interchange fee regardless of the actual credit risk presented by the buyer. Thus, the seller does not receive risked-based pricing from the card-issuing institution representative of the actual credit risk presented by the individual buyer. In addition, credit cards and travel and entertainment cards generally bill cardholders on a regular basis, e.g. monthly, as opposed to invoice billing that is often preferred in commercial transactions.
An emerging area in commercial transactions is electronic communication of financial transactions. Technological advances in computer networks and communication systems have been applied to processing of purchase and credit transactions. Applications of computer technology to financial transactions include Electronic Data Interchange (EDI). EDI provides a standardized format for the communication of business documents between the computers of two companies. Through the use of EDI, a vendor may electronically receive purchase orders directly into an accounting system and transmit invoices back to the vendor. EDI is used by a variety of businesses including manufacturing companies, wholesale and retail trade companies and financial institutions.
Another application of improved computer technology to commercial transactions is the emergence of electronic commerce. Electronic commerce includes the use of electronic networks as electronic marketplaces for business to business or consumer transactions. Electronic commerce services can include electronic brokerages, distributorships or clearinghouses that facilitate trade via electronic interchange media such as a public network (e.g., the Internet), or proprietary access networks. For example, electronic commerce services can include catalog services utilizing electronic networks such as EDI systems, electronic mail and telephone/facsimile connections, as well as CD-ROM technology. Electronic commerce services often operate in real-time and can help reduce distribution costs and help sellers reach new markets.
Electronic commerce generally does not, however, offer financial services to the seller such as payment, settlement, credit assessments of buyers, and collection services. Whereas credit cards are being adapted for consumer electronic commerce, they have not specifically addressed the needs of business to business electronic commerce. Thus, there are no current systems for processing low value corporate to corporate transactions which handle all aspects of th

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