WO2000063815A2

WO2000063815A2 - System, method and articles for facilitating trade credits

Info

Publication number: WO2000063815A2
Application number: PCT/US2000/010859
Authority: WO
Inventors: John D. Redding
Original assignee: Redding John D
Priority date: 1999-04-21
Filing date: 2000-04-21
Publication date: 2000-10-26
Also published as: CA2377708A1; WO2000063816A8; CA2376257A1; WO2000063816A2; CA2376252A1; EP1208496A2; AU4482600A; WO2000063795A8; EP1200909A2; WO2000063795A2; WO2000063795A9; EP1277129A2; WO2000063815A8; AU4655800A; AU4482900A

Abstract

A system, method and product for engaging in commerce through the use of trade credits. A computer system for facilitating commerce based on trade credits. One or more trade facilitator computers, one or more client computers, and a communication system interconnecting the computers as necessary. A client inputs to a client computer information identifying to the trade facilitator computer the client's needs for goods or services. The trade facilitator computer has a database of available goods and services and in response to the identification of needs fROm the client computer, attempts to assemble a map of one or more transactions to supply the needed goods or services from available sources while achieving a positive cost spread. At least one of the client computer and the trade facilitator computer maintains a database of trade credits available to the client and, on successful assembly and execution of said transaction routing, deducts an appropriate number of trade credits from any said database. Consumption of the trade credits is insured and the system optionally tracks compliance with terms of the insurance contract.

Description

SYSTEM, METHOD AND ARTICLES FOR FACILITATING

TRADE CREDITS Field of the Invention The present invention relates to a system and method for enhancing cash-based and non-cash-based commerce.

Background of the Invention

Cash-based commerce systems involve one party delivering to another party goods or services in exchange for cash payment or the promise of cash payment. Alternatively, countertrade forms of commerce involve the use of non- cash forms of payment using different concepts such as corporate barter, currency generation, or offset. Countertrade commerce uses different transactions for a variety of purposes, including asset value recovery, financing, and cost reduction programs.

Over the last two decades, national and international commerce have undergone significant changes. Various network systems have been created to facilitate the computerized purchase and sale of goods and services, or exchange of various goods and services. These network systems connect buyer computers, merchant computers, advertiser computers, and payment computers, sometimes to or through one or several sites on the World Wide Web existing on the global Internet.

In cash-based commerce, a first type of a network system is based on offers from a merchant computer. That is, the merchant computer provides advertised products or services. A buyer uses a buyer computer to request and view the advertised products and then send from the buyer computer a purchase message describing a selected product to the merchant computer. The merchant computer constructs a payment order, sends it to a payment computer, and receives authorization from the payment computer. After receiving the authorization, the selected product is sent to a designated computer electronically (when the selected product is a software program, a picture, data or another digitized product) or shipped to an address provided by the user (when the selected product is not or cannot be digitized).

There are other variations to the above-described purchase method conducted over a network system using cash-based transactions. For example, when purchasing a selected product or service, the buyer computer can send the purchase order directly to a payment computer and the payment computer can send authorization back to the buyer computer, in the form of a secure digital certificate. This secure certificate is then sent to the merchant computer, which causes the electronic transfer or physical shipment. Alternatively, the payment computer can send the authorization to the merchant computer, which causes the electronic transfer or physical shipment. The buyer computer can also have secure "cash certificates," pre-authorized by the payment computer. Then, the buyer computer can send directly the purchase message, describing the selected product or service, together with the secure "cash certificates" to the merchant computer. The merchant computer "recognizes" the cash certificates as a valid form of cash payment and causes the electronic transfer or the physical shipment of the ordered product. The merchant computer assembles a number of the cash certificates received from several purchase transactions and presents them to the payment computer. The payment computer causes a cash transfer to the merchant's account.

There are other types of network systems that connect buyers and sellers and provide efficient ways to conduct the transactions. For example, a network system may enable a buyer to submit a detailed request that specifies requested goods or services and their price to a merchant computer. The merchant computer may be also a network site accessible by several seller computers or service provider computers, each of which can supply one or several goods and services. After submitting the request for goods or sen/ices, a number of seller computers or service provider computers may respond to the buyer with customized responses and offers to sell goods or services. The buyer computer can then compare the responses and determine which seller or provider best meets his needs. Another type of a network system can include one or more intermediaries. These intermediaries collect advertisements or offers of goods or services with detailed descriptions and prices from buyer computers and seller computers. The intermediaries then post the collected information on their web site or actively seek buyers or sellers using their databases. For example, the collected information can be matched to the addresses of different businesses expected to have a need for advertised goods or sen/ices or a supply of desired goods or services. The entire process may be fully automated and transacted over a computer network. Thus, these networks can improve market efficiency by avoiding an extended search or advertising, and by expediting the selection and order process.

Existing on-line business marketplaces and portals enable efficient screening, selection and matching of buyers and sellers of goods and services. Furthermore, the on-line exchanges enable efficient trading in raw material, parts, surplus inventory or customized items. Several companies have seamlessly integrated their enterprises with such exchanges and created content management platforms and applications that provide flexible solutions built on open application servers. These networks can also provide security and confidentiality using encryption techniques. Non-cash based commerce provides the possibility for asset value recovery in cases where assets have diminished values due to market factors or other factors. Asset valuation recovery enables recovery of up to the original value (or the book value) of the asset (e.g., raw material, products, real estate, sen/ices). Businesses experience significant needs in this area because of the frequent differences between the book values and the market values of their assets. Asset valuation recovery may be practiced using corporate barter, where the deficient asset having a diminished value is sold for trade credit having potentially a higher price than the fair market value of the asset. The asset is exchanged not for an immediate delivery of goods, sen/ices, or cash, but only for a trade credit which may or may not be exercised depending on the market conditions. Since this trade credit has a lower value than the book value, the deficient asset may need to be "written-down" to the lower cost or market value. Such "write-down" is usually mandated by the Generally Accepted Accounting Principles (GAAP) in the U.S., the International Accounting Standards, or counterpart accounting principles used in other countries. Writing down the value of the asset means the seller must declare a loss on its books, which in turn may negatively affect the perception of the seller's financial condition (and thus the seller's stock valuation).

The use of a barter exchange, however, may result in a smaller loss than would have been experienced if the assets were sold conventionally for cash. In the barter exchange, a trade facilitator issues a trade credit to a seller for a higher price than the fair market value of the asset (e.g., raw material, products, real estate, services). Since the seller can potentially achieve cash savings in future purchases, the seller can realize a degree of asset valuation recovery. It is important to note that the recipient of the trade credit (e.g., the seller of the deficient asset), in an effort to realize asset valuation recovery, has invested in the corporate barter process and assumed the associated risk. The investment is equal to the cash liquidation value of the asset given in exchange for the trade credit. Over the life of the trade credit, if the trade credit cannot be used fully, this investment (or some part of the investment) is lost. Thus the seller can potentially loose more than the difference between the book value and the market value of the deficient asset. This is a major weakness of corporate barter when used for asset valuation recovery.

In general, there is a need for an efficient use of the trade credit, which also depends on efficiently selecting and matching the needs of buyers and sellers of goods or services. Furthermore, there is a need for a system, method and product that will permit a business to exercise its future purchasing power or future selling abilities to achieve a present financial advantage.

Summary of the Invention

The invention relates to a system, method, and insurance product that create a marketable asset (i.e., a saleable asset) based on purchasing or selling capabilities of an entity coupled to an insurance product that protects the value of the purchasing or selling capabilities quantified in a contract. The novel insurance product supports and enhances the use of and/or value of a purchase credit agreement. Alternatively, the novel insurance product enhances the use of and/or value of a cross sell option contract.

The invention enables, inter alia, asset value recovery, financial services and cost reduction programs applicable to cash-based and non-cash-based commerce. The present system, method, and insurance product singly, or in any combination, enable prospective sellers and buyers to exchange goods or services at their desired, different prices by coupling this exchange to their purchasing or selling capabilities. Thus, the present system, method, or product provides or supports a highly effective commerce system that improves the ability of sellers to achieve their price objectives while providing buyers an opportunity to acquire the product and or services for a current outlay substantially lower than the seller's price.

One aspect of the invention is a computer system for facilitating commerce based on trade credits. It includes one or more trade facilitator computers, one or more client computers, and a communication system interconnecting the computers as necessary. From time to time, a client inputs to a client computer information identifying to the trade facilitator computer the client's needs for goods or services. The trade facilitator computer has a database of available goods and services and in response to the identification of needs from the client computer, attempts to assemble a map of one or more transactions to supply the needed goods or services from available sources while achieving a positive cost spread. At least one of the client computer and the trade facilitator computer maintains a database of trade credits available to the client and, on successful assembly and execution of said transaction routing, deducts an appropriate number of trade credits from any said database.

The system may further include one or more buyer computers and one or more seller computers. In this arrangement, the trade facilitator computer maintains a database of buy offers and sell offers from the buyer computers and the seller computers. The trade facilitator computer is operated to match the client's entered needs and ones of said buy offers with ones of said sell offers to build a trade routing map of transactions which can supply the needed goods or services.

According to another aspect, a method is provided for financing the sale of an asset. A seller of an asset, having a capacity to purchase at least one of goods and services (generally expressed as "goods or services" herein, which expression should be understood to include both goods and services or either of them singly), in the usual course of business, sells the asset to a buyer. The seller receives from the buyer trade credits in an amount and on terms and conditions, and with a duration, acceptable to the parties, the amount of the trade credits being greater than the fair market value of the asset. The seller also receives from the buyer an insurance contract from an insurance company, naming the seller as a loss payee in the event that over said duration the full amount of the trade credits is not utilized by the seller and providing that the insurance company will pay to the seller the amount of the unused trade credits if the terms of the insurance contract were satisfied. Preferably, the seller agrees with the buyer on a permissible amount of trade credits relative to monetary payment that may be used to purchase specific goods or services in retirement of the trade credits. Optionally, the seller may receive from the buyer a monetary compensation in addition to the trade credits. This method may be used for asset value recovery. Thus, the asset may have a book value to the seller greater than the fair market value of the asset but the seller may not be required to recognize a loss on the sale of the asset.

According to another aspect, there is provided a method for engaging in commerce. A buyer buys from a seller that has a capacity to purchase at least one of goods and services, in the usual course of business, an asset having a fair market value. The buyer gives the seller, as at least partial consideration, trade credits usable over a given duration and which, when utilized, are designed to return to the seller a value greater than the fair market value of the asset. The buyer buys for the benefit of the seller insurance contract from an insurance company and names the seller as a loss payee in the event that over said duration the full amount of the trade credits is not utilized by the seller and providing that the insurance company will pay to the seller the amount of the unused trade credits if the terms of the insurance contract were satisfied. The buyer may buy goods or sen/ices pursuant to needs expressed by the seller, from time to time during the duration, and sell those goods or services (as well as goods or services to which it otherwise has access) to the seller in exchange for a payment including an amount of trade credits. Desirably, a spread between a price paid by the buyer and a payment received from the seller is sufficient to generate a profit for the buyer.

Yet another aspect of the invention is a method for providing to an entity an immediate financial benefit. A predetermined amount of trade credits are granted to the entity. An agreement is made with the entity on a procedure for consuming the trade credits. An insurance policy is obtained for the benefit of the entity, the insurance policy providing, in part, that if the entity adheres to the terms of the trade credit consumption procedure and the trade credits have not been consumed over a defined term, then at the conclusion of that term the insurance company that issued the insurance policy will pay to the entity a value of the unconsumed trade credits. It is possible to assign to a third party, for value, a right to receive proceeds from the consumption of the trade credits and payments from the insurance policy.

Still another aspect of the invention is a trade credit insurance product, comprising an insurance contract which obligates an insurance company to pay to the holder of trade credits a sum equal to the value of trade credits the holder has been unable to consume during a predetermined term, provided the holder has complied with the provisions of a trade credit consumption procedure referenced in the insurance contract. The above-described features, aspects and advantages will be more readily understood from the accompanying drawing figures, which should be read in conjunction with the detailed description which follows.

Brief Description of the Drawings Various embodiments of the present invention will now be described by way of examples with reference to the drawings in which: Fig. 1 illustrates a network sale system connecting client computers, trade facilitator computers, buyer computers, seller computers and insurance institution computers;

Fig. 2 illustrates an exemplary application of trade credit insurance that enables a seller to obtain for an underperforming asset a value higher than the market value;

Fig. 3 illustrates another exemplary application of trade credit insurance that enables a seller to obtain for an underperforming asset a value higher than the market value; Fig. 4 illustrates yet another exemplary application of trade credit insurance that enables the trade facilitator to support international trade transactions; and

Fig. 5 illustrates steps performed by a management information system operating over the network sale system shown in Fig. 1.

Detailed Description Fig. 1 illustrates a network sale system connecting a trade facilitator computer network 20, a client computer network 30 (e.g., a computer network of a seller who is a client of a trade facilitator), a buyer computer network 40, a seller computer network 45 and an insurance institution computer network 50. The network sale system is connected together by a communication network (e.g., an ATM network 12) and private networks 20, 30, 40, 45 and 50. The communication network includes links 13, network switches 14, 15 and 16, and a router 17. Trade facilitator computer network 20 includes a bridge 22 connected to a token ring network 24 and an Ethernet network 27. Token ring network 24 provides connection, for example, to a general purpose computer 25 and a storage device 26. Ethernet network 27 is connected to general purpose computers (for example, computers 28A and 28B), a printer 29 and other devices. Client computer network 30 includes an Ethernet network 34 connected to switch 15 by a bridge 32. Ethernet network 34 connects general purpose computers 35 and 36, and a printer 37. Buyer computer network 40 includes a private network 42 connected to switch 14 by a bridge 44. Private network 42 connects a computer 43B and a printer 43A to the network sale system. Seller computer network 45 includes a computer 46 and printer 47, both connected to switch 16. Insurance institution computer network 50 includes a bridge 52 connecting a private network 53 to router 17. Private network 53 connects general purpose computers 54 and 55, and a storage device 57. The above is only an example of networks 20, 30, 40, 45 and 50, which may include other devices and may be connected together differently. Each element of these networks is optional and the claimed invention may also be practiced even without any network system, with any of the networks replaced by a single computer, or even without any computer.

Fig. 2 illustrates a system and a method that can be practiced on the above-described network system. A client 102 (e.g., a seller who is a client of a trade facilitator) owns a building 105 (i.e., an underperforming or deficient asset), having, e.g., a book value of $15 million, but a market value of only $8 million. A trade facilitator 116 enters into a contract with client 102 pursuant to which trade facilitator 116 receives building 105 in exchange for $15 million in trade credits (indicated as a transfer 110). That is, trade facilitator 116 and client 102 agree on a purchase credit agreement, pursuant to which trade facilitator 116 will sell to client 102 goods or services needed in the client's usual and ordinary course of business, and client 102 can use the trade credits in partial payment for the purchased goods or services. The purchase credit agreement, among other terms, specifies for different purchases the ratio of cash to trade credits that can be used by client 102 as the payment. For example, the agreement may provide that client 102 can pay for the purchased goods or services using 20% of the price in trade credits and 80% in cash. The relative amount of trade credits to cash may range from 100% trade credit and no cash to just one or two percent trade credits and the rest in cash. Furthermore, trade facilitator 116 pays to an insurance company 120 an insurance premium (indicated as a transfer 122) and receives an insurance policy (indicated as 124), which names client 102 as the beneficiary. The insurance policy (e.g., Barter Trade Credit Insurance explained in detail below) insures that client 102 will use the entire $15 million in trade credits within the term of the purchase credit agreement (e.g., three years). Otherwise, insurance company 120 pays the unrealized difference in cash to client 102 after the term of the agreement. The main characteristics of the insurance policy are described below.

In the above transaction, client 102 receives the insurance policy (transfer 106) and the trade credits (transfer 110), which together guarantee future savings in the amount of $15 million for purchases made in the client's usual and ordinary course of business (pursuant to terms it would normally employ). Trade facilitator 116 receives building 105 (transfer 108), which he can sell (transfer 118) on the open market (global market) and for which he can receive $8 million (transfer 119). Trade facilitator 116 can use the $8 million as his working capital to fund the insurance premium (transfer 122) and to buy goods or services from trading partners 136 for sale to client 102 under the purchase credit agreement. In the above transaction, trade facilitator 116 sells building 105 for $8 million on the open market (indicated as a transfer 118) and uses the proceeds from the sale of building 105, i.e., $8 million indicated as a transfer 119, as his working capital. Trade facilitator 116 uses his trading partners 136 (i.e., numerous buyers and sellers of goods or services) to sell goods or services to client 102. Trade facilitator 116 conducts numerous transactions with his trading partners 136, all of which are indicated as transfers 128 and 130. The trade facilitator's profit depends on the cost spread (i.e., the price differential between his purchase price and the sale price of the goods or services to client 102) and other transactional costs, including the insurance premium paid to insurance company 120. Based on an order from trade facilitator 116, a trading partner (136) provides goods or services to client 102 (indicated as a transfer 132), and client 102 pays trade facilitator 116 in the form of cash and trade credits, both of which are indicated as a transfer 134. Optimally, the amount of trade credits applied to each purchase is not larger than the trade facilitator's cost spread. The insurance policy 124 from an insurance company 120 guarantees that client 102 will realize the entire amount of $15 million during the term of the purchase credit agreement. Thus, client 102 will not loose $7 million as otherwise would have occurred if he had sold building 105 on the open market (i.e., the difference between the asset's book value of $15 million and the market value of only $8 million). Furthermore, depending on the transaction and the applicable accounting rules, client 102 may avoid a write-off upon the transfer of building 105 (i.e., the deficient asset) since the insurance policy guarantees that client 102 will recoup the entire $15 million of book value within the term of the purchase credit agreement. Indeed, the purchase price of the building could even exceed $15 million if the trade facilitator and insurance company are willing to issue and back trade credits of a larger amount.

In the prior art transactions, when an entity disposed of a deficient asset (such as obsolete inventory having a book value greater than its market value), the entity usually had to realize a loss if the transfer of the deficient asset did not generate a new asset with a value equal to the book value of the deficient asset. Recognition of such a loss (and the corresponding write-off on the business' financial statements) is usually mandated by the Generally Accepted Accounting Principles (GAAP) in the U.S., the International Accounting Standards, or counterpart accounting principles used in other countries. Under GAAP, according to recently issued Emerging Issues Task Force Release (93-11), an entity has to "write-down" the difference between the book value and the market value, if existing prior to any transfer, and cannot mark-up the difference after the transfer if the book value was not received in cash. Thus, client 102 may have to "write-down" the difference in cases where the book value is clearly lowed than the market value. However, client 102 will recoup the difference over the term of the agreement, based on the insurance contract (and thus ultimately avoid the loss).

In general, a purchase credit agreement provides an opportunity for a client to avoid a loss upon selling or transferring a deficient asset, and provides an opportunity for a trade facilitator to supply his client with goods or services in accordance with a mutually agreed procedure, described in a Countertrade

Consumption Procedure. In this process, the client uses (or exercises) the trade credits received from the trade facilitator and insured by an insurance company. The client and the trade facilitator must exercise at least reasonable efforts and act in accordance with the terms of the insurance policy when supplying goods and/or services to the client to exercise the trade credits; otherwise, the insurance company is not obligated to - and typically will not - cover the unexercised trade credits. The process enables the trade facilitator to profit from the price differential between his purchase price for the supplied goods or services and the sale price of the goods or services to the client (i.e., the cost spread). By agreement, if there is no cost spread, the trade facilitator is not obligated to supply goods or services to the client. The term of the purchase credit agreement is limited to a specified number of years or the consumption of a specified number of trade credits, whichever occurs first. Thus, the trade credits are a measure of the purchase credit agreement term.

Based on the purchase credit agreement, trade facilitator 116 can supply to client 102 the goods or sen/ices as needed in the usual and ordinary course of business. For this purpose, trade facilitator 116 and client 102 preferably establish a list of benchmarks. That is, trade facilitator 116 and client 102 jointly identify specific spending areas of client 102, which will form the basis of the purchase credit agreement. Client 102 may identify in the purchase credit agreement lists of pre-approved suppliers for various goods or sen/ices. Furthermore, client 102 may establish benchmark pricing based on its existing or historical need to purchase goods or services. To sell under the purchase credit agreement, trade facilitator 116 has to match all agreed commercial terms and benchmark pricing. If trade facilitator 116 is unable to match the commercial terms and benchmark pricing of client 102, client 102 is free to procure the goods or services, under the same terms, elsewhere, and will collect the unused trade credits in the form of cash from the insurer at the end of the agreement term.

The amount of the trade credits set in the purchase credit agreement also reflects the trade credits usage ratio historically achieved (or expected to be achieved) by trade facilitator 116. The trade credits usage ratio varies depending on the type of goods or services covered by the purchase credit agreement. For a specific "deficient" amount (i.e., the difference between the asset's book value and the market value), the amount of the trade credits must be set high enough so that there should be profits realized when exercising when the purchase credit agreement is completed. That is, trade facilitator 116 needs to realize a known (hopefully minimum) profit over the (typically three- year) term of the purchase credit agreement.

Based on the procedure established in Countertrade Consumption Procedure terms, prior to any purchase of goods or services, client 102 submits a description of its needs to trade facilitator 116. If trade facilitator 116 can supply the needed goods or services to client 102, he has the right to do so under the purchase credit agreement. After this transaction is completed, client 102 will have used a certain amount of the trade credits. The actual amount of applicable trade credits depends on the cost spread to trade facilitator 116. Therefore, the specific amount of the goods or services to be provided under the purchase credit agreement cannot be predetermined because the spread (i.e., the price differential) for the needed goods and services will vary depending on the prevailing market conditions.

Alternatively, the purchase credit agreement can specify the goods or services to be sold to client 102, their quantity, price and/or the amount of applicable trade credits. This type of a purchase credit agreement may resemble the standard options contracts to sell ("puts"). Trade facilitator 116 can then evaluate the market forces and acquire the standard options to buy ("calls"). Trade facilitator 116 links the PUT and CALL positions in the network system (shown diagrammatically in Fig. 1) to evaluate the value of the purchase credit agreement. This type of a purchase credit agreement is more "predictable" for trade facilitator 116, but it binds client 102 to specified commercial terms and thus may have to be negatively reflected on the client's accounting statement.

The entire trading process may be carried out over the network sale system shown in Fig. 1. Pursuant to a purchase credit agreement, trade facilitator 116 supplies needed goods or services to client 102. Client 102 enters (for example, on computer 36) the description of goods and services as needed in their ordinary course of business. This description is transmitted via network 12 to trade facilitator network 20 and stored, for example, in storage device 26. Different sellers can submit to trade facilitator network 20 their advertisements or even offers to sell their goods or services from their networks 45. Storage device 26 thus includes a database of goods and services available for sale by various sellers received via network 12. Different buyers can submit to trade facilitator network 20, using their network 40, their advertisements or offers to buy goods or sen/ices. Trade facilitator 116 (for example, by using computer 25) determines if the client's requirements can be met: that is, whether he can generate a sufficient spread between the prices of goods and services offered by the seller and those for the goods and services needed by client 102. If trade facilitator 116 cannot generate a sufficient spread, client 102 is free to procure these goods or services, under the same terms, from another source.

The trade facilitator's database includes the terms of numerous goods or services available for sale (or offered for sale) and wanted for purchase (or offered to buy). The system links together the offers and creates a trade routing map achieving a cost spread. The map shows a match between the goods or services needed by client 102 and those available to trade facilitator 116. The individual links in the map may have different forms and can be executed automatically or under the supervision of a human. For example, the trade facilitator's system may directly match a telecommunications put and a telecommunications call, while achieving a cost spread. The trade facilitator's system can indirectly match a put in delivery services to a trade routing map that includes a trade position in a raw plastic material to acquire automobile tires. The automobile tires can then be used to acquire the delivery services. The terms of sale and purchase of the raw plastic material and automobile tires are entered by the respective seller and buyer using seller computer network 45 and buyer computer network 40. There may, of course, be numerous seller computer networks 45 and buyer computer networks 40, which are connectable to network 12 for entering the individual terms.

The feasibility of a selected trade routing map is assessed by the cost spread, i.e., a cash benefit arising from the price differential for the purchase under the purchase credit agreement. The trade routing map includes a series of performable transactions. In some situations, one or several individual transactions may not achieve a cost spread, but the overall transaction can still achieve the cash benefit. The value of the purchasing activities depends on trade capabilities derived from (i) investments in time-sensitive surplus products and excess (production or other) capabilities; (ii) marketing alliances, (iii) purchasing alliances; (iv) trade positions and availabilities to trade facilitator 116; (v) trading strategies designed to move financial leverage acquired in one type of goods or sen/ices to another type of goods or services; and (vi) trading techniques using tolling, spiral trades, or trade-up in commodities to increase their value (e.g., manufacturing or processing of acquired raw materials to realize additional value created by the manufacturing process).

Trade facilitator 116 is in a unique position to generate additional profits, beyond those others might achieve, by selling the goods and services to client 102. By granting the trade credits, trade facilitator acquired a preferential position to sell specific kinds of goods or services to client 102 over a predetermined period. Trade facilitator 116 can then approach purveyors of those goods or sen/ices to bargain for the best prices on future guaranteed sales. Moreover, trade facilitator 116 can participate in one or more trading organizations and may enter into similar purchase credit agreements with several clients. Furthermore, trade facilitator 116 may enter into various cross purchase option contracts described in the co-pending U.S. Application Ser. No. 60/130,581 filed on April 21 , 2000, entitled "System, Method and Articles for Facilitating Secured Option Contracts," which is incorporated by reference. Thus, trade facilitator 116 may acquire the ability to aggregate various rights or abilities to sell the same kind of goods or services to multiple clients. By aggregating purchasing power, trade facilitator 116 can obtain price concessions from suppliers. Moreover, trade facilitator 116 can obtain, through other such transactions, the right to sell goods or services to those suppliers.

Fig. 3 illustrates another system and method that enable a seller (i.e., a client of a trade facilitator) to obtain for an underperforming asset a value higher than the market value of the asset. A client 103, e.g., a clothing manufacturer, owns an obsolete inventory 107 such as clothing that has a market value of only $8 million, but a book value of $15 million. A trade facilitator 116 enters into a purchase credit agreement with client 103 pursuant to which trade facilitator 116 receives obsolete inventory 107 (indicated as transfer 109) in exchange for $8 million in cash (indicated as transfer 111) and $7 million in trade credits (indicated as transfer 112). Pursuant to the purchase credit agreement, trade facilitator 116 will sell to client 103 goods or services needed in the client's usual and ordinary course of business, and client can use the received trade credits as a partial payment for the purchased goods or services. The purchase credit agreement, among other terms, specifies for different purchases the ratio of cash to trade credits that can be used by client 103 as the payment. As described above, trade facilitator 116 buys from insurance company

120 an insurance policy (indicated as transfer 124) and pays an insurance premium (indicated as 122). The insurance policy names client 103 as the beneficiary and guarantees that client 103 will receive the benefit of the entire $7 million in trade credits within the term of the purchase credit agreement. Otherwise, insurance company 120 pays the unrealized difference up to $7 million in cash to client 103 after the term of the agreement.

In the above transaction, client 103 receives the insurance policy (transfer 106) and the trade credits (transfer 112), both of which together guarantee future savings in the amount of $7 million for purchases performed in the client's usual and ordinary course of business. Trade facilitator 116 receives deficient inventory 107 (transfer 109), which he sells on the open market (transfer 113) and receives $8 million (transfer 114). Trade facilitator 116 buys from trading partners 136 goods or services for sale to client 102 under the purchase credit agreement. Trade facilitator 116 conducts numerous transactions with his trading partners 136 (indicated as transfers 128 and 130) in order to sell goods or services to client 103. Based on an order from trade facilitator 116, a trading partner (136) provides goods or services to client 103 (indicated as transfer 131), and client 102 pays in the form of cash and trade credits, both of which are indicated as a transfer 133. The feasibility of these transactions depend on the cost spread trade facilitator 116 can achieve. The purchase credit agreement defines the amount of trade credits client 103 can use for each type of sale. Under, the purchase credit agreement illustrated in Fig. 3, client 103 received immediately $8 million in cash and thus, in general, can apply a smaller amount of trade credits to each purchase than in the purchase credit agreement illustrated in Fig. 2. As described above, the insurance policy issued by insurance company

120 guarantees that client 103 will realize the amount of $7 million during the term of the purchase credit agreement. Thus, client 103 will not loose $7 million which would have occurred if he had sold inventory 107 on the open market. Depending on the transaction and the applicable accounting rules, client 103 may also avoid a write-off upon the sale of inventory 107 (i.e., the deficient asset) since the insurance policy guarantees that client 102 will recoup the entire $7 million within the term of the purchase credit agreement.

From time to time, before any purchase of goods or services, client 103 enters the terms of the proposed purchase into client computer 36 and provides this data via network 12 to facilitator network 20. The sale data is entered into the database stored in storage device 26, used by trade facilitator 116. As described above, the trade facilitator's system links one or more different transactions for the purpose of generating the cost spread.

Similarly as described above, client 103 may derive an important advantage from the purchase credit agreement by avoiding a write-off when disposing of a deficient asset. The insured trade credits provide a guarantee that client 103 will recoup the entire book value of inventory 107 (the deficient asset) transferred to trade facilitator 116. Thus the deficient asset generated a new asset that may have a value equal to (or even exceeding) the book value under GAAP, depending the type of goods or services and the purchase credit agreement. Thus, client 103 can avoid a write-off.

The above-described transactions can also be used to create various marketable or saleable assets. These assets derive from the purchase credit agreement that couples trade credits having predefined cash value with an insurance policy guaranteeing the entire usage of the trade credits. If there is no sale of an obsolete inventory (or another asset having a diminished value) the above-described transactions can simply generate extra cash for client 102 or 103.

Referring to Fig. 4, according to another example, a client 104 wants to finance export (international trade) transactions. Client 104 is selling tractors for $10 million to an emerging market country 140, but the foreign buyer does not have the needed up-front cash or is not creditworthy. Trade facilitator 116 enters into a purchase credit agreement with client 104 pursuant to which trade facilitator 116 gives to client 104 trade credits in the amount of $10 million (transfer 110). In return, client 104 agrees to assign to trade facilitator 116 the receivables 142 (i.e., payments to be made) from the foreign buyer of the tractors, and client 104 agrees to "supplier access" (also indicated by arrow 148), as described below. Trade facilitator 116 receives the payment of $10 million (transfer 142) from the foreign buyer immediately upon delivery of the tractors (indicated as a transfer 141), if it is capable of doing so, or over a predetermined period, depending on the purchase credit agreement.

Trade facilitator 116 buys from an insurance company 120 an insurance policy (indicated as transfer 124) and pays an insurance premium (indicated as 122). The insurance policy names client 104 as the beneficiary and guarantees that if client 104 does not use the entire $10 million in trade credits within the term of the purchase credit agreement, insurance company 120 will pay the unrealized difference (up to $10 million) in cash to client 104 after the term of the agreement.

In this transaction, client 104 receives from trade facilitator 116 the insurance policy (transfer 106) and the trade credits (transfer 110), which together assure future savings in the amount of $10 million on purchases performed in the client's usual and ordinary course of business. Trade facilitator 116 receives the payment(s) totaling $10 million (transfer 142) from the foreign buyer and uses this income as working capital for its different transactions. Furthermore, trade facilitator 116 buys from trading partners 136 goods or services for sale to client 104 under the purchase credit agreement.

Trade facilitator 116 may receive "supplier access" from client 104 and uses the supplier access whenever possible to buy goods or services. Specifically, client 104 will arrange for trade facilitator 116 meetings with client's suppliers 150 and will help trade facilitator 116 to obtain goods and services from them under similar terms to those experienced by client. If client 1 4 is a large manufacturer, he may receive goods or services from suppliers 150 under preferred rates or terms (transactions shown by arrows 156 and 158). Under the existing supplier access, trade facilitator 116 may be able to obtain trading opportunities for goods and services at significant savings (transactions shown by arrows 152 and 15Ϊ4).

For example, client 104, who is a tractor and truck manufacturer, may have existing agreements with suppliers 150 to buy steel, paint or tires at significant discounts due to its high volume of purchase orders (transactions shown by arrows 156 and 158). Trade facilitator 116 may be able to utilize the same discounts in achieving the cost spread. Suppliers 150, in turn, can increase market shares and gain access to the trade facilitator's database of goods and services (shown as arrow 152). Thus, the supplier access granted to trade facilitator 116 by client 104 is a valuable business opportunity for creating the cost spread.

Referring still to Fig. 4, trade facilitator 116 conducts numerous transactions with his trading partners 136 (indicated as transfers 28 and 130) in order to sell goods or services to client 104. Based on an order from trade facilitator 116, a trading partner (136) provides goods or services to client 104 (indicated as transfer 134), and client 104 pays in the form of cash and trade credits, both of which are indicated as a transfer 132. The feasibility of these transactions depend on the cost spread which is sent to trade facilitator 116 (transfer 130).

As described above, the entire trading process and the process of using (or retiring) the awarded trade credits may be computerized. Client 104 enters via computer 30 the description of goods and services as needed in their ordinary course of business. This description is transmitted via network 12 to trade facilitator network 20. Trade facilitator 116 uses computer network 20 to determine if the client's requirements can be met; that is, whether he can generate a sufficient cost spread for the transaction. If trade facilitator 116 can

RECTIFIED SHEET (RULE 91) generate a sufficient spread, the transaction is automatically confirmed over network 12 and is executed. After executing the transaction, client 104 in addition to transferring a cash payment uses (and automatically "retires") some amount of trade credits consistent with the terms of their grant. Trade facilitator 116 and client 104 use the computer network to provide periodic updates to insurance company 120 over the term of the purchase credit agreement.

According to another example, a client wants to finance export (international trade) transactions. An Export Credit Agency (ECA), such as the U.S. EXIM Bank, makes funds available to promote commerce. The EXIM Bank can guarantee only a portion of the funding typically up to 85% of a given transaction. To generate the remaining 15% in cash (or more depending on the guaranteed portion), the client and a trade facilitator enter into a purchase credit agreement. In the purchase credit agreement, the trade facilitator grants to the client a selected amount of trade credits and the client assigns to the trade facilitator the 15% cash portion to be received from a foreign buyer. At the same time, the trade facilitator buys from an insurance company an insurance policy that guarantees to the client the consumption of all trade credits within the term period of the purchase credit agreement, as described above. Thus, the client can generate the needed cash from the trade facilitator in a situation where commercial banks will not participate because they do not want the foreign loan exposure.

According to yet another example, the client wants to sponsor a not-for- profit organization, but does not currently have the cash to provide funding. The client and a trade facilitator enter into a purchase credit agreement, wherein the trade facilitator grants to the client a selected amount of trade credits. The trade facilitator may also provide cash which the client donates to the not-for-profit organization up front or over time. Furthermore, the trade facilitator buys from an insurance company an insurance policy that has the effect of guaranteeing to the client that it will receive the benefit of the consumption of all trade credits within the term period of the purchase credit agreement, as described above. The insured trade credit (i.e., the opportunity to consume the trade credit and to receive the insurance proceeds resulting from a failure to consume all of the trade credits) also can be donated. For example, the goods to be purchased might be food products and the not-for-profit might be a homeless shelter able to make good use of the food it would be able to purchase for a cash outlay below market prices. Thus the client turned his ability to buy or sell goods or services, into a new asset (e.g., cash or an insured trade credit) donated to the not-for- profit organization without incurring a cost or liability and generating a current and/or future tax deduction for the donation.

According to yet another example, the client wants to create a reserve to fund potential exposure to warranty or other legal claims. The client and a trade facilitator enter into a purchase credit agreement, wherein the trade facilitator grants to the client a selected amount of trade credits and the trade facilitator provides cash to fund a warranty reserve up front or over time. Furthermore, the trade facilitator buys from an insurance company an insurance policy that has the effect of guaranteeing to the client that it will receive the benefit of the consumption of all trade credits within the term period of the purchase credit agreement, as described above.

According to yet another example, the client wants to finance mergers and acquisitions. In an acquisition, a seller (i.e., a party to be acquired) seeks a higher price than the client is willing to pay. The client and a trade facilitator enter into a purchase credit agreement, wherein the trade facilitator grants to the client a selected number of trade credits and the trade facilitator provides cash up front or over time to finance mergers and acquisitions. Furthermore, the trade facilitator buys from an insurance company an insurance policy that guarantees to the client the consumption of all trade credits within the term period of the purchase credit agreement, as described above. Thus, the client can generate the needed cash to meet the seller's price without additional cost.

According to yet another example, the client may be a governmental organization. The governmental organization may need initial cash for an infrastructure project. The governmental organization and a trade facilitator enter into a purchase credit agreement, wherein the trade facilitator grants to the governmental organization a selected number of trade credits, and the trade facilitator provides cash up front or over time. Furthermore, the trade facilitator buys from an insurance company an insurance policy that guarantees to the governmental organization the consumption of all trade credits within the term period of the purchase credit agreement, as described above. Thus, the government can generate cash from the private sector with no cost or liability to the private sector (or another part of the public sector).

Importantly, in any one of the above examples, the trade facilitator may borrow funds from a financial institution or may sell their accounts receivable to a financial institution. The financial institution buying the trade receivables can be the insurance company also issuing the insurance policy. In these situations, the above-described Countertrade Consumption Procedure and Barter Trade Credit Insurance Contract are modified to reflect appropriately the additional interests.

Fig. 5 illustrates the operation of a system for managing trade finance insurance. In step 160, a perspective client (e.g., client 102, 103 or 104) submits to trade facilitator 116 an application for trade insurance in the form of a request for proposal. In the request, the client discloses the asset, where he would like to achieve asset valuation recovery. Alternatively, the client identifies any other form of a saleable asset to be generated.

In step 165, the client describes his own purchasing and sale activities, and any other expenditures expected to occur within the next three years (or another predetermined period). This client data is entered over client computer network 30 and provided to trade facilitator computer network 20. (In the embodiment where no network is used, the client may provide the above information in any other suitable form.) Storage device 26 stores the provided client information, and any one of trade facilitator's computers (i.e., computer 25, 28A or 28B) processes the client data.

In step 170, the trade facilitator's computer classifies the client data based on the selling or purchasing activities of the client and all relevant commercial terms associated therewith. In step 170, the system also identifies a potential purchase credit agreement. The system also performs a GAAP expense classification such as operating expense, cost of goods or capital expenditures. ln step 180, the system accesses an internal database of various goods or services available for purchase or sale. This database of goods and services is created and frequently updated by receiving buyer data from buyer computer network 40 (step 190) describing goods or services needed by a buyer, and by receiving seller data from seller computer network 45 (step 200) describing goods or services offered for sale.

In step 210, the system determines and reports various trade links by using the database. The system searches for goods and services available for sale or needed to be purchased. The system then determines a future value of the client's purchasing and selling activities based on trade capabilities determined using a number of factors. The trade capabilities depend on (a) investments in time-sensitive products and excess capabilities (or other capabilities); (b) marketing alliances; (c) purchasing alliances; and (d) trade positions and the database information stored by trade facilitator 116. These trade capabilities also include options to acquire and options to sell positions. In step 210, the system also takes into account the trade capabilities obtained from prior investments and the trade capabilities based on marketing or purchasing alliances. Different alliance agreements may restrict the type of a product or sen/ice or the amount of a product or service that can be acquired for an existing customer or purchased from an existing customer that is an alliance partner. Therefore, the system also classifies the individual clients and compares them to lists of existing alliance partner customers. In this process, the system evaluates the client's request for a proposal and determines possible direct links (i.e., direct transactions, step 220), or indirect links (i.e., in direct transactions, step 230) if there are no direct links or the indirect links generate a larger spread. In step 240, the system displays the direct links found in step 220.

In step 250, the system displays various alternative trade route "maps" that show the required trades to supply goods or services to a client under a purchase credit agreement. One objective of the system is to determine the value of a potential purchase credit agreement by evaluating the cost spreads for the individual transactions. ln steps 260 and 265, the system assesses demand for trade capabilities and the demand on trade positions held. As the result, the system determines the necessary trade credits associated with the proposed purchase credit agreement (step 270). As described above, the difference between an acquisition price and the sale price for linked goods or services forms the cost spread. The total cost spread (the total cost difference) must be at least equal to the total amount of the trade credits. If insurance company 126 requires modification of the amount of trade credits usable in each purchase by the client to reduce their risk, this factor is also taken into account in step 270. Thus, the system calculates a total number of trade credits and the amounts of the trade credits usable for different types of purchases associated with a potential purchase credit agreement, and provides this information to trade facilitator 116. The total number of trade credits and the usable amounts of the trade credits is incorporated into the approval requirements for the insurance contract (step 280).

Insurance company 120 provides their contract compliance criteria, for example by their insurance company network 50 (step 310). Based on the above-described information, the system formulates a trade credit consumption procedure(s) specific to the client information (step 300). In step 320, the system generates an insurance request submission and delivers the submission to insurance computer network 50 electronically. Alternatively, the submission may be delivered to insurance company 126 by mail or facsimile.

The above transactions utilize the above-described purchase credit agreement, a trade credit consumption procedure, and an insurance contract. As a condition for receiving trade credits, the client agrees to adhere to the purchase credit agreement, and follow the trade credit consumption procedure when acquiring goods or services. The trade credit consumption procedure is a written procedure describing expenditure policies and guidelines to which the client is obligated and intended to enable the trade facilitator to supply goods or services to the client, who then uses trade credits as a partial payment.

Furthermore, the client and the trade facilitator agree to adhere to the terms of the insurance contract. While the trade credit consumption procedure can be designed individually on a per-transaction basis to meet the needs of the parties, it is notable that one of the terms of the insurance contract is that the agreed consumption procedure will be followed as a condition of the insurance company being liable. Typically, the consumption procedure will grant to the trade facilitator a right of introduction or a right of first refusal to meet the needs of the client for the goods and services covered by their agreements, provided the client's usual and customary business terms are met. If the client should buy from another in violation of that right of first refusal or fail to make the required introductions, the insurer is relieved of its obligations to pay any proceeds from the policy. Thus, the client has a great incentive to adhere to the agreed procedure.

An example of a suitable insurance policy is provided in Appendix A titled: Barter Trade Credit Insurance.

The Barter Trade Credit Insurance policy specifies conditions under which it covers any loss resulting from any trade credits not being consumed before the expiration date of the policy. During the policy period, the trade facilitator and the client have to conform their actions in all material aspects to the trade credit consumption procedure, to the reasonable satisfaction of the insurance company. The insurance policy also includes standard definitions, exclusions, representations, as known in the insurance industry (e.g., audit provisions, arbitration provisions, liability limits, exclusions due to bankruptcy, acts of war, etc.). During the term of the insurance policy, the trade facilitator and the client periodically provide to the insurance institution a written report detailing the amounts of trade credits consumed. A trade credit insurance product, comprising an insurance contract which obligates an insurance company to pay to the holder of trade credits a sum equal to the value of trade credits the holder has been unable to consume during a predetermined term, provided the holder has complied with the provisions of a trade credit consumption procedure referenced in the insurance contract. Having thus described the invention and various illustrative embodiments and uses as well as some of its advantages and optional features, it will be apparent that such embodiments are presented by way of example only and not by way of limitation. Those persons skilled in the art will readily devise further modifications developments and enhancements to and improvements on these embodiments, such as variations on the disclosed methods and systems, as well as additional embodiments, without departing from the spirit and scope of the invention. It is impossible to enumerate all of the variations that will quite quickly occur to those in the art. Accordingly, the invention is limited only as defined in the following claims and equivalents thereto. What is claimed is:

Claims

1. A computer system for facilitating commerce based on trade credits, comprising: a trade facilitator computer; a client computer; and a communication system interconnecting the computers as necessary; the client computer identifying to the trade facilitator computer needs for goods or sen/ices; the trade facilitator computer having a database of available goods and services and in response to the identification of needs from the client computer, attempting to assemble a transaction routing to supply the needed goods or services from available sources while achieving a positive cost spread; and at least one of the client computer and the trade facilitator computer maintaining a database of trade credits available to the client computer and, on successful assembly and execution of said transaction routing, deducting an appropriate number of trade credits from any said database.

2. The system of claim 1 further including: a buyer computer; and a seller computer; the trade facilitator computer maintaining a database of buy offers and sell offers from the buyer computer and the seller computer; the trade facilitator computer being operated to match said needs and ones of said buy offers with ones of said sell offers to build a trade routing map of transactions which can supply the needed goods or services.

3. A method for financing the sale of an asset, comprising the steps of: a seller of an asset, having a capacity to purchase at least one of goods and services, in the usual course of business, selling the asset to a buyer; the seller receiving from the buyer trade credits in an amount and on terms and conditions, and with a duration, acceptable to the parties, the amount of the trade credits being greater than the fair market value of the asset; the seller also receiving from the buyer an insurance contract from an insurance company and naming the seller as a loss payee in the event that over said duration the full amount of the trade credits is not utilized by the seller and providing that the insurance company will pay to the seller the amount of the unused trade credits if the terms of the insurance contract were satisfied.

4. The method of claim 3 further including the step of: the seller agreeing with the buyer on a permissible amount of trade credits relative to monetary payment that may be used to purchase specific goods or services in retirement of the trade credits.

5. The method of claim 4 further including the seller receiving from the buyer a monetary compensation in addition to the trade credits.

6. The method of claim 3, 4 or 5 wherein the asset has a book value to the seller greater than the fair market value of the asset but the seller is not required to recognize a loss on the sale of the asset.

7. A method for engaging in commerce, comprising the steps of: buying from a seller that has a capacity to purchase at least one of goods and sen/ices, in the usual course of business, an asset having a fair market value; giving the seller, as at least partial consideration, trade credits usable over a given duration and which, when utilized, are designed to return to the seller a value greater than the fair market value of the asset; buying for the benefit of the seller insurance contract from an insurance company and naming the seller as a loss payee in the event that over said duration the full amount of the trade credits is not utilized by the seller and providing that the insurance company will pay to the seller the amount of the unused trade credits if the terms of the insurance contract were satisfied.

8. The method of claim 7 further including the steps of: buying goods or services pursuant to needs expressed by the seller from time to time during the duration and selling those goods or services to the seller in exchange for a payment including an amount of trade credits.

9. The method of claim 8 wherein a spread between a price paid by the buyer and a payment received from the seller is sufficient to generate a profit for the buyer.

10. A method for providing to an entity an immediate financial benefit, comprising the steps of: granting to the entity a predetermined amount of trade credits; agreeing with the entity on a procedure for consuming the trade credits; obtaining for the benefit of the entity an insurance policy which provides that if the entity adheres to the terms of the trade credit consumption procedure and the trade credits have not been consumed over a defined term, then at the conclusion of that term the insurance company that issued the insurance policy will pay to the entity a value of the unconsumed trade credits.

11. The method of claim 10 further including the step of assigning to a third party, for value, a right to receive proceeds from the consumption of the trade credits and payments from the insurance policy.