Sunday, September 25, 2005

Case Study: E Letters of Credit and Purchasing Cards for Global Access

Case Study: How would a furniture company pay its online office-supply vendor? What about the supplier of wood? Also, the company exports products to several countries using an online ordering system. How should overseas buyers pay?

I would advise the furniture company to pay with e-check which is the electronic version or representation of a paper check. E-checks contain the same information as a paper check. It can be used wherever paper checks are used, and are based on the same legal framework. They work essentially the same way a paper check works, but in pure electronic form, with fewer manual steps. They are faster, cheaper, and they can be more secure. As a small to mid-size business, the furniture company can use them to pay its online office supply vendors.

The same goes for the supplier of wood. He can get paid with e-checks. In B2B e-commerce and e-government purchases, where the dollar values are likely to be in the hundreds of thousands of dollars, obviously more secure procedures are required. The U.S. treasury department is testing in pilot projects some e-check standards. This comes to show that e-checks are getting the attention of the higher officials of the U.S. government. Since the company exports products to several countries using an online ordering system, it could also invest in purchasing cards. They are special-purpose payment cards issued to a company’s employees to be used solely for purchasing nonstrategic materials and services up to a pre-set dollar unit. In this case, the furniture firm will benefit from productivity gains, bill consolidation. The buyers and suppliers will benefit from payment reconciliation, expedited payments, management reports and control.

Purchasing cards are used by most state governments and by many public universities. Purchasing cards are used within countries; for global trade, one can use other payment instruments. Letter of credit or Electronic letters of credit can be used for overseas buyers. The electronic letters of credit are a written agreement by a bank to pay the seller, on account of the buyer, a sum of money upon presentation of certain documents. The furniture company can sure take advantage of these quick and guaranteed payment instruments.

No comments: