Major corporation buyers and sellers presently settle their payments predominantly by a paper-heavy method called the letter of credit, first popularized by the Medici banking family of Florence more than 400 years ago. (The process, requiring the banks of buyer and seller to exchange documents, often takes two weeks.)

But recently companies have begun investing in new internet-based platforms that instantly link buyer and seller…sometimes relegating banks to the sidelines. Although these online procurement efforts were started in the late 1990s, they’ve gained significant traction in the marketplace only in the last two years.

TradeCard, a company launched in 1994, allows a buyer to connect the flow of physical goods with the flow of electronic funds by handling both through the same electronic document. TRADECARD

A similar product is being pushed by UPS Capital, a subsidiary of logistics titan United Parcel Service. Last year the firm handled $1.4 billion in payment transactions.

At stake is more than a tech upgrade. Today the cost of processing trade documents is more than 5% of the total annual value of world trade! Consider that the present cost of processing a simple transaction is about $400, up to 24 forms must be completed for each transaction, and that half of all letter-of-credit transactions are rejected by banks because of incorrect information.

The growth and usage of just-in-time financing is not surprising, considering the savings in time and money. It’s a natural evolution, following the explosion of just-in-time manufacturing and just-in-time inventory. And as the financial supply chain works faster, the physical supply chain can move faster, too. Which in turn greases the global supply chain and the interdependence of nations around the world.

This entry was posted on Monday, July 30th, 2007 at 9:03 am and is filed under Global Environment. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.