System and method for settling trades in a digital merchant exchange

A system and method for settling trades in a digital merchant exchange includes a buyer, a seller, a transaction agent, a network and a capital pool. The buyer and seller communicate through the network to agree on a contract. When the goods are received or the services are performed, the buyer issues a negotiable instrument that is received by the transaction agent. The transaction agent communicates with the buyer, seller, and capital pool through the network and facilitates the settlement of the trade. The system may call upon the capital pool to provide liquidity so that the system can issue payment to the seller at a time prior to the maturity date of the negotiable instrument.

BACKGROUND OF THE INVENTION

The present invention relates to a system and method for settling purchases of goods and services between a buyer and a seller.

When a buyer purchases goods from a seller, the buyer generally acknowledges receipt of the goods and then begins the process to pay the seller. The process may include awaiting an invoice from the seller, checking the invoice against goods received, sending the invoice to an accounts payable department, and then sending a check from the buyer's account on a payment date usually delayed significantly from the date of performance. This delay creates an obvious financial disadvantage for the seller.

The buyer, who may record numerous transactions daily, must record receipt of the goods for each invoice and follow each invoice through the accounts payable department until payment is sent on the payment date. Furthermore, the buyer's accounts payable department may be further frustrated by receiving orders on the same day that have different payment dates and many different sellers. Thus, the buyer is burdened with tracking invoices and creating payments to numerous different sellers as a daily course of business.

SUMMARY OF THE INVENTION

A system and method for settling trades in a digital merchant exchange includes a buyer, a seller, a transaction agent, a network and a capital pool. The buyer and seller communicate through the network to agree on a contract. When the goods are received or the services are performed, the buyer issues a negotiable instrument that is received by the transaction agent. The transaction agent communicates with the buyer, seller, and capital pool through the network and facilitates the settlement of the trade. The system may call upon the capital pool to provide liquidity so that the system can issue payment to the seller at a time prior to the maturity date of the negotiable instrument.

One aspect of the invention comprises an apparatus and method for providing liquidity to a seller who has provided value to a buyer. The apparatus includes a receiving module, and a calling module. The receiving module is configured to receive a negotiable instrument from the buyer. The calling module is configured to call upon a capital pool to purchase an interest in the negotiable instrument and to send a portion of the value of the negotiable instrument to the seller prior to the maturity date of the negotiable instrument.

Another aspect of the invention provides an apparatus and method for distributing payment to a seller who provides value for a contract. The apparatus comprises a negotiable instrument, a notification, a verification module, a certification module, and an order. The notification comprises a receipt of the consideration from the seller. The verification module is configured to verify that the negotiable instrument and the notification are responsive to the consideration. The certification module is configured to present the verified negotiable instrument and the notification to the seller prior to the maturity date of the negotiable instrument. The order to pay the value of the certified negotiable instrument matures on the maturity date.

Yet another aspect of the invention provides an apparatus and method for extending the payment term to a buyer who has received value from a seller. The apparatus comprises a receiving module configured to receive a negotiable instrument, a certification module, and a liquidity module. The negotiable instrument is received from the buyer and has an extended maturity date. The certification module certifies that the negotiable instrument is responsive to the receipt of the value. The liquidity module is configured to liquidate the negotiable instrument. Thus, the seller receives funds before the maturity date of the negotiable instrument.

Another aspect of the invention provides an apparatus and method for providing liquidity to a seller who has provided value to a buyer. The apparatus includes a negotiable instrument, and money for the purchase of the negotiable instrument. The negotiable instrument is issued by the buyer and received by the seller for the value. The negotiable instrument has a maturity date on a future date and is redeemable from the buyer. The negotiable instrument is purchased from the seller where the amount of money tendered to the seller is a portion of the amount of money represented in the negotiable instrument.

DETAILED DESCRIPTION OF THE DRAWINGS

Turning now to the drawing figures,FIG. 1is a schematic system diagram of the preferred embodiment of the present invention. A system10includes a seller12, a buyer14, a transaction agent16, a network18, and a capital pool20. The buyer14and seller12communicate through the network18to agree on a contract. The transaction agent16communicates with the buyer14, seller12, and capital pool20through the network18to settle the trade established by the contract.

After the seller12completes the required performance under the contract between the buyer14and seller12, the buyer14sends a notification and a promissory note (PN) to the transaction agent16. The notification can include the price and quantity of the goods or services provided in the contract, or other relevant information. The PN is a negotiable instrument that is a promise to pay the amount of money stated on its face. The transaction agent16will then certify to the seller12that it has received the notification and the PN settling the amount referenced in the notification. This certification can take the form of an electronic certification such as a digital certification. The seller12may wait for the certified promissory note (CPN) to come to term and collect the payment for goods or services on the appropriate maturity date, or alternatively, may engage the transaction agent16to sell the CPN or an interest in the CPN on behalf of the seller12.

In order to collect the money on the maturity date, the transaction agent16may also receive a bank draft before the maturity date of the CPN. The bank draft is an order to pay the amount of money for the CPN on the due date. The transaction agent16can thus secure the collection of the money on the due date by receiving the bank draft prior to the date the CPN matures. When the bank draft has been honored, the transaction agent16will disperse the funds to the interest holders of the CPN. Additionally, the bank draft may represent multiple transactions for the buyer. The transaction agent16may receive a bank draft that is an order to pay multiple transactions for one or more sellers12.

The seller12can be a merchant who is selling goods or services to the buyer14. The seller12negotiates a contract with the buyer14. This contract may be formed through the network18or may be completed off line. Once the seller12delivers the goods or services to the buyer14, the seller12receives the certification from the transaction agent16confirming the buyer's acknowledgement of performance of the contract, as well as confirmation of receipt of the PN equivalent to the monetary amount of the contract. The seller12then determines to wait for the maturity date of the CPN to occur, or to order the transaction agent16to sell the CPN or an interest in the CPN and deposit the proceeds from the sale into the seller's account. If the seller12waits for the maturity date of the CPN, then the transaction agent16performs a custodial function and maintains possession of the CPN until the maturity date at which time liquidity will be provided by the buyer.

If the seller12would rather have immediate access to liquidity, then the transaction agent16calls on the capital pool20to provide the liquidity to the seller12. The capital pool20provides the liquidity for the transaction agent16to pay the seller12, and thus the capital pool20purchases the CPN or an interest in the CPN. If the CPN is completely purchased by the capital pool20, then the transaction agent16can retain custody of the CPN under an agency agreement with the transaction agent16. The amount paid to the seller may be a portion of the total amount of the CPN or may be the entire portion of the CPN, depending on the agreement between the capital pool20and the seller12. A portion of the CPN may be withheld as a holdback until the maturity date, and a finance fee may also reduce the payment amount. The transaction agent16can then deposit the payment amount into an account of the seller12.

Accordingly, the transaction agent16knows the identity of the banking institutions for both the buyer14and the seller12, and the appropriate account information for both of these participants. The transaction agent16presents the bank draft to the bank of the buyer14for collection. Following collection, the transaction agent16can then distribute the money to the seller12, or to the interest holders of the CPN such as the capital pool.

The network18may comprise a number of smaller networks located between the capital pool20, the seller12, the buyer14, and the transaction agent16. For example, the seller12may communicate with the buyer14through a private buyer-seller network through a proprietary network architecture. The transaction agent16may contact the seller12through a local area network (LAN) that is isolated from the buyer-seller network, and may employ standard TCP/IP protocol. The buyer14may communicate with the transaction agent16through a wide area network (WAN) that connects a plurality of distribution centers of the buyer14so that the buyer14can track receipt of goods, or performance of services, at a number of processing facilities. Furthermore, these communications may be sent across the Internet using security measures, such as an SSL layer, to ensure a level of confidentiality. Thus, the generic network18may represent a number of smaller networks that may or may not facilitate communication between all of the participants.

Turning now toFIG. 2, a flowchart showing steps of the preferred method of the present invention is shown leading up to the liquidation of a CPN will be described in further detail with reference to the system ofFIG. 1. The method begins in step30. The buyer14enrolls with the transaction agent16in step32. The transaction agent16then receives a list of sellers from the buyer14in step34. In step36, the transaction agent16retrieves enrollment information for each of the sellers12on the list of sellers and enrolls the sellers with the transaction agent16. The transaction agent16receives a notification from a buyer16and certifies that transaction in step38. The transaction agent16then liquidates a part or all of the CPN according to the instructions of the seller12in step48and issues payment to the account of the seller12. In step52, the transaction agent16collects on the bank draft and disburses the funds according to the interest holders of the CPN. The method ends in step54.

The setup steps30,32,34,36include general information that is exchanged between the transaction agent16and the buyers14and sellers12. The general information includes routing numbers for accounts, name and address of the business, and documentation for agency appointments between the buyer14and the transaction agent16, and the seller12and the transaction agent16. The setup steps30,32,34,36initiate the relationships between the participants so that future trades may be settled by the transaction agent16.

The certification step38verifies that the transaction has occurred by comparing the notification received from the buyer14to the PN sent by the buyer14, and notifies the seller12that the promise to pay, in the form of the negotiable instrument, has been received by the transaction agent16. These documents contain the information that settles a trade between the buyer14and the seller12. The information may include the quantity of the goods, the price of the goods, the value of the services, a settlement date, buyer and seller business information, commodity taxes as computed by the buyer14, and any other identifiers for the trade. The transaction agent16verifies these documents against one another so that the agent16may be sure that the documents represent the same trade. Thereafter, a CPN is generated and the seller12is then notified of the certification of the trade by the transaction agent16. If the documents do not match, then the transaction agent16does not recognize the trade as a valid transaction. The transaction agent16awaits further promissory notes and notifications until a pair of these documents can be matched to form a trade.

The liquidation step48includes the steps taken by the transaction agent16to provide liquidity to the seller12against the value of the CPN. The transaction agent16then acts on behalf of the seller12to access the liquidity provided by the capital pool20. The seller12may wish to collect the payment immediately or wait for the maturity date. If the seller wishes to liquidate the CPN prior to the maturity date, then the seller12will issue a notice to the transaction agent16to sell at least a portion of the CPN. The seller12may automate this process, in which case the transaction agent16does not have to wait for a decision by the seller12. Instead the transaction agent12may immediately sell a portion of the seller's interest in the CPN to the capital pool20and issue the payment to the seller's account on behalf of the capital pool20. On the maturity date, the transaction agent16collects the value of the PN by calling on the buyer to pay the value of the PN, and then the transaction agent16disburses the money to the interest holders of the CPN.

FIG. 3is a schematic diagram of the transaction agent16ofFIG. 1and will be described in further detail with regard to the system ofFIG. 1. The transaction agent16includes a PN and notification module70, a bank draft module72, a liquidity module74, a collection module76, and storage78. The PN and notification module70communicates with the buyer14to receive the PN and the notification, and then certify these documents. The bank draft module72receives a bank draft from the buyer14, verifies the draft amount, and cashes the bank draft when the maturity date arrives. Once the trade is settled, then liquidity for the seller is provided through the liquidity module74. The liquidity module74communicates with the seller12to determine the actions the seller12wants the transaction agent16to proceed to liquidate the CPN. The liquidity module also tracks the title of the CPN so that if the CPN is sold, the liquidity module74can update the title information. Similarly, the liquidity module74may also track interests in the CPN. Once the maturity date arrives, the collection module76communicates with the bank draft module72to secure the money from the account of the buyer14and distribute the money to the interest holders of the CPN.

The PN and notification module70includes a receiving module80, a verification module82and a certification module84. The receiving module80communicates with the buyer14and receives trade notifications and PNs that are sent from the buyer14. The verification module82determines if the received PN or notification matches any of the previously stored notifications or PNs. If a PN and notification pair are found that match, then the certification module84certifies the trade and issues a CPN for the seller12. The PN and notification are stored in storage78until the seller12determines whether he will liquidate the CPN prior to the maturity date or retain custody of the CPN until the maturity date arrives.

The liquidity module74includes a receiving module90, a CPN notification module92, a disbursement module94, a title and interest transfer module96, and a holdback module98. The CPN notification module92transmits the certification to the seller12. The receiving module90communicates with the seller12and receives instructions for holding or liquidating the CPN prior to the maturity date. The receiving module90may also receive an instruction from the seller12to automate the liquidation process and always sell a CPN. The disbursement module94transmits the money received from the capital pool20arising from the sale of a portion of the CPN to the seller's account. If the CPN was purchased outright by an interest in the capital pool20, then the title and interest transfer module96transfers the title of the CPN from the seller12to that interest in the capital pool20. If a portion of the CPN is purchased by an interest in the capital pool20, then the liquidity module74will note the partial purchase and provide the information to the collection module76which distributes to the partial holder his portion when the maturity date arrives. The holdback module98manages the holdback during this period, and also forwards the holdback to the seller12on the maturity date of the CPN.

The collection module76includes a draft module100, a calling module102, a holdback module104, and a distribution module106. The draft module100notifies the bank draft module72when the maturity date arrives. The calling module102calls upon the capital pool20to provide liquidity to the transaction agent16, who can then forward the liquidity to the seller12. The distribution module106retrieves the bank draft from the storage78, and receives the money from the bank draft module72when the draft is cashed. Once the money is received, then the distribution module106distributes the money to the interest holders of the CPN. The interest holders may be participants in the capital pool20or other investors who have otherwise purchased a part of the CPN. If a holdback was kept from the seller12, then the holdback module104forwards the holdback to the liquidity module74when the money from the draft is received. The liquidity module74subsequently forwards the holdback to the seller12. Once the money is collected and distributed the PN can be returned to the buyer14through the bank draft module72.

The bank draft module72includes a receiving module110, a verification module112, and a transmitting module114. The receiving module110receives from the buyer14a bank draft as future payment for the PN. The verification module112determines if the amount of the bank draft matches the amount of the CPNs that will mature on the date that the draft is issued for. If the amount is different, then the transmitting module114reports the error to the buyer14. When the maturity date arrives, then the bank draft module72functions to collect the money for the draft.

The bank draft module72calls upon the buyer14on the maturity date to collect the money. The transmitting module114transmits the bank draft to the buyer's bank. The receiving module110receives the money from the buyer's bank. The verification module112determines if the money received represents the amount of the bank draft. Once the amount is verified, then the money is passed to the collection module76which distributes the money to the interest holders of the CPN. Once the obligations of the buyer14to the interest holders is satisfied, then the transmitting module114of the bank draft module72can return the PN to the buyer14so that the buyer14can retain proof that his obligations have been satisfied.

The transaction agent16thus includes modules that certify the CPN, liquidate the CPN, collect money on the bank drafts, and disburse the money to the interest holders of the CPN. In some embodiments, the storage78of the transaction agent16also includes secure storage so that these documents can be protected while the transaction agent16retains custody of the documents.

FIG. 4is a schematic diagram of information that is transferred between parts ofFIG. 1. This information is passed from the parts during contract inception and the certification process of the system. The information includes a contract150, a PN and a notification generally indicated together at151, a bank draft154, an error statement156, a bank draft correction158, and a certification160. The contract150is formed between the seller12and the buyer14. The PN and notification151, the bank draft154, and the bank draft correction158are sent from the buyer14to the transaction agent16. The error statement156is sent from the transaction agent16to the buyer14, and the certification is sent from the transaction agent16to the seller12. Each of these communications is responsive to information that is needed by the receiving party in order to complete the transaction.

The contract150is formed between the seller12and the buyer14. The contract150may include terms and conditions that are agreed to by both the buyer14and seller12. The terms and conditions of the contract150may also include an extended payment period for the buyer14. The extended payment period can be offered because the issuance of the PN allows the seller12to choose to receive liquidity on or about the date of performance of the contract150, and thus make the payment term less critical to the seller12.

The PN is a negotiable instrument that is transmitted from the buyer14to the transaction agent16once the consideration has been received from the seller12. The PN and the notification151may be sent individually to the transaction agent16. The PN is a promise to pay the value of the PN in settlement of the trade established by the contract150, and further includes the names of the issuer (the buyer14) and the holder (the seller12). The PN is uniquely identified so that if the notification is sent separately, the notification may use such identification to match the documents thereby authenticating these documents. The notification may include such information as receiving documents, quantity, and any commodity taxes due on the consideration. While the PN is a promise to pay, the bank draft154is an order to pay.

The bank draft154is sent from the buyer14to the transaction agent16to facilitate the payment obligation of the buyer owed to the interest holders of the CPN. The bank draft154includes the amount of money to be withdrawn from the buyer's account, the date on which the amount will be withdrawn, and the relevant account information for the withdrawal. Once the bank draft154matures, the transaction agent16will collect the money from the buyer's account. If the amount noted in the bank draft154does not match the amount called for in the CPNs that will mature on the same day as the bank draft154, then the error statement156is generated and the bank draft correction158is issued by the buyer14.

When the PN and the notification151are received by the transaction agent16, the transaction agent16generates the certification160that is sent to the seller12. The certification is the CPN and can include a copy of the PN and the notification151so that the seller12can update his records.

FIG. 5is a flowchart of the certification step ofFIG. 2and will be described in detail with reference toFIGS. 1 and 3. The method starts in step200. The contract150is formed in step202between the buyer14and the seller12. Consideration is delivered in step204from the seller12to the buyer14. The buyer14then issues a PN and/or the notification in step206. The PN and/or the notification is received in the receiving module80located in the transaction agent16ofFIG. 3. The receiving module80stores the PN and/or the notification in storage78in step208. Step210determines whether the stored PN matches any of the stored notifications. If the PN does not match, then the method waits for another PN and/or the notification in step206.

If the stored PN does match, then the verification module82verifies the PN and sends the CPN to the certification module84in step212. The certification module84notifies the seller12that the PN has been certified in step214. The buyer14sends a bank draft to the draft receiving module110of the transaction agent16in step216. The bank draft may be received at the same time as the PN, or may be delivered at some time up to the maturity date of the CPN. The draft receiving module110then stores the bank draft in step218, for example storage78ofFIG. 3.

Step220determines whether the bank draft matches the CPN total for the maturity date. If the total does not match the CPN total, then the draft verification module112notifies the buyer14in the step222that the totals do not match. The buyer14then issues a bank draft correction in step224that is received by the draft receiving module110. The verification module112then checks the totals again in step220, and if the totals match, then the method ends in step226.

The buyer14may have issued many PNs that mature on the same date. The buyer14may then produce a single bank draft for all such PNs that mature on the same day. In this manner, the buyer14may minimize any transactions fees imposed by its bank by settling many trades with the draft. Although the bank draft facilitates the collection step, the transaction agent16does not have to receive the bank draft before liquidating the CPN152.

FIG. 6is a schematic diagram of information that is transferred between parts ofFIG. 1during the liquidation step ofFIG. 2. The information includes a notice to sell240, a notice of custodian for the CPN242, money less holdback and fees244, a holdback certificate246, and a title and interest transfer notification248. The seller12sends the notice to sell240to the transaction agent16. The transaction agent16sends the capital pool20the notice of custodian for the CPN242. The capital pool purchases or acquires an interest in the CPN from the seller facilitated by the transaction agent16and returns money less holdback and fees244and the holdback certificate246to the transaction agent16which acts on behalf of the seller12. The money less holdback and fees244are then forwarded to the seller12from the transaction agent16, which, if required, then notifies the buyer14that the title has been transferred in the title transfer notification248.

The capital pool's fees that are taken from the sale or transfer of an interest in the CPN represent the finance cost and profit to the capital pool20. The amount of the fees may vary depending on the buyer14and seller12. The holdback is used as collateral for performance by the buyer. The transaction agent16may also take a fee from the money that is sent to the seller12. The holdback certificate246represents a subordinated interest on the part of the seller12in the liquidated CPN. This certificate246is likewise stored in the storage78of the transaction agent16to be collected upon by the seller12when the maturity date arrives.

FIG. 7is a flowchart of the liquidation step ofFIG. 2and will be described in detail with reference toFIGS. 1,3and6. The method begins in step260. The seller12sends a notification to sell an interest in the CPN to the liquidity receiving module90in step262. The liquidity receiving module90stores the sell order240in storage78in step264. Once the sell order240is received then the CPN notification module92, if required, sends the notice of custodian242to the capital pool20in step266. The disbursement receiving module94receives money from the capital pool20for the CPN in step268. The amount of money paid by the capital pool20to the seller is net of the fees charged by the capital pool and also less any holdback.

The hold-back is received and stored at step270in storage78by the holdback receiving module98. The disbursement module94then forwards the money less fees and holdback244to the seller12, thus liquidating the CPN in step272. After the CPN is liquidated, and, if required, the title of the CPN is transferred from the seller12to the capital pool20in step274by the title and interest transfer module96, the CPN is then replaced in storage78. The title transfer module96then sends a notification of title transfer248to both the buyer14and capital pool20in step276, if required. The method ends in step278.

The process of liquidation provides the seller12with a means of collecting all or a portion of a claim against a buyer14on or about the date of seller's performance. This enhanced liquidity allows the seller12to benefit financially. Also, because his cost for extending terms to a buyer14is diminished, the seller12may extend those terms to the buyer14. Thus the buyer14can use additional time to generate the revenue to pay the obligation under the PN.

The liquidation process is facilitated by the PN. The PN is a promise made by the buyer14to pay the amount stated. The seller12is not forced to find a source of funding based on his receivables account, but can instead use the CPN as a source of liquidity. The buyer14is obligated to pay pursuant to the PN, regardless of any claims of merchantability, express or implied warranties, or any change in business status of the seller12. The system therefore enables the capital pool20to purchase the CPN primarily based on the financial strength of the buyer14, and only to a limited extent on the financial strength of the seller12.

For example, a small farmer (seller12) regularly sells produce to a large supermarket chain (buyer14). The chain can issue a PN to the farmer which the farmer can then sell in the form of an interest in the CPN to the capital pool20. The capital pool20does not have to risk business fluctuations that may effect the small farmer, but instead bases its decision to purchase the CPN based primarily on the strength of the supermarket chain. Thus, the system has transformed the financing of the trade from a loan on accounts receivable of a small farmer to a purchase of an interest in a certified negotiable instrument issued by a credit-worthy supermarket chain. The capital pool20can provide liquidity over and above the amount provided by conventional alternatives because the capital pool20will derive its security based primarily upon the future performance by the buyer of its obligations under the PN. The buyer14receives the extended terms for the trade and is able to generate the required revenue to pay for the PN.

FIG. 8is a schematic diagram of information that is transferred between parts ofFIG. 1during the collection step ofFIG. 2and will be discussed with respect to these figures. The information includes interest holders290of the CPN, the bank draft154, the money293from the buyer's account, and the PN152. The transaction agent16sends the bank draft154to the buyer's bank who then sends the money293to the transaction agent16. On behalf of the buyer14, the transaction agent16then forwards the money less holdback292to retire the buyer's obligations due to interest holders290, and, on behalf of the capital pool, the transaction agent16may distribute the holdback294to the seller12. Once the money has been distributed, then the transaction agent16may return the PN152to the buyer14.

The interest holders290, for example, may be members of the capital pool20who purchased the CPN or an interest in the CPN during the liquidation step. The interest holders290may fully own the PN152, in which case the title and interest transfer module96would have updated the title of the PN152to reflect this ownership. Or, the interest holders290may only own a portion of the PN152, in which case the collection module76would distribute the money on the maturity date based on the partial ownership of the PN152.

FIG. 9is a flowchart of the collection step ofFIG. 2and will be described in detail with reference toFIGS. 1 and 3. The method starts at step300. The due date arrives in step302. The bank draft is retrieved from storage78and sent to the collection draft module100in step304. The collection draft module100sends the bank draft to the buyer's bank in step306. The buyer's bank then sends the money293to the bank draft receiving module72in step308. Once the transaction agent16has received the money293, the distribution module106of the collection module76distributes the money less holdback292to the interest holders290in step310. The holdback is delivered to the seller12in step312by the holdback module104of the transaction agent16on behalf of the capital pool20. Once the money has been disbursed, the PN is retrieved from storage78and sent to the bank draft verification module112in step314. The bank draft certification module112certifies that the disbursement has satisfied all obligations of the buyer14in step316, and forwards the certified paid PN to the bank draft transmitting module114. The bank draft transmitting module114then returns the PN to the buyer14in step318, and the method ends in step320.

The collection method is processed by the transaction agent16. This process allows the buyer14and the seller12to minimize their participation in the accounts payable and accounts receivable departments, respectively. The seller12is not waiting for an outstanding balance to be forwarded to him because he had liquidated the transaction during the liquidation process. The buyer does not have to keep track of the transaction in the accounts payable department because he had finalized his payment of the transaction when he had made the promise to pay in the PN152. The buyer14then was able to control the payment of the transaction the day the goods arrived, or the services were delivered, instead of having to wait for invoices and processing the invoices against docking slip, receivables, etc., and thus the buyer's control of the process is increased.

The above description and accompanying drawings are illustrative in nature. One of ordinary skill in the art can recognize various changes or modifications that may be made without departing from the scope of the present invention.