Dynamic Trade Debt Discounting via Forward Auction
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Solution Overview
Problem
Conventional discounting systems for trade debt lack precision and automation, failing to adapt to the dynamic financial situations of debtors and creditors, leading to suboptimal credit terms.
Innovation Solution
A computer-implemented method and system for conducting a payment auction that receives bids from multiple bidders with associated discount rates, determines eligibility based on these rates, and allocates portions of a payment goal to bids with higher discount rates, allowing for dynamic adjustment of credit terms in real-time.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If conventional discounting arrangements with fixed terms are used, then standardization and simplicity are maintained, but adaptability to dynamic financial situations and precision in discount management deteriorate
Solution Approach 1:
The patent implements dynamic discounting where discount rates are not fixed but can be adjusted in real-time based on bidder submissions. The system allows creditors to receive bids with different discount rates and select the most favorable terms, transforming the static discounting process into a dynamic, adaptive mechanism that responds to current financial conditions of both debtors and creditors.
Solution Approach 2:
The system changes the discount rate parameter from a predetermined fixed value to a variable that can be submitted and adjusted by multiple bidders. This parameter change enables the discount rate to reflect current market conditions and financial situations, allowing both debtors and creditors to optimize their positions based on real-time factors.
2Productivity
If manual processing of discounting terms is used, then system simplicity is maintained, but processing speed and automation level deteriorate
Solution Approach 1:
The patent replaces manual mechanical processing of discounting terms with an automated electronic auction system. The system automatically receives bids from multiple bidders, compares discount rates, determines eligibility, and notifies participants of results without manual intervention, dramatically increasing processing speed while achieving high levels of automation.
Solution Approach 2:
The system enables self-service processing where the auction platform automatically manages the entire discounting process including bid collection, evaluation, and result notification. This eliminates the need for manual processing while maintaining system simplicity through automated workflows that handle complex comparisons and determinations without human intervention.
3Measurement precision
If fixed discount rates are offered to all bidders, then ease of operation is maintained, but precision in tailoring credit terms to individual financial situations deteriorates
Solution Approach 1:
The patent applies local quality by allowing each bidder to receive customized discount terms based on their specific financial situation and bid submission. Instead of a uniform discount rate applied to all, the system enables individualized discount rates that reflect the specific circumstances of each debtor-creditor pair, achieving precision in tailoring credit terms while maintaining operational simplicity through automated bid processing.
Data Source
AI summary
A system and method for dynamically discounting trade debt through the use of a forward auction is provided. In one example, a system that allows a seller to auction inventory to a plurality of bidders. According to this embodiment, the system may determine eligibility for acceptance of bids submitted by the bidders and a plurality of bids may be determined to be eligible for acceptance. Further, a margin by which the bids are acceptable may be determined and a representation of the margin may be communicated. In another example, a method is provided for discounting debt using an auction system. According to this embodiment, a seller may configure an auction event with auction parameters, such as hurdle rates, that will best serve the goals of the auction. The seller may alter event parameters while the event is ongoing, thus further enhancing the ability of the seller to meet auction objectives.