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Subject: RE: [ubl-dev] Modeling multiple possible invoice totals based on payment means
Invoiceless trading does work exceptionally well, but in very restricted circumstances. The best example that I have is the UK securities industry. In 1979, when the London Stock Exchange introduced its Talisman system, invoices (contact notes) between stockbrokers and jobbers(principal dealers) were abolished. The basic principle being that each party to a transaction inputs their version of the deal that they have agreed to a central settlement counterparty and, as long as the primary (usually about 6) fields match, the settlement counterparty/bank is authorised to move funds between the parties on the agreed settlement date. In the early 1990's the LSE tried to update this system with a replacement called Taurus. This was an industry-wide project that ended up being pulled one week before its launch date. The ramifications of this were immense. The project had been too complex, trying to build in industry bad habits as 'market norms'. The Bank of England came riding to the rescue and in a bold industry meeting in 1993, IT directors and Chief Executives were told that the B of E would introduce its CREST settlement system in 1995, and that they better all accept this or go out of business. CREST was to be a very basic settlement engine exchanging money for the delivery of stock. The system had few bells and whistles when it started and, miraculously, was brought in on time and on budget. Even with the complexities of delivering title to securities, CREST settles in excess of 300,000 trades every single day - some £30bn in value each day! These trades typically settle in full 3 days after trade date and in some circumstances on the day following trade date. It is hugely efficient and one of the great payment infrastructure successes of the last decade. Compare this with the 30+ days that industrial/commercial companies take to process invoices. Why was it such a success? In my opinion, this was because there were a finite number of participants in the industry (less than 200 initial CREST members). They were all trading an external, industry defined product that was built into all of their back office systems. Legislation was passed to enable legal title in the securities to pass at exactly the moment of settlement. All participants were financial institutions and had solid balance sheets. All participants were told from the outset that they had no option other than to join and that if they didn't they would be out of business the day after CREST was introduced. Everybody joined, everybody invested in systems and as a result a whole industry benefitted. In essence, there was no disconnect between the payment system of one participant and the receivables system of another as outlined in Fulton's response as being the major problem in invoice settlement processing. I am aware that some major financial institutions are advocating the creation of settlement hubs for commercial/industrial companies based on similar lines to CREST. This will be difficult unless all participants in the supply chain join, unless there is a commonly defined product to trade, unless the delivery of the product and therefore the legal liability to pay can be evidenced within the settlement system and unless all of the back-end systems have automated connectivity to the settlement system. Andrew
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