Productivity, performance, and profit - three areas that every
organization consistently tries to maximize. Historically, organizations
have used a range of initiatives including supply chain management
and enterprise resource planning. Now, they have turned to collaborative
With the emergence of the Internet,
new opportunities have arisen to further maximize these objectives.
One of these opportunities is the electronic financing and payment
of purchasing transactions between buyers and suppliers.
Global financial services company
Citigroup, British research and development company DCE, and SAP
came together to form Orbian,
a joint venture to launch a payment system for online business purchases.
The Orbian system delivers the ability to close the payment loop
electronically. Closing the loop can improve organizational productivity,
increase performance, and increase profits.
In today's cash-based world, buyers and suppliers have conflicting interests
when it comes to the costs of short-term funding. Buyers want to defer
payment as long as possible, while suppliers
want settlement of receivables in cash as soon as possible after shipping
the goods and sending the invoice. Every day earlier that suppliers can
get their funds is one less day that they have to borrow from potentially
costly sources. For buyers, every day that they can defer payment preserves
liquidity and reduces the need to borrow short-term working capital. The
Orbian system fulfills and reconciles the requirements of both the buyer
Orbian achieved this by developing a unique
new form of electronic payment obligation called an Orbian Credit. Orbian
Credits are liquid and highly flexible. They can be used to pay multiple
suppliers who receive immediate, non-recourse credit, and they can eliminate
the lengthy settlement processes that currently slow down the speed and
efficiency of e-business transactions.
How Orbian Works
First, both buyers and suppliers must
be Orbian members. A buyer orders
goods or services from its supplier.
The supplier then triggers the settlement process. This trigger could
be an electronic payment request over the Internet or a marketplace -
or even a traditional invoice. The buyer responds to this trigger by instructing
Orbian to issue a payment in the form of an Orbian Credit to its supplier,
with an agreed-on maturity date that is later than the trading partners'
usual cash settlement date.
In issuing the Orbian Credit, a transfer
of responsibilities occurs. The buyer has settled its obligation with
the supplier while simultaneously taking on an obligation to settle the
cash payment to Orbian at the maturity date. Through this process, the
buyer has deferred the payment at a cost that is lower than traditional
When the supplier receives the payment
from Orbian in the form of an Orbian Credit, it is a promise by Orbian
to pay the supplier on the maturity date. The supplier can use this Orbian
Credit in one of three ways:
- Use it to pay obligations to other suppliers by Orbian Credit
- Use it to discount all or part of the
Orbian Credit into cash before its maturity date
- Wait and receive the full cash
value of the Orbian Credit on its
Figure 1 takes you through each
of these options. The supplier benefits by obtaining access to the value
of its invoices at a much earlier date and at a lower cost than traditional
factoring or discounting. The service, the infrastructure, the payment,
and the trigger are all electronic, and they are all processed online
or in real time.
||Payment Process Using Orbian Credits
SAP has integrated the Orbian e-financing
and payment process into the mySAP Financials solution and the SAP Cash
Management component. This brings with it significant advantages in terms
of automatic payment processing. Within the SAP system, users can designate
open items for payment using Orbian Credits as the payment method, and
a payment run is then initiated (see Figure 2). This generates
a file that is subsequently uploaded to Orbian. The Orbian system processes
the payment and posts it to the supplier's account.
||Payment Process Using Orbian Credits
The daily Orbian statement is then downloaded
to the SAP system, where the postings are executed in the same way as
a bank statement, and the open items are cleared.
A buyer can significantly reduce its working capital requirements by
slightly pushing out payment terms to take advantage of the reduced finance
rates offered by Orbian. Alternatively, it could negotiate better product
In addition, buyers reap significant savings by streamlining accounts
payable and automatic open item reconciliation, combined with reduced
The supplier benefits from knowing that
payment is guaranteed on a specific date and that it can reduce the cost
of financing trade receivables by discounting the Orbian credit to cash
at competitive rates, thereby offering the supplier the ability to increase
available liquidity to 100 percent of its receivables. Alternatively,
the supplier can opt to transfer Orbian Credits to pay other members of
Orbian in its capacity as a buyer.
Using Orbian Credits this way enables non-rated or lower-rated suppliers
to enjoy certainty of payment and to credit-enhance their payables.
Back-office costs can be reduced by automating
processes: one payment can represent numerous invoices. Suppliers can
opt for automatic discounting to minimize their administrative burden
and further accelerate the collection cycle. Meanwhile, faster reconciliation
is possible because payment details are known well in advance.
Technology and Security
The Orbian system is a custom-designed application based on the SAP system.
It has been engineered for high-value, fully distributed transaction processing
on a 24x7 basis with seamless fail-over capabilities. The highest security
standards have been adhered to, and it exceeds the most stringent financial
services security standards currently available, utilizing smart card
security, public/private key encryption, password protection coupled with
inactivity timeout, exit buttons, and lockout for failing to log-on after
multiple missed attempts.
Secure business-to-business (B2B) integration
between SAP systems and Orbian is provided with an XML-
standard interface for system-to-system connectivity for online and real-time
processing of Orbian Credits.
Internet access is also available via a
web-enabled browser that can support file transfers for batch processing.
The SAP interface with Orbian shown in Figure 2 has been incorporated
into mySAP.com. Access is dependent upon prior registration with a sponsor
(a financial institution, bank, etc. that is registered with Orbian to
provide sources of credit). Implementation primarily involves the configuration
of parameters and setting of default values, such as Orbian-specific bank
account details. Installation and activation of smart card readers is
also required to gain access to the Orbian system.
For more information or for details on
becoming an Orbian member, visit www.orbian.com.
For more information on e-financing and settlement with mySAP Financials,
Richard Page has more than 20 years of
experience in the financial services sector. Since 1997 he has worked in corporate marketing for SAP AG, with responsibility for global marketing of SAP Insurance solutions and for the marketing of the SAP treasury offering. Richard is currently the director of business development for general business unit financials with special responsibility for Orbian. He can be reached at email@example.com
Orbian Corp. is a U.S. company with offices in New York
and London. For more information on Orbian, visit www.orbian.com.