The document discusses the Orbian e-financing and payment system, a joint venture between Citigroup, DCE, and SAP. The Orbian system allows buyers and suppliers to conduct electronic business transactions and payments using "Orbian Credits", which offer benefits over traditional cash-based payments by improving liquidity and payment terms for both parties. SAP has integrated the Orbian process into its financial software, enabling automated payment processing and reconciliation within the SAP system. The system aims to improve organizational productivity, performance and profits through streamlined electronic financing and settlement of business transactions.

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Archive » 2001 (Volume 2) » October (Issue 4)
E-Financing and Settlement with mySAP.com: Electronic
Trading in the New Economy Using Orbian Credits
by Richard Page, SAP AG
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 business processing.
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 and supplier.
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 borrowing.
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 maturity date
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.
Figure 1Payment 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.
Figure 2Payment 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.
The Benefits
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 pricing. In addition, buyers reap
significant savings by streamlining accounts payable and automatic open item
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2. reconciliation, combined with reduced bank fees.
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.
Operational Implementation
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, visit www.sap.com/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 richard.page@sap.com
Orbian Corp. is a U.S. company with offices in New York and London. For
more information on Orbian, visit www.orbian.com.
October 01, 2001
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