Business Background to Agency Business

Business Fields

Pooled Payment

Pooled payment is a type of third-party business in retail in which business deals between vendors and customers are assigned and handled by a buying group:

The buying group (payment agent) negotiates central prices and conditions when goods are purchased from a vendor. These prices are valid for all the members (customers) in the buying group. When deals are agreed upon, the vendor and the customer draw up a purchasing agreement. The buying group normally uses a del credere to cover payment to the vendor when goods are ordered. The vendor is legally bound to process payment handling via the buying group. The buying group is, therefore, the central point of payment for all the debt generated by the members of the buying group when they purchase goods. The buying group charges a central payment charge for transferring payment and grouping invoices – it also assume a del credere commission for the indemnity bond. The vendor normally pays for the commission.

When it comes to payment processing, the buying group receives the invoices directly from the vendor, enters them and settles the vendor invoices and bills the buying group at the end of each period:

• The member pays the total amount for periodical settlement to the payment agent.
• The buying group pays all incurred statements minus a central payment fee and, if necessary, a del credere commission to the vendor.

Brokerage

Factoring is a financial transaction between a specialist finance institute (trader) and a vendor. The trader purchases the receivables from goods deliveries and services from the vendor at regular intervals or on a once-off basis and then assumes responsibility for the management of these transactions. When handling payments, it is a standard procedure that the payment moves from the trader to the vendor before payment from the customer is received by the trader. The advantages of this procedure for the vendor’s company is that it is easier for management to monitor planning and controlling.

The trader has the following function:

• Finance function

The vendor receives the receivable amount from the vendor, minus a trading charge, interest and limit charges.

• Service function

Trader assumes responsibility for all management tasks, for example, billing, accounting, dunning and collections.

• Del credere function

The trader assumes del credere.

Payment Card Handling

Customer cards are processed when a private customer purchases merchandise from a retailer and pays for merchandise using a customer card (debit or credit card). The retailer receives a promise of payment from the credit institute, guaranteeing payment of the purchase price minus charges. At a defined time, the retailer passes the data for all customer card transactions to the credit institute. The credit institute then transfers the total amount plus discounts to the retailer. The credit institute enters the data in the system and creates settlement documents that are sent to the customer card holders. This is done on behalf of the banks that have issued the customer cards to the relevant customers.

Trading Business:

Trading is a form of third-party business and represents almost 40% of all business done by large retailing companies in Japan:

A retailer initially assumes the function of a broker and negotiates between the business partners customer and vendor, meaning that the retailer assumes responsibility for immediate contact with both groups. When negotiations have been successful, a sales contract is signed by customer and vendor. Unlike in pooled payment, the customer pays the invoice amount direct to the vendor. The retailer receives a commission for the brokerage services. This commission is normally paid by the vendor (in exceptional circumstances, the customer may also pay a certain amount of commission for this service.) At a later stage of negotiations between the vendor and the customer, the retailer is only informed about a complete business deal and also receives commission.

As the retailer only operates as a broker in this type of transaction and is not involved in the payment flow, the retailer does not have to create invoices or documents from the vendor. In all other processes, open item accounting is used on both the credit and debit side.

Mapping in System

To fulfill customers‘ requirements, Agency Business uses independent logistics documents that contain information about both the vendor and the customer:

• Settlement request document and settlement request list/posting list or settlement request list/customer settlement document

Contain inbound invoices from vendors.

• Vendor billing document or expense settlement document

Contain ad hoc remuneration and debits for vendors and/or customers.

• Del credere settlements in pooled payments require this type of document so that del credere obligations can be clearly separated from those resulting from purchases.
• Expenses relating to different business partners are generated in export and import deals.

• Remuneration list and extended remuneration list

Bundles commission settlements for customer or vendor can be grouped in remuneration lists and posted on specific dates.

For further information about mapping Agency Business in your system and integration with other components, see Agency Business.