Patent Application
20140372261
1. Field of the Disclosure
The present disclosure relates to a system and/or a method for determining needs of a business for financial products, and the ability of the business to utilize such financial products. More particularly, the present disclosure relates to a system and/or a method of determining which business can profit from using a financial product.
2. Description of the Related Art
In the normal course of operation, a business accumulates accounts receivable and accounts payable. The amount of each, the time needed to collect accounts receivable, and the specific dates when accounts must be paid, can all have a profound effect on the operation of the business and its profitability.
There are specific financial products available on the market that can assist a business to speed up the collection of receivables. A simple example is the acceptance of payment cards, which can assure a merchant of being promptly paid.
One traditional assessment is the opportunity assessment: whether a business should use one of these financial products based entirely on the volume of the business. However, volume is not necessarily representative of whether a particular financial product can help a business, or whether a business can afford the product. For example, the acceptance of a credit card payment from a customer of a business will speed up collection of accounts receivable, but imposes a charge of approximately two to three percent on the payment. If the gross margin of the business is very small, then the business may be less inclined to accept the financial product.
Thus, there is a need for a more sophisticated approach to determining whether a business should use a particular financial product in its operations. The use of a better approach not only assists a business in evaluating whether to use a particular financial product, but also assists those selling or recommending a financial product in targeting businesses that can most profit from that financial product.
The present disclosure provides a system and/or a method for determining whether an organization, such as a business, or a group of such organizations, can profit from a particular financial product based on the need of the organization or business for the product, and the ability of the business to use the product. The need is greatest for an organization with a slow average payment time, i.e. customers that pay slowly or not at all. The ability of the organization to pay for the financial product is greater when gross profit margin is high and there is an ability to afford the acceptance cost of the financial product.
The present disclosure also provides that the system and/or method can evaluate based on a group of businesses in a particular category, such as, by way of example, only, the North American Industry Classification System (NAICS) category, or businesses all having the same NAICS code.
The present disclosure still further provides that the system and/or method can, in order to decide whether a financial product sale organization should target one or more particular industries or businesses, evaluate total sales volume and sales of a given organization.
The present disclosure in another embodiment provides a computer readable non-transitory storage medium storing instructions of a computer program which when executed by a computer system results in performance of the methods disclosed herein.
A component or a feature that is common to more than one drawing is indicated with the same reference number in each of the drawings.
Referring to the drawings and, in particular,
Computer 105 includes a user interface 110, a processor 115, and a memory 120. Computer 105 may be implemented on a general-purpose microcomputer. Although computer 105 is represented herein as a standalone device, it is not limited to such, but instead can be coupled to other devices (not shown) via network 130.
Processor 115 is configured with logic circuitry that responds to and executes instructions.
Memory 120 stores data and instructions for controlling the operation of processor 115. Memory 120 may be implemented in a random access memory (RAM), a hard drive, a read only memory (ROM), or a combination thereof. One component of memory 120 is a program module 125.
Program module 125 contains instructions for controlling processor 115 to execute the methods described herein. For example, as a result of execution of program module 125, processor 115 can provide a score, that is an indication based on need and ability to pay. The indication illustrates whether an organization could profit from using a particular financial product. Such a financial product includes, but is not limited to, a payment card in the form of a credit card, a debit card, or a prepaid payment card.
The term “module” is used herein to denote a functional operation that may be embodied either as a stand-alone component or as an integrated configuration of a plurality of sub-ordinate components. Thus, program module 125 may be implemented as a single module or as a plurality of modules that operate in cooperation with one another. Moreover, although program module 125 is described herein as installed in memory 120, and therefore being implemented in software, it could be implemented in anyone of hardware (e.g., electronic circuitry), firmware, software, or any combination thereof.
User interface 110 includes an input device, such as a keyboard or speech recognition subsystem, for enabling a user to communicate information and command selections to processor 115. Specifically, data to be used to implement the methods described herein can be entered with user interface 110, or can be downloaded from a network 130. User interface 110 also includes an output device including, but not limited to, a display or a printer. A cursor control including, but not limited to, a mouse, track-ball, or joy stick, allows the user to manipulate a cursor on the display for communicating additional information and command selections to processor 115.
Processor 115 outputs to user interface 110, a result of an execution of the methods described herein. Alternatively, processor 115 could direct the output to a remote device (not shown) via network 130.
While program module 125 is shown as already loaded into memory 120, program module 125 may be configured on a storage medium 135 for subsequent loading into memory 120. Storage medium 135 can be any conventional storage medium that stores program module 125 thereon in tangible form. Examples of storage medium 135 include, but are not limited to, a floppy disk, a compact disk, a magnetic tape, a read only memory, an optical storage media, universal serial bus (USB) flash drive, a digital versatile disc, and a zip drive. Alternatively, storage medium 135 can be a random access memory or other type of electronic storage, located on a remote storage system and coupled to computer 105 via network 130.
Referring to
The present method can be implemented on the computer system of
In accordance with the present method, the following relationship is used to provide a score for whether an organization or business can profit from a financial product:
Total Score=Need Ranking*Need weight+Ability Ranking*Ability Weight
Need has components of the average number of days sales are outstanding (DSO) and bad debt ratio. DSO is the average number of days from when a sale is made until payment is received. If the average amount of time from invoicing until collection is too long, some organizations can be very short on cash needed to meet expenses, and their balance sheets may be adversely affected (although other business may be able meet their expenses by financing). Thus, there can be adverse consequences. In those situations, the need for the financial product would be great. Bad debt serves as another indicator of “need”. Bad debt ratio can be measured in a few different ways (for example, as a percentage of sales, or as a percentage of accounts receivable) but ultimately it is a measure of what revenues a company is unable to collect. Companies with high bad debt ratios would want to consider credit card programs that offer them guaranteed payment where the credit card issuer is intermediating, and thus taking the bad debt risk. For purposes of this description, debt can be considered as bad when not paid after a predetermined number of days, such as for example, 90 days.
Total Score=Bad Debt Ranking*Bad Debt Weight+Average DSO*DSO Weight+Ability Ranking*Ability Weight
In this relationship, the following weights are assigned based on business intuition concerning relative importance of the factors. However, different weights may be selected based on experience, or based on the requirements of a particular industry. Thus, other weights may be used and found to be more accurate in certain circumstances. For example, some merchants may not closely track their acceptance costs but they may be very focused on their accounts receivable (i.e. need) issues.
Bad Debt Weight=0.4
DSO Weight=0.30
Ability Ranking=0.30
The relationship above becomes:
Total Score=0.4*Bad Debt Ranking+0.30*Need Ranking+0.30*Ability Ranking
Referring to
At 200, a need ranking can be established by the following relationships, as set forth in Tables I and II:
At 202, an ability ranking of the organization to pay for the financial product is determined by reference to Table III. The greater the gross margin, the greater the ability of the organization to pay the fees associated with a financial product.
The rankings in the above tables are based on Cross-NAICS Averages for DSO (52 days), gross margin (35%), and bad debt (3%) for a wide range of industries. Tables I, II, III are based on these averages, in that the average values fall in the range that provides a ranking of 3, in the respective table. The score will generally be obtained for a given industry. Thus, the score is derived for all businesses for which data is available having the same NAICS code.
At 206, a determination is made as to the business volume of the industry (or of a particular merchant, if the method is being used with respect to that merchant). If there is sufficient volume, then it generally can be assumed that the industry is worth exploring with respect to sales of a financial product to that industry,
At 208, a determination is made as to the percentage of sales volume that will use the financial product. For example, what percentage of the transactions will be made using a payment card. Source data useful for this analysis may include, but is not limited to, businesses with enterprise resource planning (ERP) systems, known percentages in a mature credit card industry, or secondary sources such as Wholesale Distribution Economic Reports (WDER) available from Modern Distribution Management (MDM) of Boulder, Colo.
If the volume of business that will use the financial product is significant, then a determination can be made at 210 as to which merchants are the top merchants, as measured by sales volume. A variety of industry data sources can be used to obtain the data required to make this determination. The top merchants can be, for example, the top ten merchants based on sales volume.
At 212, sales efforts for the financial product are directed to the top merchants as determined at 210, or to additional merchants having sufficient sales volume to justify sales efforts.
The columns in
Referring to
The total score for NAICS code 22111 is computed as:
The volume for total sales in NAICS code 22111 is $45.9 Billion. This is clearly worthy of sales efforts for a financial product that can be used by the buyers of goods and services and accepted by the sellers. In addition, the top ten code 22111 organizations can be targeted for sales as organizations that accept the financial product.
Thus, the model as described above, and as illustrated in the portion of the spreadsheet of
It may also be appropriate, in deciding which industries or businesses to target for sale of a particular financial product, to taking into account average transaction size, because business to business transactions over a certain dollar amount typically do not take place on payment cards. In general, companies with a high volume of lower value transactions will be more open to the use of a payment card under given pricing considerations.
It will be understood that the present disclosure may be embodied in a computer readable non-transitory storage medium storing instructions of a computer program which when executed by a computer system results in performance of steps of the method described herein. Such storage media may include any of those mentioned in the description above.
The techniques described herein are exemplary, and should not be construed as implying any particular limitation on the present disclosure. It should be understood that various alternatives, combinations and modifications could be devised by those skilled in the art. For example, steps associated with the processes described herein can be performed in any order, unless otherwise specified or dictated by the steps themselves. The present disclosure is intended to embrace all such alternatives, modifications and variances that fall within the scope of the appended claims.
The terms “comprises” or “comprising” are to be interpreted as specifying the presence of the stated features, integers, steps or components, but not precluding the presence of one or more other features, integers, steps or components or groups thereof.
