Commercial credit line(C3)

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The crisis that began in 2008 in the financial and banking world soon turned into a major employment crisis. Much of the world economy and most of the jobs in the private sector are provided by small and medium-sized enterprises (SMEs). The survival of many of these companies was threatened by the cash flow problems of the downturn.

 

The problem

credit problem

Today’s paradigm is that SMEs rely on banks and other credit institutions when they need credit. The tightening of credit conditions has a negative effect on the whole economy, but especially on the small and medium-sized enterprise (SME) sector. These companies face particular challenges in order to continue operating, especially in times of economic downturn. Large companies, which can work up to 90 days in payment terms, are under great pressure from small and medium-sized enterprises to pay off their debts in less than 30 days. When banks do not provide bridging loans at all or tighten their terms, SMEs are trapped in a deadly cash flow . This has long been a problem in developing countries, but is now increasingly critical in developed countries.

 

The solution

The solution

The Commercial Credit Circuit (C3), like WIR, offers another way of providing liquidity at a much cheaper price than traditional methods. This is ensured by the mutual lending system of small and medium-sized enterprises , which includes the clients and suppliers of the companies and is assisted by an insurer . In exchange for a smaller fee, the insurer counteracts the business agreements to be concluded to guarantee that all parties to the transaction will have access to their money. Unlike WIR, C3 is fully convertible to national currency at any time, making it easier to attract companies that would otherwise be reluctant to use additional currencies.

 

 

How It Works?

How It Works?

Let’s say a theater chair manufacturer receives an order for 100,000 chairs from a reputable company that pays for the goods on delivery by check. The manufacturer (Company A) manufactures the chairs with his own employees, while he orders the necessary materials from a supplier (Company B). Everything is available to start production, except the money paid to the workers and Company B. Normally, Company A would have to take a bridging loan, which may or may not be repayable, depending on the current business environment. C3 offers another way of financing.

The process uses secured accounts or other payment claims as a liquid payment instrument in the intercompany settlement network . Those who receive these liquid assets may choose to convert them into national currency (at a certain cost) or pay their suppliers directly through insured accounts. The detailed operation of C3 is as follows:

 

C3 step by step

credit loan

1. The company that initiates a C3 transaction (Company A) will, as a first step, insure an account for a specified amount, based on the company’s own creditworthiness and claims against third parties (Company A customers).

2. Company A opens a check account in the settlement network, electronically sends the insured account to the settlement amount, and immediately pays its supplier (Company B) with this amount through the network.

3. For Company B to receive the payment, you simply need to open your own check account in the network.

4. Company B now has a positive account balance (regardless of when the original account expires to Company A).

5. Company B then has two options: either exchange the amount in national currency (which includes bank charges and paying interest for the billing period (eg 90 days)) or pay its supplier (Company C) the appropriate settlement amount (free).

6. C’s also have to do is open an account in the system . You can then choose from the same two options as Company B: exchange the amount in your national currency or spend it in C3. And so on.

7. When the account expires, the value of the account in national currency will be paid to the network . This is done either by Company A or (in the event of its insolvency) by the insurer. Anyone who has a C3 amount backed by an insured account can redeem it for traditional money (although bank charges are incurred).

 

 

Advantages

credit loan

Companies participating in C3 can enjoy the following benefits:

• Easier access to short-term loans , which can increase their working capital and productivity. The loan can be quarterly (thus providing cover for 90-day bills) and semi-annual, at a much lower cost than other options.

• Suppliers will receive the invoice immediately, regardless of the payment schedule of the original customer. Thus, sufficient liquidity can be achieved throughout the SME network at very low cost. As a result, customers and suppliers of companies are entering the C3 network very quickly.

• All required technology is tested and proven, no new laws or government approvals are required and the software required for the system is open source. Only 100% guaranteed and 100% electronic invoices are accepted in C3. In this way, C3 encourages the diffusion of computer infrastructure in the SME sector and opens up new markets and market channels through e-commerce.

 

Benefits for governments, especially at regional level:

Benefits for governments, especially at regional level:

• Government agencies receive additional revenue . An effective way for governments to encourage the strategic use of C3 is to accept tax and fee payments there. This also encourages others to use C3 and provides government with additional revenue from transactions that would not otherwise occur. Earnings will also be available in regular money no later than 90 days after payment, which will not disrupt your existing procurement procedures. The Uruguayan government, for example, is seriously considering implementing this strategy.

• The C3 system is a reliable way to reduce unemployment . Government bodies at different levels (federal, state or regional) may participate in this joint guarantee mechanism, which is much cheaper to provide support than traditional money.

• C3 helps fight the black or gray economy because SMEs need to be officially registered firms to participate in the network; in addition, all transactions are electronic and therefore traceable.

• C3 is best organized at regional level so that each network remains manageable. It is in the interest of companies within the regional network to do business with each other, thereby boosting the region’s economy . C3 provides a win-win environment for all members and encourages other collaborations between companies in each region.

• All C3 networks must use the same insurance standards and software to facilitate international trade by connecting the networks.

 

Benefits for the banking and financial system:

Benefits for the banking and financial system:

• C3 significantly modernizes lending and management for the insurance company and credit institution. Since C3 is fully computerized, SMEs can become a more profitable sector for banks, as credit terms need to be set not for a single company but for the entire network, so the financial sector risk is automatically shared between the members of the network. Along with new entrants to the market, such as Facebook, Google or Tesco’s additional currencies and banks, this financial innovation provides banks with a new opportunity to sell their services.

• Most banks also provide insurance services. C3 opens up a new market for insurance and credit , up to the level of microfinance services. Because C3 is fully computerized, even the smallest companies can be served at a very low cost.

• The C3 mechanism will increase systemic stability of jobs and the economy as a whole , which will also benefit the overall stability of the banking portfolio.

 

Small business owners can often only hope that the economy is booming

Small business owners can often only hope that the economy is booming

WIR and C3 provide easy-to-implement systems and provide cash flow and other benefits to their participants and the economy as a whole. What’s more, the software used for C3 is freely available, which makes it even easier to set up a network anytime, anywhere. If Uruguay is able to implement the system at national level, it can be implemented in any other size as most beneficial to the participants.

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