Logistic models of mutual crediting in commercial contracts

Аuthors

Chernykh N. A.

United Engine Corporation “Saturn”, 163, Lenin av., Rybinsk, Yaroslavl region, 152903, Russia

e-mail: nadyamih@yandex.ru

Abstract

There are favourable conditions for mutual latent crediting both for customer and supplier in commercial contracts, which include chain of mutual payments and procurements. This circumstance is caused by the fact, that the schedule and amounts of mutual settlement of accounts may bring benefit for one of the contract sides which consists in free credit resources obtained from the partner.
Current backlog of supplier shouldn’t exceed level or «regulatory value of accounts receivable» usually fixed by the customer, and in the issue of comparison accumulated advances with costs of production delivered the benefit is available for one of the contract sides, which is more efficient in payment and delivery schedule.
Thus, in large contracts for series of gas-turbine units procurement, which include attraction of bank credit, current balance of mutual settlement of accounts may come to hundred millions of roubles and be paid within tens of months by means of received bank interest, which may amount to tens and hundreds millions of roubles.
The problems of latent mutual crediting of the commercial contract sides are considered: 1) normalization the rate of the accounts receivable which should be paid by parties to a treaty; 2) normalization the sum of bridging financial gaps within the contract and assessment financial losses resulted by mutual crediting by customer and supplier, i.e. interest on their credits.
The authors developed analytical models that allow to optimize the rate of customer’s accounts receivable and estimation losses for the sides of procurement contract, which defines series of advances and product stepwise delivery.
For the last case, depending upon current balance of advances and costs accumulated, the producer may spend more than 10% of the contract price for crediting customer. It occurs in real contracts, for example in contracts for procurement of high power gas-turbine technique.
The author developed model, which allows to define average fraction of procurement price in customer’s accounts receivable during period   depending upon fraction and fraction of shipping cycle according to contract conditions:

where
Model (1) allows optimizing contract conditions for the benefit of the customer.
Also the author developed model, which allows to estimate losses of producer resulted by bridging financial gaps within procurement contract (chain of contracts). The losses are defined as difference between bank interest paid and drawn by producer:

where — balance of bridging financial gaps;
— amount of bank interest for 1 day crediting (bank interest payments);
— amount of advances received exceed the costs accumulated by producer;
 — amount of costs accumulated by producer exceed customer’s advances received.

Keywords:

commercial contract, analytical model, latent crediting, rate fixation of accounts receivable, financial losses, bridging financial gaps, planning conditions of the contract

References

1. Itskovich I.I., Mikhailova N.A. Materialy IV Vserossiiskaya nauchno-tekhnicheskaya konferentsiya molodykh spetsialistov, Ufa, UGATU, 2008, pp. 147 148.

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