B) CONTENTS
B.1) The Problem: current situation and trend
Many EU countries (and not only) are suffering from a contaction in payment of commercial credits (combined with, causing and caused by, slowing Economies, recession, credit crunch, etc.).
In this dramatic increase of unpaid debts vicious cycle, non payment to a creditor leads to growing impossibility for the same subject to pay other creditors (1) etc.
This 'chain reaction' leads to a harmful standstill market situation, heavily affecting the overall economical, social, juridical, political situation, in a domino effect of lost competitiveness, opportunities, confidence, investing and spending attitude, or (in case of bankruptcies even worstly) jobs, houses, investing capacity, spending capacity to by goods (from luxury to even first necessity) and services (2).
B.2) The Idea: inspiring considerata
If a company A owes 100 to company B which owes 100 to company C which (but the three companies are not aware of this 'closed circuit' owes 100 to company A: if the three companies are subject to bankruptcy, and without liquidity, they risk to incur into bankruptcy.
BUT: it the 3 companies knew that they had 3 counter off-settable credits / debts (or 'circular' credits/debts), they could have simply cleared the 100 debt (for each of them) by means of a reciprocal setoff/clearance (3) avoiding bankruptcy. What if instead of affecting 3 companies, this mechanism regarded, e.g., millions of companies throughout (e.g.) the E.U. ? (4)
The idea consists in (phase 1) periodically identifying closed circuiting (or circular) debt/credit data between commercial companies; (phase 2) the debts/credits within the thereby identified subjects would then, in ways similar to the ones utilized by the already existing clearing houses, be cleared by the system.
B.3) Action Instrument Proposal: The Platform
An electronic centralized platform able to crosscheck in real-time the data of all invoices, to detect all the 'closed circuits' between different creditor/debtor subjects and/or entities, meaning all the 'circular' groups of companies involved, in order then to further process only those data actually subject to possibile setoff/clearance withing the system, between the thereby identified subjects.
B.4) Practical functioning of the Platform
All invoices would be periodically (daily, weekly, monthly) registered on this centralized binding system (for the EU, for instance, a temptative name could the the ECIRS - European Centralized Invoice Registration System), being a platform wich would send a clearing confirmation signal to all of the companies / entities involved.
Payments of invoices should be only allowed through this platform (existing payment systems would initially remain in place but will have to anyhow integrate with this unified system).
B.5) Invoice issuance, preregistration (preliminary filing) and confirmation
Invoices will be subject to preliminary filing (unilateral by the issuer) to be done within a certain time frame since issuance, and to a confirmation signal (by the debtor) to be given within a certain fixed timeframe since preliminary filing: upon confirmation, registration is complete.
Invoices shall indicate the payment due time and a E.U.I.C. (temptative name for a European Unified Identification Code) for each Company and Entity (invoice issuer / client) (the current VAT code?) to avoid any possibility of confusion.
_________________________________________________________________
Footnotes to this page.
(1) Anyone working in Europe (ex. in Italy) right now has heard and is more and more hearing the phrase: "I'll pay.. as soon as I get paid".
(2) Current costs of each bankruptcy proceeding are way higher than the direct ones (the Courts, the bankruptcy procedural costs, the share of termination of labor contracts compensation -in Italy for ex. the “T.F.R.” treatment paid by the States-, etc.) including many indirect ones. What happens to the entrepreneurs and employees? To their home loans? To their families? To their power of expenditure? To the -also educational- chances and options for their children? How many satellite industries are, as a consequence, affected and see contractions in their figures? How much drop in demand for market goods/services does this determine? How much does THIS cost overall to the system.
(3) Of course, also the 'nominal' respective credits would no longer be there, but all bankruptcy lawyers and accountants know that 'on the paper' credits (meaning not currently collectable or 'discountable' with banks ones) do not prevent companies from going bankrupt for their collectable debt.
(4) And not only.