Creative Education
2012. Vol.3, Supplement, 43-46
Published Online December 2012 in SciRes (http://www.SciRP.org/journal/ce) DOI:10.4236/ce.2012.37B010
43
Study on the Advance Payment Rate of Advance-Payment
Collection Business Based on Logistics Financial
Weiguo Cao, Yong Zhang
Institute of Management Science and Information Engineering, Hangzhou Dianzi University, Hangzhou,China
Received 2012
This paper takes the advance-payment collection business based on the logistics financial as the research
object, on the assumption that the logistics enterprises pay the price with their own money,and the shipper
repurchases the goods unconditionally when the delivery breaks rule. From the point of logistics enter-
prises to quantitative analyze its key indicators of risk management and control - advance payment rate,
expectations for providing a scientific basis of decision making for the business risk of logistics
enterprises in China, in order to solve the outstanding contradictions between a lot of money tied up in
inventory and difficulties in financing of SMEs,and provide a decision support from the side of
management techniques.
Keywords: Logistics Financial; Advance-layment Collection Business; Advance Payment Rate
Introduction
There is a saying in the G20 summit held this year,saying
that if you can find a key to increase employment, go out of the
poverty and financial crisis of the world , then this golden key
must be the healthy development of SMEs, so we can see the
SMEs’ great importance to global economic development.
However, currently, the difficulties in financing of SMEs has
become a big bottleneck that restricting economic development
significantly, although the banks and other financial institutions
have adequate capital, face the shortage of funds for SMEs,
only have the "prudent loan refused credit crunch" attitude. In
recent years, with the rapid development of logistics industry,in
order to find new profit growth point, logistics enterprises
innovative value-added servic es and develop many new busine ss
model of funds shortage for SMEs continuously, based on the
theory of logistics financial. At present, some large logistics
companies have started to provide logistics financial services,
for example, Since 1999 the China Logistics jointly with the
banks developed the first inventory pledge financing business,
to the present, it has been cooperated with the Industrial and
Commercial Bank, Construction Bank, Agricultural Bank,
Merchants Bank and more than a dozen financial institutions,
To carry out the inventory pledge financing business, release
credit to SMEs and solve the financing problem.
Because of its expertise, logistics companies have a great
advantage in providing the logistics financial services. Drawing
on the successful experience of UPS, logistics companies
develop the advance-payment collection business can solve the
financing problems of SMEs effectively. Currently there are
some third-party logistics companies started trying to do
payment collection business, such as postal EMS, home
delivery, JiaJie fast delivery, etc, but no one has combined the
advance and payment collection services.This paper is based on
the deficiency,trying to study the decision-making problems of
logistics companies when they carry out the advance-payment
collection business.
The Development Status of Adv ance-Payment
Collection Business
Advance-payment collection business as a business model of
logistics financial services provided by logistics companies,
there are few literature devoted to the study both domestic and
foreign. But in the practical application, it had indeed been well
developed. The most successful is the UPS,in the advance-
payment collection business, when UPS carry the shipment for
shipper, it paid half of the advance payment for the delivery,
then the delivery paid all the money to logistics companies
when it receives shipment.Before UPS give the other half
money to the shipper, it proceeds a time difference of capital
movement, this part of the funds is in a deposition before the
delivery period. During the precipitation period, UPS received a
sum of money without interest. Then UPS utilizes the funds for
loans through its own financial institutions, and the borrowers
are still limited to UPS’ customers or delivery business. This
business model not only accelerate the customer's working
capital turnover, improve the client's financial situation,but also
save the inve ntory holding costs and cost of operating logistics
services network for customers.
Domestic research mainly focused on the payment collection
business. Feng Xia an alyzes the development status an d bottleneck
of payment collection business carried out by TPL in China,
give some related suggestion for TPL to carry out payment
collection services. Wong Ka Kui and Chen Fulai take the
healthy development of postal-delivery payment collection
business into considera tion, analyze its problem s and the reasons
for these problems,and explore solutions to these problems.
Wang Junfeng also stand on the position of the postal, from the
"dark hole" which hidden behind the postal business operation
mechanism , proposed the "two major difficulties" and causes
that restrict the development of the business,and discussed how
to break the "two difficulties". What w e can see from the resear ch

W. G. CAO, Y. ZHANG
44
has been studied is that they are mainly discuss the problems
and solutions of payment collection business simply, not
analyzes its benefits and risks of the parties involved deep,
perhaps it is because the unreasonable distribution of benefits
and risk-sharing,that lead to a variety of problems. Therefore,
this paper considers the logistics companies provide both
advance payment and payment collection services (ie, advance
- payment collection business), quantitative analyze its key
indicators of risk management and control - advance payment
rate, expect to provide a scientific basis of decision making for
the business risk of logistics enterprises in China, and provides
new ideas to solve the outstanding contradictions between a lot
of money tied up in inventory and difficulties in financing of
SMEs.
The Model Analysis of Advance-Payment
Collection Business
Advance - Payme nt Collection Operations Processes
① Shipper and logistics companies signed a 《commission
entrusted with the collection and distribution contracts》, and
deliver the goods to logistics companies;
② Logistics enterprises advanced by a certain percentage of
the purchase price to the shipper according to the value of the
goods;
③ Logistics enterprises deliver the goods to the delivery on
time;
④ Logistics enterprises give the remaining payment to
shipper after deducting freight and procedures fees in a certain
period(usually for 30 days).
Logistics Enterprises Risk and Benefit Analysis
a) Benefit analysis
In this business model, in addition to get cargo transport and
other traditional logistics services fees, logistics enterprise also
obtain a sum of money without interest because of delayed
payment. Logistics enterprises through advance payment for the
delivery and collection of money for the shipper to enhance the
attractiveness of both buying and selling, expand the market
share by speci al services and acquire new business revenue.
b) Risk analysis
Throughout the course of business,logistics enterprises are
mainly facing the default risk from the delivery before the
goods to the delivery, and after the shipper repurchases the
goods unconditionally when the delivery breaks rule, whether
the shipper can repay the advances.payment.
Advance-Advance Payment Collection Service
Rate Analysis
Expected Return Model in Both
a)Basic assumptions
① Logistics companies pay advance payment with its own
funds;
② When the delivery breaks rule, the shipper repurchases
the goods unconditionally, and the repurchase value is less than
the initial val ue ;
③ Not consider the risk of default caused by the shipper,
such as cargo quality, quantity, etc;
④ The procedures fees is change with the return time
change,that is
()kb tT λ =−−
, b is the industry average;
⑤ Assume that the logistics enterpri se s are risk-neutral.
b) Parameter setting
c) Expected return model in both
① If the probability of default by the delivery is
Q
,
Shipper repurchase the goods and its probability of non-
payment is
P
, then their expected return
{
{
00 0
00
00 000
000 0
2,
() 2 ,1
( )2.
() () 2.1
VkCSwC P
ET V kCSP
wCSCCVkC P
ES SC CV kCP
+ −−
=+ −−
+−− −−
=− −− −−
② If the probability of paying the full price on time by the
delivery is 1-Q, then their expected return
()
00 00
00 0
()( )
()
atT
ETVkCSCSe wC
E SSVkC
−
= +−+−−
=−−
Comprehensively,their expected return model is
00
()
0
0
( )(1)()
(1)()
(1)
atT
ETQ VkCS
Q CSe
wC QPQ
−
=+ +−
+− −
− +−
(1)
00 0
00
( )()(1) ESS QC CQV
kC PQwC
= −−−+
−+
(2)
Make
()
ET ≧0,
()
ES ≧0,we get the range of w
0 000
0
()
00 0
00
(1 )()()
(1)() (1)()
(1 )
atT
Q VkCSQCCw
PQC
QV kCSQCSe
PQC CQ
−
++ −+−≤
++− +−−
≤+−
(3)
Table 1.
Parameter setting.
Symbol Meaning Symbol Meaning
w Advance Payment Rate t Settlement pe riod
c0 The initial value of the goods E(S) Expected return of the
shipper
c The repurchase value of the
goods E(T) Expected return of the Logistics enterprises
k The procedures fees rate v0 One-way freight
s The cost of logistics services Q Proba bi lity of default by
delivery
a One-year bank deposit rate P Probability of default by
shipper
T Delivery date S0 Benefits of obtaining the
cash flow advanced for
shipper

W. G. CAO, Y. ZHANG
45
As the value of w is determined by the logistics companies,
first, the logistics companies determine the value of w
according to their own income maximum and the probability of
default by the delivery, then shipper determines whether to
accept the service according to the determined w and the
pressure of their own funding needs.
Model Analysis
a)
Q
=1, when the delivery break rule,
000 00
() 2E SSCCVkCPwC= −+−−+ (4)
00 0
() 2()E TVkCSwC P= +−−
(5)
b) Q=0,when the delivery pay the full price on time,
00 0
()E SSVkC=−− (6)
()
00 00
()( )atT
ETVkCSCSe wC
−
= +−+−− (7)
(7)—(5),we can get this
()
0 00
( )()(1)
atT
E TCSeVwCP
−
=−−−− (8)
Obviously,the formula (8) is always greater than zero,
therefore, the logistics companies will be more concerned about
the delivery‘s default probability for their own interests, that is
the value of
Q
. As long as the delivery does not default,then
they will be able to get higher returns. As the logistics enterprises
paid some advance payment, they abandoned the time value of
money, so the following inequality holds on,that is
00
()
0
0
( )(1)()
(1)()
(1)
atT
ETQ VkCS
Q CSe
wC QPQ
−
=+ +−
+− −
− +−
0
() aT ETwC e≥
We take equal and get the following equality
()
00 0
00
(1)() (1)()
(1 )
atT
aT
QV kCSQCSe
wPQCCQe
−
++− +−−
=+ −+
(9)
According to equation(9), we can find the value of w.
Numerical Analysis
According to the expression of w in equation (9) , we simu-
late a group of data to analyzes the values and trends of w when
Q and P were collected from different values.
We let
0
c
=100000,
0
v
= 1500, s = 3000, a =3.5%, T =20, t
=50，
Analyzes when Q=20% and P=10%、20%、30%、40%、
50%、60%, the values of w. By numerical computing, we obtain
the following results.
From Figure 1 we can find that the value of w decreases with
the increase of P, but the decline was not large.
Analyzes when P = 20% and Q = 10%、20%、30%、40%、
50%、60%, the values of w. By numerical computing, we obtain
the following results.
From Figure 2 we can find that the value of w decreases with
the increase of Q, and the decline was very large. Comparing
Figure 2 and Figure 3, we can show that the value of w is more
sensitive to Q, the logistics companies will be more concerned
about the delivery‘s default probability,which is consistent with
the conclusions of Part IV.
Conclusion
This paper describes the processes of advance - payment
collection business, analyzes the benefits and risk of both
Figure 1.
Advance - payment collection operations processes.
the impact of default probability for shipper to the
value of w
0.74
0.76
0.78
0.8
123456
the default probability for shipper
w
系列1
Figure 2.
The impact of default probability for shipper to the value of w.

W. G. CAO, Y. ZHANG
46
the impact of default probability for the delivery to
the value of w
0
0.2
0.4
0.6
0.8
1
1 23 45 6
the default probability for the delivery
w
系列1
Figure 3.
The impact of default probability for the delivery to the value of w.
Involved, pointed out the major risks facing the logistics
enterprises is the default risk from shipper and the delivery,
then set a model through the revenue function, solving the key
indicators of risk management and control of logistics
enterprises – advance payment rate,and through numerical
analysis to explore the impact of the default probability from
shipper and the delivery on the advance payment r ate, the
conclusion is that the logistics companies are more concerned
about the delivery‘s default probability. This study can provide
a scientific rationale to logistics companies that carry out ad-
vance-payment collection business,and show new solutions to
shortage of funds for SMEs .
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