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Electronic Commerce and Trade Cycle

A trade cycle is the series of exchanges, between a customer and supplier that take place when a commercial exchange is executed. A general trade cycle consists of following stages:
  1. Pre-Sales: Finding a supplier and agreeing the terms.
  2. Execution: Having decided to do business the buyer requests or orders from the vendor that which is required and the vendor hands over or delivers the goods or service.
  3. Settlement: At an appropriate stage the vendor asks for payment, the invoice, and, hopefully, the buyer makes the appropriate payment.
  4. After Sales: Once the sale is completed that is not necessarily the end of the story; depending on the nature of the exchange there may be a requirement for after sales activities. This trade cycle is shown in figure 1.6.


The way the trade cycle operates can vary depending on the nature of the customer, vendor, goods being traded and the traditions of the market segment and/or culture in which the deal is being done.

E-commerce can be applied to all, or to different phases, of the trade cycle. The trade cycle varies depending on: 
  1. Nature of the organisations (or individuals) involved. 
  2. Frequency of trade between the partners to the exchange. 
  3. Nature of the goods or services being exchanged.
The trade cycle has to support: 
  1. Finding goods or services appropriate to the requirement and agreeing the terms of trade (referred to as search and negotiation).
  2. Placing the order, taking delivery and making payment (execution and settlement).
  3. After-sales activities such as warrantee, service, etc. 
There are numerous versions of the trade cycles depending on the factors and for many transactions, further complicated by the complexities of international trade. Three generic trade cycles can be identified:
  1. Repeat Trade Cycle: Regular, repeat transactions between commercial trading partners.
  2. Credit Transaction: Irregular transactions between commercial trading partners where execution and settlement are separated.  
  3. Cash Transaction: Irregular transactions in once-off trading relationships where execution and settlement are typically combined.
The trade cycles for these three categories are shown in figure 1.7:




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