JACCOO, the Dutch payment platform provider, have developed a new trade finance instrument, the Trade Payment Obligation (TPO). The TPO is an alternate payment instrument to settle international trade with automated processing and reduced risk (assurance of payment to the seller).
How TPO works
The TPO functionality on the JACCOO platform works as follows:
- once a buyer has asked its bank to create an open account payment instrument with a TPO, the buyer’s bank uploads the purchase order information to the data matching application
- the bank then passes the information to the seller’s bank for checking and acceptance
- when the seller’s bank accept the contract details, the ‘baseline’ for the TPO is established and the buyer’s bank guarantees that it will pay the seller’s bank as long as the seller ships the merchandise in accordance with the commercial terms established with the buyer
- the JACCOO matching engine checks whether all the details of the trade match. When they do, it triggers a Bank Obligation to Pay, see figure below:.
JACCOO Trade Payment Obligation
Source & Copyright©2014 - JACCOO
This approved BPO then becomes collateral for raising financing.
Benefits from the TPO
JACCOO claim that corporates will benefit from their Trade Payment Obligation service, which connects banks and corporates, because there is:
- no manual processing like document creation, verification, validation, tracking and reporting
- reduced risk mitigation, as it is undertaken between buyer and seller bank
- settlement period reduction
- no banking fees from document discrepancy handling and tracking
- improved trace ability as the importer only makes payment after confirming import goods data
- improved reconciliation of payment in accounts payable through import data receipt.
JACCOO believe banks could also benefit from the new TPO service as it will open up new low risk business opportunities, and strengthen relationships with existing customers.
CTMfile take: JACCOO’s platform (they call it ‘The new way of corporate banking’) is impressive and well proven. The issue, as with all platforms, is how many banks and corporates are connected and at what number of connections does the platform become cost effective.
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