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SWIFT and ICC‘s Bank Payment Obligation combined with SWIFT e-invoicing to replace Letter of Credit

The BPO is an irrevocable (conditional) obligation of an obligor bank to pay a specified amount to a recipient's bank as soon as matching occurs between the data extracted from different trade documents such as an invoice, purchase order, transport document or insurance certificates. It is being brought to market as an innovative and alternative means of settlement in international trade. The Banking Commission of the ICC (International Chamber of Commerce) Banking Commission are developing a set of contractual rules that it will publish and maintain in order to establish uniformity of practice and to give banks and corporates confidence that the rules will be applied consistently around the world by a growing number of participant organisations.

The real possibility is that the BPO will bring together the best of the letter of credit (L/C) and open account, in which the BPO enables the banks to provide payment assurance and pre-shipment and post-shipment finance , while the open account nature of the transaction ensures that the efficient exchange of commercial documents remains within the corporate-to-corporate space. The BPO combines the rules on international trade with the efficiency of technology to exchange documents electronically; it provides a bank assurance that compliant goods will be paid for, which enables the BPO to be used as collateral for financing. The aim is for BPO-related services to be delivered through multiple technology platforms and service providers in addition to SWIFT's Trade Services Utility (TSU), with banks providing the all important conditional payment guarantees and working capital finance.

BPOs role in International Trade

Source & Copyright©2012 -  SWIFT

The underlying principle is that the matching engine (SWIFT's TSU (Trade Services Utility) or other trade platform matching system) check, whether all the details of the trade match. When they do, it triggers a Bank Obligation to Pay, and this approved BPO then becomes collateral for raising financing.

There are already 30 banks supporting the adoption of BPO, and they are starting to promote these capabilities to their corporate customers and examining how to co-operate with partner banks in the traditional four corner model (buyer, buyer's bank, supplier and supplier's bank). Furthermore, third party solution providers, such as Bottomline Technologies, are exploring how they can integrate their systems and services with the banks to provide a complete business financing infrastructure, see Figure.

Streamlined Business Financing

Key: ISO tsmt = ISO20022 XML messages for Trade Services Management
Source & Copyright©2012: Bottomline Technologies


BPO could be a real game changer in financing trade.

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Trade & FSC Management
Financial Supply Chain Platforms
Trade Finance