Bank Payment Obligations (BPOs) – Basics for Corporates

Whether you are a Seller or Buyer of goods this article provides the basic information you need in order to start replacing Standby Letters of Credit and/or Documentary Letters of Credit (LCs) with the BPO or BPO-Plus process respectively.

You can download a copy of this article by clicking here.

Why bother to make the change?
Companies that adopt the BPO and/or BPO-Plus processes are able to capture a number of benefits from the BPO system; for example:
• Improved cash flow management based on certainty as to when invoice payments will be credited.
• Reduced document handling – whether paper or electronic – since purchase orders and invoices are keyed into the system and communicated automatically; via one or two banks in nanoseconds. The SWIFT system is exceptionally secure and reliable, and covers more than 10,000 financial institutions and corporations in 210 countries
• Reduced information discrepancies and/or reduced time involved in identifying and correcting mismatched data. The BPO system automatically matches buyer and seller data against the Purchase Order/Contract baseline and provides various reports
• Better payment protection (for the seller) compared to a Standby or Documentary Letter of Credit; with reduced costs and handling required on both sides of a transaction
• Access to financing options is improved for both buyer and seller

According to an article that you can find with this link.

“This process (the BPO & BPO-Plus) results in a fully electronic alternative to the letter of credit (LC), which will enable efficiency gains, working capital reduction and cost saving. This electronic alternative can be processed in a much shorter time than traditional, paper-based LCs – estimates are as low as 10-15 days. Reduced processing times result in significant cost savings: Brazilian mining company Vale estimates that a combination of electronic bills of lading and BPOs is saving it $37 million per year on its exports of iron ore to China alone.”

The BPO Train is leaving the station, so you better hurry to catch it… or risk being left in the LC dust by your competitors…

It is understandable that many Trade Finance Bankers will resist the switch to BPO and BPO-Plus but it would be preferable for them to accept that BPO related changes are unstoppable. The sooner Bankers accept that and start to make the necessary changes in their careers the better, delay will only mean more painful and difficult changes will have to be made later.

In 2000 Gary Hamel wrote in his book ‘Leading the Revolution’: …”change has changed. No longer is it additive. No longer does it move in a straight line. In the twenty-first century, change is discontinuous, abrupt, and seditious. We now stand on the threshold of a new age – the age of revolution. In our minds we know the new age has already arrived; in our bellies, we’re not sure we like it. For we know it is going to be an age of upheaval, of tumult, of fortunes made and unmade at head-snapping speed.”

In fact it was in 2000 that TradeCard brought its solution to market, a product that BPO more than resembles, it virtually mirrors. Admittedly it has taken 14 years for the BPO to become a globally viable LC alternative but the challenges overcome in terms of proving the technologies involved, agreeing standards and putting in place internationally accepted rules have been formidable.

The prize for banks and users (exporters/sellers, importers/buyers and traders) is significant.

On the other hand there will inevitably be losers, mainly those who have built a career on the basis of UCP expertise; bankers, consultants, trainers and academics. The losers’ whose ‘cheese is being moved’ can denounce this development, and try to derail or delay the transition, but like blowing against the wind such efforts to maintain the status quo will prove fruitless in the end.

Today one can be a Kodak strategist until one’s world falls apart when the ‘digital camera producers’ destroy the business and associated jobs, or one can recognise the signs and start searching for ‘new cheese’. As Lynda Gratton wrote in ‘The Shift – The Future of Work is Already Here’: “In a world of more and more complex technology, it is the highly skilled, or what I call those with serial mastery, who will always find work.”

Those who do not notice their 'cheese' disappearing and do not set out to find ‘new cheese’ (a new expert occupation) will, I’m afraid, find it difficult to maintain their current standard of living.

William Gibson in 1993 famously said: “The future is already here — it's just not very evenly distributed.”

Ron Wells