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FCIB Summit: Global Companies Increasingly Turning to Bank Payment Obligation

Business Risk 200Technological platforms are becoming a more prevalent resource within the credit industry as ways to help boost a company’s supply chain and optimize working capital. As more corporations see partners and competitors using them with positive results, acceptance will only increase. And the interest in using such tools is already huge, according to panelists at FCIB’s recent International Credit and Risk Management Summit and Expo in Madrid.

“Electronic documents are here to stay, and they are now becoming a reality. As more corporations see that, more will want to try,” said Ashley Skaanild, head of trade finances for EssDocs in London and panelist during FCIB’s “E-Commerce Driven Strategies to Support Working Capital Management” panel. “They see great value in speeding up trade … and with the corporations, come the banks.”

Skaanild, along with four other summit panelists, acknowledged that the use of letters of credit [L/Cs] are flattening, while open accounts are on the rise. “Intense competition for buyers has forced sellers to offer more favorable transaction terms, often by forgoing lengthy and expensive letters of credit in favor of open account transactions,” their research indicates.  Panelist Angela Koll, vice president and product manager of international business for Commerzbank in Frankfurt, Germany, suggested that one thing creditors can offer within this landscape is a product called Bank Payment Obligation (BPO).

BPO requires a bank to guarantee that payment will be made to the seller after data on an open account transaction are electronically matched. This is a newer digital process that provides similar protection to a L/C, but it is done electronically instead of on paper.  “It’s trying to take paper out of the process as much as possible,” said panelist Andre Casterman, global head of banking for trade and supply chain solutions for SWIFT in Brussels. He added that it’s the first effective new instrument in trade finance in decades.

Proponents of BPO believe this type of solution provides many benefits to corporations including more integrated services, interconnectivity among key players, faster turn-around time and the ability to be converted to paper if required.

“The way our platform works—we don’t change the business process at all,” said Skaanild. “But what used to take 11 to 15 days, now only takes two to three.”

Courtesy:  Jennifer Lehman, NACM Marketing and Communication Associate  

For more coverage of FCIB’s latest Summit in Madrid and other international business credit topics, visit NACM’s Credit Real-Time blog and watch for the release of the June issue of Business Credit magazine.

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