Supply Chain Finance for Corporates - Getting paid on time using Bank Payment Obligation
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This webinar describes the use of the new Bank Payment Obligation instrument in support of Supply Chain Finance. It focuses on the scenario for large exporters to get 'paid on time when dealing on open account'.
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Supply Chain Finance for Corporates - Getting paid on time using Bank Payment Obligation
- 1. Supply Chain Finance for Corporates Getting paid on time when dealing on open account thanks to the Bank Payment Obligation "SWIFT's Trade and Supply Chain" webinar series La Hulpe, 7 November 2011 supplychain@swift.com
- 2. Our SWIFT speakers today gbb André Casterman Nadine Louis Robert Marchal Head of Trade and Market Manager Business Analyst Supply Chain, Trade and Supply Chain, Payments and SWIFT SWIFT Trade Standards, SWIFT Co-Chair BPO Project, ICC Banking Commission Supply Chain Finance for Corporates 2
- 3. Agenda • Bank Payment Obligation • Key benefits • Getting paid on time • Transaction lifecycle • Integration options • Next steps Supply Chain Finance for Corporates 3
- 4. The Bank Payment Obligation (BPO) A BPO is an irrevocable undertaking given by a bank to another bank that payment will be made on a specified date after successful electronic matching of data according to an industry-wide set of rules. Therefore, a BPO offers: • An assurance of payment • Risk mitigation for all parties • Possible use as collateral for finance An alternative instrument for trade settlement Supply Chain Finance for Corporates 4
- 5. BPO combines the best of both worlds Contract Contract Contract Documents Documents Buyer Seller Buyer Seller Buyer Seller Documents Application Documents Letter of Bank Open Advice Data Data Credit Payment Account Obligation Documents Data Issuance BPO BPO LC Issuing LC Advising Obligor Recipient Buyer’s Seller’s Bank Bank Bank Bank Bank Bank Payment Payment Payment Bank services based on paper Bank services based on Bank services limited to document processing electronic trade data exchange payment processing Array of risk, financing and processing services to address both cash management and trade finance needs Supply Chain Finance for Corporates 5
- 6. Key features of BPO Payment Assurance Structured Receivables data and finance e-matching BPO Payables Risk finance mitigation Supply Chain Finance for Corporates 6
- 7. ICC / SWIFT Cooperation Agreement Objective Sub-groups Timeline Establish BPO as a technology Legal Target neutral and Education publication industry Commercialisation Q1 2013 owned instrument Supply Chain Finance for Corporates 7
- 8. ICC BPO Working Group Corporates Banks Supply Chain Finance for Corporates Co-chairs ICC BPO Working Group: Dan Taylor, Vice-Chair ICC Banking 8 Commission & Executive Director J.P. Morgan and André Casterman, SWIFT
- 9. Agenda • Bank Payment Obligation • Key benefits • Getting paid on time • Transaction lifecycle • Integration options • Next steps Supply Chain Finance for Corporates 9
- 10. A multi-bank solution … Payment Assurance … based on ICC rules & ISO messages … Structured Receivables data and finance e-matching BPO … and powered by Payables Risk SWIFT's finance Trade mitigation Services Utility (TSU) & Correspondent Banking network Supply Chain Finance for Corporates 10
- 11. Key benefits for the seller Cash flow optimization Getting paid on time Payment Improve liquidity forecasting Assurance Releasing cash trapped in the supply chain Automated data matching Improved discrepancy management Reduced processing effort Structured Receivables data and Reduction of operational finance e-matching and cost risk BPO Working Capital Finance Payables Available across transaction lifecycle Risk Pre- / post-shipment finance finance mitigation Alternative to factoring & insurance Reduced costs Securing the supply chain Supply Chain Finance for Corporates 11
- 12. Key benefits for the buyer Cash flow optimization Payment Reduced risk of discrepancies & disputes Assurance Improved cash flow forecasting Increased competitiveness Optional ability to trigger payment Structured of operational Reduction Receivables data and and cost risk finance e-matching BPO Supply Chain Finance Extended payment terms Payables Risk Possibility to negotiate improved terms finance Reduced risk of supplier default mitigation Securing the supply chain Supply Chain Finance for Corporates 12
- 13. Agenda • Bank Payment Obligation • Key benefits • Getting paid on time • Transaction lifecycle • Integration options • Next steps Supply Chain Finance for Corporates 13
- 14. Mitigate the risk of payment default or payment delay Buyer needs to offer payment assurance to its 2 supplier via the banks Seller wants to be based on agreed criteria 1 certain that it will be based on data paid on time BPO Buyer Seller BPO Obligor BPO Recipient Bank Bank Seller's bank offers Buyer's bank provides assurance of payment to payment assurance to the 4 the seller as soon as the 3 seller’s bank by issuing a BPO is issued by the buyer’s bank BPO Payment assurance Supply Chain Finance for Corporates Optional financing services 14
- 15. BP Chemicals case BPO based on invoice data Company profile Key benefits • 2010 Revenues of approx. USD 14 bn • Get paid on time and avoid judicial proceedings • Revenue created for approx. 50% in Asia • Reduce complexity – removal of paper trail • Trade account receivables of 1.4 bn EUR • Limit to relevant trade information only (consolidated receivables only) • Reduce cost by removing vetting activities and • More than 600 clients worldwide presentation assistance • Improve customer offer by allowing for flexible Challenges options • About 50% of exposure on secured terms • Improve speed of handling • Competitive commodities market requires a • Reduce the risk of discrepancies secure and cheaper alternative to L/Cs • Reduce need for confirmation cost by being able to • High processing and confirming costs (0.8% tap larger pools. Free up banking lines. of transaction value) • Easy to exercise tool for liquidity • Inflexible current LC way of working limits • Easier access to banks to secure transactions commercial possibilities and weakens • Possibility to spread the risk with multiple obligors compliance under certain conditions Gains up to USD 2 Mio through lower costs, but most of the upside lies in more marginal income Supply Chain Finance for Corporates 15
- 16. Multi-bank export to China at BP Chemicals Proof-of-concept Chemical fiber Co. Buyers of BP Chemicals Kuala Lumpur Textile & Exporters Garnement Co. HK BPO London Industrial Zhuhai fiber Co. Polyester Belgium fiber Co. BPO Obligor BPO Recipient Belgium Bank branches Banks Supply Chain Finance for Corporates 16
- 17. Vale case BPO based on invoice data Company profile Key benefits • 2010 revenues of approx. USD 46.8 • Reducing the DSO by approx.10 days billion (including internal processes efficiency gains) • Main product Iron ore (69.9%) with a financial gain over USD 37 million / year • Approximately 100 clients worldwide (Iron Ore) • Freeing up Working Capital – USD 600 million • Main market is China (32%) • Reduced costs for customers Challenges • Reduce document delivery costs • Competitive commodities market requires a • Reduce the number of discrepancies secure and cheaper alternative to L/Cs • Improve access to Trade Financing products • L/Cs at sight for approx. USD 18 billion with to our customers Chinese clients • Reduced environmental impact - reducing • DSO (Days Sales Outstanding) is between paper usage in extra copies of the shipping 25 and 30 days documents for the banks Significant process efficiency and Supply Chain Finance for Corporates working capital gains 17
- 18. Multi-bank export to China at Vale Proof-of-concept Steel Manufacturer 1 Buyers of Vale Exporter Steel Manufacturer 2 BPO Steel BPO Recipient Manufacturer 3 Banks Steel BPO Obligor Manufacturer 4 Bank branches Supply Chain Finance for Corporates 18
- 19. Agenda • Bank Payment Obligation • Key benefits • Getting paid on time • Transaction lifecycle • Integration options • Next steps Supply Chain Finance for Corporates 19
- 20. BPO flows based on invoice data Carriers Delivery of goods 4 Shipment 1 Purchase order 5 Shipment notice 6 Invoice Buyer Seller Request BPO Confirm BPO 2 based on PO 3 based on PO BPO BPO BPO 7 Invoice data 8 Invoice data Obligor Recipient (mismatches) Bank Bank Supply Chain Finance for Corporates 20
- 21. BPO transaction lifecycle based on invoice data Corporate Bank Purchase BPO Initial Baseline (re-)submission and ack (tsmt.019, tsmt.012, tsmt.001) agreement Baseline Match report (tsmt.010) BPO irrevocable & conditional Invoice Dataset submission and reports (tsmt.014, tsmt.013, 015 to 018) Invoice (commercial Mismatch acceptance or rejection (tsmt.020 to 023) data) Bank Payment Obligation due Payment Payment Payment due Cash reporting (i) Including Baseline amendments (tsmt.005 to 009) Supply Chain Finance for Corporates 21
- 22. BPO flows based on transport and invoice data Carriers Delivery 4 Shipment of goods 1 Purchase order 5 Shipment notice 6 Invoice Buyer Seller Request BPO 2 based on PO 3 Confirm BPO based on PO Transport data BPO Transport 8 (mismatches) BPO BPO 7 data Obligor Recipient Bank Bank 10 Invoice data 9 Invoice data (mismatches) Supply Chain Finance for Corporates 22
- 23. BPO transaction lifecycle Corporate Bank Initial Baseline (re-)submission and ack (tsmt.019, tsmt.012, tsmt.001) BPO Purchase agreement Baseline Match report (tsmt.010) BPO irrevocable & conditional Transport information Dataset submission and reports (tsmt.014, tsmt.013, 015 to 018) Transport and information Invoice and invoice Mismatch acceptance or rejection (tsmt.020 to 023) (commercial data) Bank Payment Obligation due Payment Paym ent Payment due Cash reporting (i) Including Baseline amendments (tsmt.005 to 009) Supply Chain Finance for Corporates 23
- 24. The Baseline gathers the matching conditions using data extracted from trade documents Purchase order Baseline Matching conditions Commercial Transport Insurance Certificates data set data set data set data set Air waybill, bill Insurance Certificate Invoice of lading, … document document 24
- 25. Agenda • Bank Payment Obligation • Key benefits • Getting paid on time • Transaction lifecycle • Integration options • Next steps Supply Chain Finance for Corporates 25
- 26. Industry Standards for supply chain finance standards Industry Bank Payment Obligation 1 2 3 Buyer Seller Any channel / Trade Txn Any channel / Commercial any format / Matching any format / solutions any solution Scheme any solution • Bank portal • SWIFT's Trade • Bank portal • SWIFT's SCORE Services Utility (TSU) • SWIFT's SCORE • Paper • Any inter-bank scheme • Paper based on ISO 20022 messages & rules Supply Chain Finance for Corporates 26
- 27. Integration options based on volumes and bank relationships Purchase Order data Transport, invoice, … data BPO Buyer Buyer’s bank Seller's bank Seller 1. Bank-specific Trade Portals Bank Trade a. Manual access to bank-owned portal back-end Trade portal over Internet – 1 portal Internet per bank Bank b. ERP integration with bank-owned Trade portal for large volumes ERP 2. Vendor Multi-bank Trade solutions a. Manual access to vendor multi-bank Multi-bank Bank Trade Trade solution (local application or Portal front-end back-end hosted portal) b. ERP integration with vendor-owned Vendor Bank multi-bank Trade portal (local or hosted) ERP … both using SWIFT's SCORE to Supply Chain Finance for Corporates access all your banking partners 27
- 28. Example of MISYS (1 of 2) Misys Trade Portal Online management of traditional trade finance instruments such as Letters of Credit and Documentary Collections as well as Guarantees and Open Account including Bank Payment Obligation (BPO) Management of ISO 20022-compliant transactions in a purchase order data used for the one-stop-shop preparation of BPO transactions multi-bank service. Supply Chain Finance for Corporates 28
- 29. Example of MISYS (2 of 2) Misys Trade Portal Management of all trade products including BPO with templates and Ability to ask for Purchase static data, inquiry, Orders to be managed by the alerts, calendar, bank as a BPO transaction file upload / download, workflow, collaboration, multi-lingual, multi- entity and multi- user capabilities. Supply Chain Finance for Corporates 29
- 30. TSU/BPO certified trade platforms Partner Trade portal Trade portal Contact Chris Principe Open Account Manager chris.principe@aciworldwide.com (772)283-6901 Joel Schrevens Digby Bennett joel@chinasystems.com digby@chinasystems-me.com +32 16 629012 Selene Chan James Tindall schan@banktrade.com jtindall@banktrade.com + 44 7941 325716 Olivier Berthier Misys Trade Portal Misys TI Plus Stephan Nouy Olivier.berthier@misys.com Stephane.Nouy@misys.com +33 (0)1 53 00 70 13 Supply Chain Finance for Corporates 30
- 31. Agenda • Bank Payment Obligation • Key benefits • Getting paid on time • Transaction lifecycle • Integration options • Next steps Supply Chain Finance for Corporates 31
- 32. SWIFT can assist you to set up a proof-of- concept with your preferred bank 17 banking groups adopting BPO 7 from the Top20 Trade banks Supply Chain Finance for Corporates 32
- 33. Getting ready with available information on BPO for Corporates Available soon on http://www.swift.com/corporates/resource.htm • Overview presentation • Benefits for Corporates – factsheet • ISO 20022 Standards guidelines • Use Case scenarii and samples • Legal agreement template • BPO Banks contacts • Implementation options • Certified partners Join our LinkedIn group Supply Chain on SWIFT Supply Chain Finance for Corporates 33
- 34. BPO value for Corporates Process Payment Business growth efficiency timeliness ISO 20022 ICC rules Powered by SWIFT Supply Chain Finance for Corporates 34
- 35. Contact us now! André Casterman Head of Trade and Supply Chain Patrick Krekels Legal Counsel Raimo Naatsaari Documentary Trade Finance and e-invoicing Nadine Louis Supply Chain Finance and Business Intelligence Marie-Christine Diaz Supply Chain Finance David Hennah Supply Chain Finance David Dobbing Standards Robert Marchal Standards James Wills Standards – Americas Kineth Yuen Standards – Asia Pacific Filip Versluys Partner Management Chris Conn Business Development – Americas Connie Leung Business Development – Asia Pacific Vivian Zeng Business Development – Asia Pacific Lisa Sung Business Development – Taiwan Urs Kern Business Development – EMEA Neil Gray Corporate Sales – UK/Ireland Matt Monaco Corporate Sales – Americas Jan Heinsbroek Corporate Sales – Nordics Zelda Anthony Corporate Sales – Asia/Pacific Roger Inderbitzin Corporate Sales – Switzerland Annick Roelants Corporate Sales – Benelux JoAnn Healy Media Relations – Americas Sebastian Niemeyer Corporate Sales – Germany Sandra Gavard Media Relations – Asia Pacific Raphaël Marek Corporate Sales – France Thea George Media Relations – EMEA Supply Chain Finance for Corporates 35
- 36. Thank you To contact SWIFT's Trade and Supply Chain team, send us an e-mail at supplychain@swift.com Join our LinkedIn group Supply Chain on SWIFT Supply Chain Finance for Corporates 36