BPOs
1 like470 views
A Bank Payment Obligation (BPO) is an agreement where a buyer's bank agrees to pay the seller's bank upon presentation of data showing the seller met the terms of the purchase contract. The buyer and seller provide their banks with the required data terms. Their banks upload this to a Transaction Matching Application which establishes a baseline. When the seller submits shipment data and it matches the baseline, the buyer's bank is obligated to pay the seller's bank, who then pays the seller.
BPOs
- 1. How Bank Payment Obligations (BPOs) Work Global Trade Risk Management Strategies LLC
- 2. 2 Global Trade Risk Management Strategies LLC How Bank Payment Obligations Work Buyer Contract (Purchase Order) Seller A Bank Payment Obligation (“BPO”) is an engagement by a bank that is issued pursuant to a trade transaction. The BPO is requested by the buyer and contains the bank’s undertaking to pay the seller’s bank based on presentation by the seller’s bank of data specified in the BPO. The intent is that the data evidence compliance of the seller with the contract between the buyer and seller, so the starting point is the execution of such contract. The contract should specify what data the seller is required to submit in order to trigger the payment obligation.
- 3. 3 Global Trade Risk Management Strategies LLC How Bank Payment Obligations Work Buyer Contract (Purchase Order) Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Seller The buyer applies for a BPO and transmits to his bank the data requirements that are specified in the contract. Simultaneously, the seller alerts his bank that it will be receiving a BPO and also transmits to this bank the data requirements that are specified in the contract and expected to be in the BPO.
- 4. 4 Global Trade Risk Management Strategies LLC How Bank Payment Obligations Work Buyer Contract (Purchase Order) Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Seller Baseline Submission w/ BPO Baseline Submission Transaction Matching Application At the core of the BPO concept is the use of a computerized system that performs data matching. This “Transaction Matching Application” may be hosted by one of the banks or by a third party. The banks agree on what TMA they will use and each uploads the data requirements provided by its customer. The buyer’s bank further indicates that it engages to pay the seller’s bank upon presentation to the TMA of data that comply with the data requirements.
- 5. 5 Global Trade Risk Management Strategies LLC How Bank Payment Obligations Work Buyer Contract (Purchase Order) Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Baseline Match Report Baseline Match Report Seller Baseline Submission w/ BPO Baseline Submission Transaction Matching Application The TMA compares the data requirements files submitted by the two banks against one another and notifies both of any mismatches. If the data requirements match, both banks are notified that a “baseline” has been established and that the buyer’s bank’s BPO is now in effect.
- 6. 6 Global Trade Risk Management Strategies LLC How Bank Payment Obligations Work Buyer Contract (Purchase Order) Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Baseline Match Report Baseline Match Report Seller Baseline Submission w/ BPO Baseline Submission Transaction Matching Application The BPO itself is in favor of the seller’s bank, so there is an expectation that the seller’s bank will engage with the seller to provide some sort of service, but the Uniform Rules for BPOs do not specify what type of engagement the seller’s bank may enter into with the seller. It may be merely an agreement to receive and upload a data file or it may involve a commitment from the seller’s bank to pay the seller upon submission of a compliant data set. Engage- ment
- 7. 7 Global Trade Risk Management Strategies LLC Goods How Bank Payment Obligations Work Buyer Contract (Purchase Order) Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Baseline Match Report Baseline Match Report Seller Baseline Submission w/ BPO Baseline Submission Transaction Matching Application Based on the arrangements in place, the seller ships the goods that the buyer ordered. Engage- ment
- 8. 8 Global Trade Risk Management Strategies LLC Goods Documents How Bank Payment Obligations Work Buyer Contract (Purchase Order) Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Baseline Match Report Baseline Match Report Seller Baseline Submission w/ BPO Baseline Submission Transaction Matching Application Engage- ment All of the documents—invoices, transport documents, etc.— are sent by the seller directly to the buyer.
- 9. 9 Global Trade Risk Management Strategies LLC Goods Documents How Bank Payment Obligations Work Buyer Contract (Purchase Order) Shipment Data Set Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Baseline Match Report Baseline Match Report Seller Baseline Submission w/ BPO Baseline Submission Transaction Matching Application Shipment Data Engage- ment The seller submits data about the shipment and to his bank in the manner specified in the bank’s engagement. The bank compiles the data into a data set and uploads it to the TMA to compare with the requirements described in the “established baseline.”
- 10. 10 Global Trade Risk Management Strategies LLC Goods Documents How Bank Payment Obligations Work Buyer Contract (Purchase Order) Shipment Data Set Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Baseline Match Report Baseline Match Report Seller Data Set Match Report Data Set Match Report Baseline Submission w/ BPO Baseline Submission Transaction Matching Application Shipment Data Engage- ment The TMA notifies both banks of the results of the data matching process. If there are no mismatches, the BPO is triggered and the buyer’s bank is obligated to pay. If there are mismatches, the buyer’s bank may accept or reject them.
- 11. 11 Global Trade Risk Management Strategies LLC Goods Documents Payment Payment How Bank Payment Obligations Work Buyer Contract (Purchase Order) Shipment Data Set Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Baseline Match Report Baseline Match Report Seller Data Set Match Report Data Set Match Report Baseline Submission w/ BPO Baseline Submission Transaction Matching Application Shipment Data Engage- ment Payment takes place outside the BPO framework, by normal bank-to-bank means. Based on its own engagement with the seller, the seller’s bank pays the seller.
- 12. 12 Global Trade Risk Management Strategies LLC Goods Debit Documents Payment Payment How Bank Payment Obligations Work Buyer Contract (Purchase Order) Shipment Data Set Shipment Data Purchase Order Data Seller’s Bank Purchase Order Data Buyer’s Bank Baseline Match Report Baseline Match Report Seller Data Set Match Report Data Set Match Report Baseline Submission w/ BPO Baseline Submission Transaction Matching Application Engage- ment The buyer’s bank turns to the buyer for reimbursement of the payment.
- 13. This set of slides comes from training classes developed and taught by Global Trade Risk Management Strategies LLC. For Information about upcoming seminars and webinars, visit http://www.gtrisk.com/Upcoming_Seminars.html. Global Trade Risk Management Strategies LLC Credits