Supply Chain Finance for Corporates - Getting paid on time using Bank Payment Obligation

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

[email protected]

mailto:[email protected]�

Our SWIFT speakers today

Supply Chain Finance for Corporates 2

Robert Marchal

Business Analyst Payments and

Trade Standards, SWIFT

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Nadine Louis

Market Manager Trade and Supply Chain,

SWIFT

André Casterman

Head of Trade and Supply Chain,

SWIFT

Co-Chair BPO Project, ICC Banking Commission

• Bank Payment Obligation

• Key benefits

• Getting paid on time

• Transaction lifecycle

• Integration options

• Next steps

Agenda


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

BPO combines the best of both worlds

5

Seller Buyer

LC Advising Bank

LC Issuing Bank

Docum

ents

Contract

Documents

Doc

umen

ts

Adv

ice

Application

Issuance

Payment

Letter of Credit

Bank services based on paper document processing

Seller Buyer

Seller’s Bank

Buyer’s Bank

Contract

Payment

Open Account

Documents

Bank services limited to payment processing

Array of risk, financing and processing services to address both cash management and trade finance needs

Seller Buyer

BPO Recipient

Bank BPO

Obligor Bank

Contract

Documents

Payment

Bank Payment

Obligation

Bank services based on electronic trade data exchange

Data

Dat

a

Dat

a

Supply Chain Finance for Corporates

Key features of BPO


Payment Assurance

Structured data and

e-matching

Risk mitigation

Payables finance

Receivables finance

BPO

ICC / SWIFT Cooperation Agreement


Establish BPO as a

technology neutral and

industry owned

instrument

Objective Sub-groups

Legal Education

Commercialisation

Target publication Q1 2013

Timeline

7

ICC BPO Working Group

8

Corporates

Banks

Supply Chain Finance for Corporates Co-chairs ICC BPO Working Group: Dan Taylor, Vice-Chair ICC Banking Commission & Executive Director J.P. Morgan and André Casterman, SWIFT

Agenda



• Key benefits




• Next steps

Payment Assurance

Structured data and

e-matching

Risk mitigation

Payables finance

Receivables finance

BPO

A multi-bank solution …


… based on ICC rules & ISO messages …

… and powered by SWIFT's Trade

Services Utility (TSU) & Correspondent Banking

network 10

Payment Assurance

Structured data and

e-matching

Risk mitigation

Payables finance

Receivables finance

BPO

Key benefits for the seller


Cash flow optimization

Getting paid on time Improve liquidity forecasting

Releasing cash trapped in the supply chain Automated data matching

Improved discrepancy management Reduced processing effort

Reduction of operational risk and cost

11

Working Capital Finance

Available across transaction lifecycle

Pre- / post-shipment finance Alternative to factoring & insurance

Reduced costs

Securing the supply chain

Payment Assurance

Structured data and

e-matching

Risk mitigation

Payables finance

Receivables finance

BPO

Key benefits for the buyer


Cash flow optimization

Reduced risk of discrepancies & disputes

Improved cash flow forecasting Increased competitiveness

Optional ability to trigger payment

Reduction of operational risk and cost

Supply Chain Finance

Extended payment terms

Possibility to negotiate improved terms Reduced risk of supplier default

Securing the supply chain 12

Agenda



• Key benefits




• Next steps

Optional financing services

Payment assurance

Mitigate the risk of payment default or payment delay

Buyer needs to offer payment assurance to its

supplier via the banks based on agreed criteria

based on data

Buyer's bank provides payment assurance to the seller’s bank by issuing a

BPO

Seller wants to be certain that it will be

paid on time

Seller's bank offers assurance of payment to the seller as soon as the

BPO is issued by the buyer’s bank

2

3 4

1


Seller Buyer

BPO BPO Obligor

Bank BPO Recipient

Bank

14

BP Chemicals case BPO based on invoice data


Challenges • About 50% of exposure on secured terms • Competitive commodities market requires a

secure and cheaper alternative to L/Cs • High processing and confirming costs (0.8%

of transaction value) • Inflexible current LC way of working limits

commercial possibilities and weakens compliance under certain conditions

Company profile • 2010 Revenues of approx. USD 14 bn • Revenue created for approx. 50% in Asia • Trade account receivables of 1.4 bn EUR

(consolidated receivables only) • More than 600 clients worldwide

Key benefits • Get paid on time and avoid judicial proceedings • Reduce complexity – removal of paper trail • Limit to relevant trade information only • Reduce cost by removing vetting activities and

presentation assistance • Improve customer offer by allowing for flexible

options • Improve speed of handling • Reduce the risk of discrepancies • Reduce need for confirmation cost by being able to

tap larger pools. Free up banking lines. • Easy to exercise tool for liquidity • Easier access to banks to secure transactions • Possibility to spread the risk with multiple obligors

Gains up to USD 2 Mio through lower costs, but most of the upside lies in more marginal income

15

Buy

ers

of B

P C

hem

ical

s

Multi-bank export to China at BP Chemicals Proof-of-concept


Industrial fiber Co.

BPO

Chemical fiber Co.

Textile & Garnement

Co.

Polyester fiber Co. BPO Obligor

Bank branches

Belgium

16

Exporters

BPO Recipient Banks

Kuala Lumpur

HK

Zhuhai

Belgium

London

Vale case BPO based on invoice data

Challenges • Competitive commodities market requires a

secure and cheaper alternative to L/Cs • L/Cs at sight for approx. USD 18 billion with

Chinese clients • DSO (Days Sales Outstanding) is between

25 and 30 days

Company profile • 2010 revenues of approx. USD 46.8

billion • Main product Iron ore (69.9%) • Approximately 100 clients worldwide

(Iron Ore) • Main market is China (32%)

Key benefits • Reducing the DSO by approx.10 days

(including internal processes efficiency gains) with a financial gain over USD 37 million / year

• Freeing up Working Capital – USD 600 million

• Reduced costs for customers • Reduce document delivery costs • Reduce the number of discrepancies • Improve access to Trade Financing products

to our customers • Reduced environmental impact - reducing

paper usage in extra copies of the shipping documents for the banks

Significant process efficiency and working capital gains

17 Supply Chain Finance for Corporates

Multi-bank export to China at Vale Proof-of-concept


BPO

Exporter

BPO Recipient Banks

18

Buy

ers

of V

ale

Steel Manufacturer 3




BPO Obligor Bank branches

Agenda



• Key benefits




• Next steps

BPO flows based on invoice data


Seller Buyer

BPO Obligor Bank

BPO Recipient

Bank

Carriers 4 Shipment

8 Invoice data (mismatches)

7 Invoice data

5 Shipment notice

6 Invoice

Delivery of goods

1 Purchase order

2 Request BPO based on PO 3 Confirm BPO

based on PO

BPO

20

BPO transaction lifecycle based on invoice data

Supply Chain Finance for Corporates (i) Including Baseline amendments (tsmt.005 to 009)

Initial Baseline (re-)submission and ack (tsmt.019, tsmt.012, tsmt.001)

Dataset submission and reports (tsmt.014, tsmt.013, 015 to 018)

Mismatch acceptance or rejection (tsmt.020 to 023)

Corporate

BPO agreement

Invoice (commercial

data)

Baseline Match report (tsmt.010)

Purc

hase

In

voic

e

Paym

ent

Bank

Payment

Cash reporting Payment due

BPO irrevocable & conditional

Bank Payment Obligation due

21

BPO flows based on transport and invoice data

Seller Buyer

BPO Obligor Bank

BPO Recipient

Bank

Carriers

4 Shipment

5 Shipment notice

6 Invoice

Delivery of goods

1 Purchase order

2 Request BPO based on PO 3

Confirm BPO based on PO BPO

9 Invoice data

Transport data 7 8 Transport data

(mismatches)

10 Invoice data (mismatches)


BPO transaction lifecycle

(i) Including Baseline amendments (tsmt.005 to 009)

Initial Baseline (re-)submission and ack (tsmt.019, tsmt.012, tsmt.001)

Dataset submission and reports (tsmt.014, tsmt.013, 015 to 018)

Mismatch acceptance or rejection (tsmt.020 to 023)

Corporate

BPO agreement

Transport information and invoice

(commercial data)

Baseline Match report (tsmt.010)

Purc

hase

Tr

ansp

ort a

nd

Invo

ice

info

rmat

ion

Paym ent

Bank

Payment

Cash reporting Payment due

BPO irrevocable & conditional

Bank Payment Obligation due


The Baseline gathers the matching conditions using data extracted from trade documents

24

Baseline

Commercial data set

Transport data set

Insurance data set

Certificates data set

Purchase order

Insurance document

Certificate document Invoice

Air waybill, bill of lading, …

Matching conditions

Agenda



• Key benefits




• Next steps

Industry Standards for supply chain finance


Any channel / any format / any solution

Trade Txn Matching Scheme

Any channel / any format / any solution

Seller Buyer

1 2 3

Bank Payment

Obligation

Indu

stry

st

anda

rds

Com

mer

cial

so

lutio

ns

• SWIFT's Trade Services Utility (TSU)

• Any inter-bank scheme based on ISO 20022 messages & rules

• Bank portal • SWIFT's SCORE • Paper

• Bank portal • SWIFT's SCORE • Paper

26

Vendor Bank

Bank

Integration options based on volumes and bank relationships

Trade back-end

Bank portal

Trade back-end

Seller

Bank front-end

Purchase Order data

Buyer

ERP

Internet

Buyer’s bank Seller's bank

Transport, invoice, … data


BPO

1. Bank-specific Trade Portals a. Manual access to bank-owned

Trade portal over Internet – 1 portal per bank

b. ERP integration with bank-owned Trade portal for large volumes

2. Vendor Multi-bank Trade solutions a. Manual access to vendor multi-bank

Trade solution (local application or hosted portal)

b. ERP integration with vendor-owned multi-bank Trade portal (local or hosted) … both using SWIFT's SCORE to access all your banking partners

ERP

Multi-bank Portal

Management of ISO 20022-compliant purchase order data used for the preparation of BPO transactions

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) transactions in a one-stop-shop multi-bank service.

Example of MISYS (1 of 2)


Example of MISYS (2 of 2)


Ability to ask for Purchase Orders to be managed by the bank as a BPO transaction

Misys Trade Portal

Management of all trade products including BPO with templates and static data, inquiry, alerts, calendar, file upload / download, workflow, collaboration, multi-lingual, multi-entity and multi-user capabilities.

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TSU/BPO certified trade platforms

Partner Trade portal Trade portal Contact

Chris Principe [email protected] (772)283-6901

Joel Schrevens Digby Bennett [email protected] [email protected] +32 16 629012 Selene Chan James Tindall [email protected] [email protected] + 44 7941 325716 Olivier Berthier Stephan Nouy [email protected] [email protected] +33 (0)1 53 00 70 13


Misys Trade Portal Misys TI Plus

Open Account Manager

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Agenda



• Key benefits




• Next steps

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


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

33

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BPO value for Corporates


ICC rules

Business growth Process efficiency

Payment timeliness

ISO 20022 Powered by SWIFT

34

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 Matt Monaco Corporate Sales – Americas Zelda Anthony Corporate Sales – Asia/Pacific Annick Roelants Corporate Sales – Benelux Sebastian Niemeyer Corporate Sales – Germany Raphaël Marek Corporate Sales – France

Neil Gray Corporate Sales – UK/Ireland Jan Heinsbroek Corporate Sales – Nordics Roger Inderbitzin Corporate Sales – Switzerland JoAnn Healy Media Relations – Americas Sandra Gavard Media Relations – Asia Pacific Thea George Media Relations – EMEA


Thank you To contact SWIFT's Trade and Supply Chain team,

send us an e-mail at [email protected]


Join our LinkedIn group Supply Chain on SWIFT

36


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Economy & Finance

Supply Chain Finance for Corporates - Getting paid on time using Bank Payment Obligation