BPO- Bank Payment Obligation

Bank Payment Obligation is an alternate channel of payment in the trade finance and supply chain financing.  Currently, there is
continuous shift of trade traffic from Letters of credits to open account globally and more so in Asia-Pacific region. Hence the
current scenario demands the growing impetus on reduced work-flow time, reduce discrepancy handling, reduced costs and
increased efficiencies  - as a result an emerging method of trade settlement payment -BPO- Bank Payment Obligation.

BPO is a new payment method based on data matching which can be used for risk mitigation and financing . Under the BPO, for
the first time, an open account payment obligation can be confirmed by banks in order to get financed with the unified rules of
ICC called as URBPO.

The relevance of BPO as an alternate payment term has huge relevance for India especially at this point of time with the Govt's
emphasis on SME's and related untapped corporates waiting for the early working capital. BPO provides  relevance to corporates
of all sizes - and brings improvement in order- to-cash process, mitigation of transaction risk, supports early payment to support
financially critical suppliers , negotiate better payment terms and overall working capital optimization through early settlement.
In other words, there are significant  time savings and efficiencies using BPO.

BPO is coming of age, major initiative between banking community, SWIFT and ICC that aims to drive economic growth. BPO
combines best of both the worlds-risk mitigation and integrated finance benefits of LCs and efficiency of open account and best
use of supply chain.

BPO is gathering momentum, with 58 banks having adopted it, 19 of which have gone live .
BPO is the step ahead in the trade finance to increase and diversify the trade with emerging countries overall and increase the
sophistication of trade control demands.
Bankers’ Acceptance
A bankers’ acceptance (BA, aka bill of exchange) is a commercial bank draft requiring the bank to pay the holder of the
instrument a specified amount on a specified date, which is typically 90 days from the date of issue, but can range from 1 to 180
days. The bankers’ acceptance is issued at a discount, and paid in full when it becomes due — the difference between the value
at maturity and the value when issued is the interest. If the bankers’ acceptance is presented for payment before the due date,
then the amount paid is less by the amount of the interest that would have been earned if held to maturity.
A bankers acceptance is used for international trade as means of ensuring payment. For instance, if an importer wants to import
a product from a foreign country, he will often get a letter of credit from his bank and send it to the exporter. The  letter of
credit is a document issued by a bank that guarantees the payment of the importer's draft for a specified amount and time.
Thus, the exporter can rely on the bank's credit rather than the importer's. The exporter presents the shipping documents and
the letter of credit to his domestic bank, which pays for the letter of credit at a discount, because the exporter's bank won't
receive the money from the importer's bank until later. The exporter's domestic bank then sends a time draft to the importer's
bank, which then stamps it "accepted" and, thus, converting the time draft into a bankers acceptance. This negotiable
instrument is backed by the importer's promise to pay, the imported goods, and the bank's guarantee of payment.

In most cases, bankers acceptances are used in the import or export of goods. However, in some cases, it may involve trading
within the same country. In some instances, a bankers acceptance, which in this case is termed a  third-country acceptance, is
created to ship between countries where neither the importer nor the exporter is located.

Acceptance financing is the financing of commercial transactions, most of which are usually import/export businesses, by
using bankers acceptances.

Bankers acceptances have low credit risk because they are backed by the importer, the importer's bank, and the imported
goods. Hence, BAs offer slightly higher yields than Treasuries of the same terms.

Major investors of these money market instruments naturally include money market mutual funds, and municipalities.
However, as other forms of financing have become available, the secondary market for BAs has declined considerably.

What a bank charges for a BA depends not only on its own fees and commissions for creating the BA, but is also
commensurate with general market yields of other money market instruments. For BAs that are ineligible as collateral for
Federal Reserve loans, the Fed imposes reserve requirements on the amount of ineligible BAs — hence, ineligible BAs are
discounted more, with the result that the borrower receives less money for the initial loan, but the investor receives a higher
yield.