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

Our SWIFT speakers today

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Andr Casterman Head of Trade and Supply Chain, SWIFT Co-Chair BPO Project, ICC Banking Commission

Nadine Louis Market Manager Trade and Supply Chain, SWIFT

Robert Marchal Business Analyst Payments and Trade Standards, SWIFT

Supply Chain Finance for Corporates

Agenda
Bank Payment Obligation Key benefits Getting paid on time Transaction lifecycle Integration options Next steps

Supply Chain Finance for Corporates

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

BPO combines the best of both worlds

Contract

Contract

Contract

Buyer
Application Documents

Seller
Documents Advice

Buyer
Data

Documents

Seller
Data

Buyer

Documents

Seller

Letter of Credit
Documents

Bank Payment Obligation

Data

Open Account

LC Issuing Bank

Issuance

LC Advising Bank
Payment

BPO Obligor Bank

Payment

BPO Recipient Bank

Buyers Bank
Payment

Sellers Bank

Bank services based on paper document processing

Bank services based on electronic trade data exchange

Bank services limited to payment processing

Array of risk, financing and processing services to address both cash management and trade finance needs
Supply Chain Finance for Corporates 5

Key features of BPO

Payment Assurance

Receivables finance BPO

Structured data and e-matching

Payables finance

Risk mitigation

Supply Chain Finance for Corporates

ICC / SWIFT Cooperation Agreement

Objective
Establish BPO as a technology neutral and industry owned instrument
Supply Chain Finance for Corporates

Sub-groups

Timeline

Legal Education Commercialisation

Target publication Q1 2013

ICC BPO Working Group

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 Andr Casterman, SWIFT

Agenda
Bank Payment Obligation Key benefits Getting paid on time Transaction lifecycle Integration options Next steps

Supply Chain Finance for Corporates

A multi-bank solution
Payment Assurance

based on ICC rules & ISO messages

Structured data and e-matching

Receivables finance BPO

Supply Chain Finance for Corporates

and powered by Payables SWIFT's finance Trade Services Utility (TSU) & Correspondent Banking network

Risk mitigation

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Key benefits for the seller

Cash flow optimization
Payment Assurance
Getting paid on time Improve liquidity forecasting Releasing cash trapped in the supply chain Automated data matching Improved discrepancy management Reduced processing effort

Receivables finance BPO

Structured data and Reduction of operational e-matching risk and cost

Working Capital Finance

Available across transaction lifecycle Payables Pre- / post-shipment finance finance Alternative to factoring & insurance Reduced costs
Supply Chain Finance for Corporates

Risk mitigation

Securing the supply chain

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Key benefits for the buyer

Cash flow optimization
Payment Assurance
Reduced risk of discrepancies & disputes Improved cash flow forecasting Increased competitiveness Optional ability to trigger payment

Receivables finance BPO

Structured Reduction of operational data and risk and cost e-matching

Supply Chain Finance

Extended payment terms Payables Possibility to negotiate improved terms finance Reduced risk of supplier default

Risk mitigation

Securing the Supply Chain Finance for Corporates supply chain

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Agenda
Bank Payment Obligation Key benefits Getting paid on time Transaction lifecycle Integration options Next steps

Supply Chain Finance for Corporates

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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

Seller wants to be 1 certain that it will be paid on time

BPO
Buyer BPO Obligor Bank BPO Recipient Bank Seller

Buyer's bank provides payment assurance to the sellers bank by issuing a BPO
Supply Chain Finance for Corporates

Seller's bank offers assurance of payment to the seller as soon as the BPO is issued by the buyers bank
Payment assurance Optional financing services
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BP Chemicals case BPO based on invoice data

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

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

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

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

Chemical fiber Co.

Buyers of BP Chemicals

Kuala Lumpur

Textile & Garnement Co.

Exporters

HK

BPO
London Zhuhai

Industrial fiber Co.

Polyester fiber Co.

Belgium BPO Obligor Bank branches BPO Recipient Banks Belgium

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Supply Chain Finance for Corporates

Vale case BPO based on invoice data

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

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

Supply Chain Finance for Corporates

Significant process efficiency and working capital gains

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

Steel Manufacturer 1

Buyers of Vale

Exporter

Steel Manufacturer 2

BPO

Steel Manufacturer 3

BPO Recipient Banks

Steel Manufacturer 4

BPO Obligor Bank branches

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Supply Chain Finance for Corporates

Agenda
Bank Payment Obligation Key benefits Getting paid on time Transaction lifecycle Integration options Next steps

Supply Chain Finance for Corporates

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BPO flows based on invoice data

Delivery of goods

Carriers

Shipment

1 5 6
Buyer Request BPO based on PO

Purchase order Shipment notice Invoice Seller

Confirm BPO based on PO

BPO
8 Invoice data
(mismatches) BPO Obligor Bank BPO Recipient Bank

Invoice data

Supply Chain Finance for Corporates

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BPO transaction lifecycle based on invoice data

Corporate Purchase

Bank

BPO agreement

Initial Baseline (re-)submission and ack (tsmt.019, tsmt.012, tsmt.001) Baseline Match report (tsmt.010)

BPO irrevocable & conditional

Invoice (commercial data)
Dataset submission and reports (tsmt.014, tsmt.013, 015 to 018) Mismatch acceptance or rejection (tsmt.020 to 023)
Invoice

Bank Payment Obligation due

Payment

Payment due

Payment Cash reporting

Supply Chain Finance for Corporates

(i) Including

Baseline amendments (tsmt.005 to 009)

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BPO flows based on transport and invoice data

Carriers
Delivery of goods

4 1 5 6
Purchase order Shipment notice Invoice

Shipment

Buyer

Seller

Request BPO based on PO

Transport data (mismatches)

BPO
BPO Obligor Bank BPO Recipient Bank

Confirm BPO based on PO

7
9

Transport data Invoice data

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10 Invoice data (mismatches)

Supply Chain Finance for Corporates

BPO transaction lifecycle

Corporate

Bank

Purchase

BPO agreement

Initial Baseline (re-)submission and ack (tsmt.019, tsmt.012, tsmt.001) Baseline Match report (tsmt.010)

BPO irrevocable & conditional

Transport and Invoice information

Transport information Dataset submission and reports (tsmt.014, tsmt.013, 015 to 018) and invoice Mismatch acceptance or rejection (tsmt.020 to 023) (commercial data)

Bank Payment Obligation due

Paym ent

Payment due

Payment Cash reporting

Supply Chain Finance for Corporates

(i) Including

Baseline amendments (tsmt.005 to 009)

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

Baseline
Matching conditions

Commercial data set

Invoice

Transport data set

Air waybill, bill of lading,

Insurance data set

Insurance document

Certificates data set

Certificate document

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Agenda
Bank Payment Obligation Key benefits Getting paid on time Transaction lifecycle Integration options Next steps

Supply Chain Finance for Corporates

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Industry Standards for supply chain finance

Industry standards

Bank Payment Obligation

1
Buyer Any channel / any format / any solution Bank portal SWIFT's SCORE Paper

2
Trade Txn Matching Scheme SWIFT's Trade Services Utility (TSU) Any inter-bank scheme based on ISO 20022 messages & rules

3
Seller Any channel / any format / any solution Bank portal SWIFT's SCORE Paper

Commercial solutions

Supply Chain Finance for Corporates

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Integration options based on volumes and bank relationships

Purchase Order data Transport, invoice, data

BPO
Buyer Buyers bank Seller's bank Seller

Bank portal

Trade back-end

Internet

Bank
ERP

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 27

Multi-bank Portal

Bank Trade front-end back-end

Vendor
ERP

Bank

Supply Chain Finance for Corporates

Example of MISYS (1 of 2)
Misys Trade Portal

Management of ISO 20022-compliant purchase order data used for the preparation of BPO transactions
Supply Chain Finance for Corporates

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.

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Example of MISYS (2 of 2)

Misys Trade Portal

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

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

Supply Chain Finance for Corporates

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TSU/BPO certified trade platforms

Partner Trade portal Trade portal Open Account Manager Contact Chris Principe 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 Stephan Nouy Olivier.berthier@misys.com Stephane.Nouy@misys.com +33 (0)1 53 00 70 13
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Misys Trade Portal

Misys TI Plus

Supply Chain Finance for Corporates

Agenda
Bank Payment Obligation Key benefits Getting paid on time Transaction lifecycle Integration options Next steps

Supply Chain Finance for Corporates

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SWIFT can assist you to set up a proof-ofconcept with your preferred bank

17 banking groups adopting BPO 7 from the Top20 Trade banks

Supply Chain Finance for Corporates 32

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
Supply Chain Finance for Corporates

group Supply Chain on SWIFT

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BPO value for Corporates

Process efficiency

Payment timeliness

Business growth

ISO 20022
Supply Chain Finance for Corporates

ICC rules

Powered by SWIFT
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Contact us now!
Andr Casterman Patrick Krekels Raimo Naatsaari Nadine Louis Marie-Christine Diaz David Hennah David Dobbing Robert Marchal James Wills Kineth Yuen Filip Versluys Chris Conn Connie Leung Vivian Zeng Lisa Sung Urs Kern Matt Monaco Zelda Anthony Annick Roelants Sebastian Niemeyer Raphal Marek Head of Trade and Supply Chain Legal Counsel Documentary Trade Finance and e-invoicing Supply Chain Finance and Business Intelligence Supply Chain Finance Supply Chain Finance Standards Standards Standards Americas Standards Asia Pacific Partner Management Business Development Americas Business Development Asia Pacific Business Development Asia Pacific Business Development Taiwan Business Development EMEA Neil Gray Jan Heinsbroek Corporate Sales Americas Roger Inderbitzin Corporate Sales Asia/Pacific JoAnn Healy Corporate Sales Benelux Sandra Gavard Corporate Sales Germany Thea George Corporate Sales France

Corporate Sales UK/Ireland Corporate Sales Nordics Corporate Sales Switzerland Media Relations Americas Media Relations Asia Pacific Media Relations EMEA
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Supply Chain Finance for Corporates

Thank you
To contact SWIFT's Trade and Supply Chain team, send us an e-mail at supplychain@swift.com

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Supply Chain Finance for Corporates

group Supply Chain on SWIFT

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