Pre Shipment or Purchase Order Finance– can anyone Deliver the Goods? – Part II

We know purchase order financing is a tough nut to crack. There are two vendors out there that offer or are attempting to offer solutions, so it’s worth a brief look at how they are doing.

SWIFTs Bank Payment Obligation (BPO)
The BPO is an irrevocable undertaking issued by a buyer’s bank to the seller’s bank that is settled by a successful matching of transaction data. SWIFT developed a data matching tool between banks and wrapped rules that have been sanctioned by the International Chamber of Commerce.

SWIFT sees an opportunity to use this new payment mechanism to inject pre shipment finance by using local correspondent banks in the suppliers home market. The idea has merit, given one bank typically cannot offer early finance to their customer’s suppliers in different jurisdictions given onboarding costs and KYC costs and no desire to deal with suppliers in markets the bank has no credit appetite or service model. Given limitations with a single bank closed model, SWIFT is attempting to leverage the new interoperability and legal standards to help suppliers in local markets. They claim this is best done by local correspondents who know suppliers, especially SMEs. By providing finance as soon as the purchase order is agreed, it will extend offerings beyond invoice approval finance.

Is this another dead baby delivered by SWIFT? Many think so. I have written about this initiative here and here.

SWIFT needs to position the BPO in a broader context of a client’s supply chain strategy and focus on how data gets exchanged with their trading partners, their payment terms, working capital requirements in their supply chain, etc. While they exchange the usual set of documents via the banks – purchase orders, invoices, bills of lading, they have not solved issues such as a tax compliance, e-invoices, document authenticity, e-signatures, etc.

The other big issue with using the BPO instead of open account is credit. SWIFT assumes companies that are trading on open terms will want to use this instrument because of the embedded matching controls and finance options. But to use the instrument involves the buyer having credit with their bank just like a Letter of credit. That is a big assumption. To date, no corporation is using the BPO for this type of finance.

GT Nexus
GT Nexus, via the former TradeCard, leverages relationships with Asian Banks to provide Asian vendors pre shipment and post shipment finance options. What Tradecard did is tie a group of banks in Asia, electronically issue the PO and facilitated PO financing off the buyers credit rating. Suppliers can request pre-export financing on an approved purchase order to get the working capital they need to produce the order. They can tie this in with Coface trade credit insurance. Coface’s Debt Purchase Agreement can be used to reduce or eliminate the risk of buyer non-payment.

In addition to their network of financial providers, GT Nexus facilitates finance by the way the platform persists the purchase order data throughout the process. A purchase order is signed by both the buyer and supplier in the TradeCard system. TradeCard can provide visibility on a PO level, line, SKU, color, size as well as components-level

According to their web site, "Export Financing is a solution that supports both pre-export and posts-export supplier financing. Assist suppliers during peak periods by providing working capital during the fulfillment of an order, or ease working capital constraints for a supplier by providing funds after an order has shipped but prior to maturity of the invoice."

GT Nexus does not release details on the amount of purchase order trade finance their bank partners have done.

So as the gold rush continues around approved invoice models, only a few FinTech vendors are treading the waters around PO financing. It’s a tough nut to crack for sure.

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