Bank Payment Obligation (BPO): A Comprehensive Guide for Modern Trade Finance

In international trade, companies often face a choice between Letters of Credit (LCs) – which offer security but involve complex paperwork – and open account terms – which are simple but riskier for sellers. The Bank Payment Obligation (BPO) is a relatively new instrument designed to bridge this gap (Bank Payment Obligations (BPO) and the URBPO). Endorsed by the International Chamber of Commerce (ICC) and SWIFT, a BPO is essentially a paperless, electronic payment guarantee that provides a form of risk mitigation between buyers and sellers via banks (Bank Payment Obligations (BPO) and the URBPO). In other words, it combines the security of an LC with the efficiency of an open-account transaction. This guide will explain what a BPO is, how it works, the parties and data involved, and the benefits it offers to importers, exporters, and banks – from large multinationals to small businesses.

What Is a Bank Payment Obligation (BPO)?

Definition: A Bank Payment Obligation is an irrevocable and independent undertaking given by one bank (the buyer’s bank) to another bank (the seller’s bank) to pay a specified amount on an agreed date once certain conditions are met (Bank Payment Obligation | Türk Ekonomi Bankası ). Those conditions are defined by the electronic matching of trade data in a structured format. In practical terms, a BPO is a digital promise of payment: the buyer’s bank (often called the Obligor Bank) commits to pay the seller’s bank (the Recipient Bank) after a successful match of agreed data points (or after any discrepancies are resolved) according to ICC’s rules for BPO (Bank Payment Obligation | Türk Ekonomi Bankası ). The ICC has published the Uniform Rules for Bank Payment Obligations (URBPO, ICC Publication No. 750) to govern BPO transactions globally (Bank Payment Obligations (BPO) and the URBPO), much like LCs are governed by UCP 600.

Key Characteristics:

• Irrevocable: Once the BPO terms (the “baseline”) are established and accepted by the banks, it cannot be unilaterally canceled by the buyer or buyer’s bank. It’s a firm commitment, similar to an LC (Bank Payment Obligation A new payment method).
• Independent Undertaking: The BPO is independent of the underlying commercial contract between buyer and seller, like an LC. The banks’ obligation to pay is based only on the matching of data, not on the actual goods or any outside conditions (Bank Payment Obligation A new payment method).
• Data-Driven (Paperless): Unlike traditional trade instruments that rely on examining physical documents, a BPO transaction is handled through electronic data exchange. The payment obligation is triggered by a computerized match of data (e.g. purchase order details, invoice, shipping info) rather than a manual document check. This makes the process faster and less prone to certain errors or fraud, as discrepancies are identified by an automated system.
• Governing Rules: BPO transactions adhere to the ICC’s URBPO rules (Bank Payment Obligations (BPO) and the URBPO). These rules provide an internationally accepted framework, giving BPOs legal standing comparable to traditional instruments. For example, URBPO defines terms like “Obligor Bank” and “Recipient Bank,” outlines each party’s responsibilities, and specifies that the governing law is typically that of the obligor bank unless otherwise agreed – ensuring clarity and enforceability across jurisdictions.

In summary, a BPO is a bank-to-bank payment guarantee for international trade settlement, activated by data matching. It offers a new way to secure payment in global trade, positioned as a middle ground between LCs and open account trading (Bank Payment Obligations (BPO) and the URBPO).

Parties Involved and the Four-Corner Model

A hallmark of the BPO is its use of the traditional “four-corner model” in trade transactions (BP agrees first European multi-bank BPO | Global Trade Review (GTR)). This model involves four key parties, analogous to a letter of credit setup:

• Importer/Buyer: The company purchasing the goods. The buyer agrees with the seller to use a BPO as the payment method in their sales contract. The buyer’s role is to initiate the process by requesting its bank to issue a BPO (usually after agreeing on a purchase order) and later to provide or verify trade data.
• Exporter/Seller: The company selling the goods. The seller ships the goods per the contract and provides required data (like invoice and shipping details) to its bank. The seller relies on the BPO as assurance that payment will be received from the buyer’s bank, provided they meet the data conditions.
• Obligor Bank (Buyer’s Bank): This is the bank that issues the BPO on behalf of the buyer (importer). It commits to pay the agreed amount to the seller’s bank upon successful data matching. The obligor bank essentially takes on the buyer’s credit risk – similar to an LC issuing bank – by giving an independent payment undertaking (Bank Payment Obligation | Türk Ekonomi Bankası ). It will later debit the buyer’s account or otherwise seek reimbursement from the buyer on the due date.
• Recipient Bank (Seller’s Bank): This is the bank that receives the benefit of the BPO (on behalf of the seller). It is the party to whom the obligor bank owes the payment. The recipient bank typically advises the seller of the BPO, handles the data on the seller’s side, and ultimately receives payment from the obligor bank. It then pays the seller (immediately or at maturity, depending on terms). The recipient bank may also offer financing to the seller in the interim (more on that later).

Four-Corner vs. Three-Corner: In a four-corner BPO, the buyer and seller each use their own banks (as described above). It’s possible, however, to have a “three-corner” BPO where the same bank acts for both buyer and seller (BP agrees first European multi-bank BPO | Global Trade Review (GTR)). In that case, one bank is both obligor and recipient, simplifying the setup but also somewhat defeating the purpose of inter-bank risk sharing. Most BPO arrangements use two banks, enabling each trading party to work with their preferred bank and not requiring direct dealings with a foreign bank. This four-corner structure is very similar to traditional trade instruments (like an LC where you have an issuing bank and an advising/confirming bank). It ensures each corporate client interacts only with their bank, and the two banks interface with each other – no new onboarding of foreign banks for the corporates is needed ([PDF] The Bank Payment Obligation: – Trade Finance Global). This model leverages existing bank relationships and the SWIFT network to orchestrate the transaction collaboratively.

Roles and Responsibilities: Under URBPO rules, the obligor bank is responsible for paying once conditions are met (it cannot claim buyer’s failure to pay as an excuse – it must pay and then recover from buyer). The recipient bank’s role is to receive that payment; it may also optionally confirm the BPO to the seller (though in BPO context, “confirmation” isn’t an official term as in LCs, some banks may provide similar comfort by taking on the obligor bank’s risk for the seller via separate agreement). Both banks must be equipped with the technology and agreements (with each other and with their respective clients) to handle the BPO data processing and settlement.

How a BPO Transaction Works: Workflow and Data Flow

To better understand BPO, let’s walk through a typical transaction flow from start to finish. Below is an example of how a BPO transaction could work in practice:

1. Agreement in Contract: The buyer and seller agree during contract negotiations to use a BPO as the method of payment. This will include the payment terms (e.g. amount, due date or tenor, and conditions for payment). For instance, the contract may state that payment will be made under a BPO issued by Buyer’s Bank in favor of Seller’s Bank, payable 60 days after shipment upon presentation of specified data. Once the contract is signed, the buyer issues a Purchase Order (PO) to the seller confirming the order details (Bank Payment Obligations (BPO) and the URBPO).
2. Baseline Creation – Buyer’s Bank: The buyer then submits the purchase order data and BPO terms to its bank (the obligor bank). This data typically includes key details such as the PO number, description of goods, quantities, price, shipment date, buyer and seller info, and required data from shipping documents. The buyer’s bank uses this to create a Baseline in a transaction matching system (more on that system later). The baseline is essentially an electronic record of the agreed terms and data against which future documents will be matched.
3. Baseline Acceptance – Seller’s Bank: The seller (usually via its bank) reviews the baseline data. The seller’s bank will have received the same data through the matching platform and will confirm with the seller that it matches the sales contract/PO. If all is in order, the seller’s bank approves or “establishes” the baseline on its side. Now the BPO is considered issued and in force – the obligor bank has effectively given its conditional payment undertaking to the recipient bank. At this point (once the baseline is agreed/matched), the seller gets a green light that the BPO is in place and can proceed to ship the goods (Bank Payment Obligations (BPO) and the URBPO).
4. Shipment of Goods: The seller ships the goods as per the contract. Since this is still an open-account style transaction (no physical documents are channeled through banks as in an LC), the seller will send the shipping documents (e.g. bill of lading, packing list, etc.) directly to the buyer by courier or electronic means so the buyer can clear the goods at destination. However, the data from those documents will also be sent electronically through the banks for matching.
5. Data Presentation and Matching: After shipment, the seller prepares the required trade data for presentation into the system (usually this includes a commercial invoice data and key transport document data like BL number, shipment date, etc., and any other agreed documents’ data such as insurance or certificates if applicable). The seller (or the seller’s bank on its behalf) inputs this data into the transaction matching application. On the other side, the buyer (or buyer’s bank) will input or validate the corresponding data it has (for example, the buyer’s bank might already have the expected data from the baseline or from buyer’s ERP). The system now compares the seller’s data against the baseline (and/or buyer’s data). If all pre-agreed data fields match within allowable parameters, a “successful match” is achieved. This successful match is the trigger event for the payment obligation. The BPO now becomes an irrevocable obligation of the buyer’s bank to pay the specified amount to the seller’s bank on the agreed date (Bank Payment Obligations (BPO) and the URBPO).
   • Handling Mismatches: If the data does not match, it’s akin to a discrepancy under an LC. The banks will notify their clients of the mismatch. Common mismatches could be minor (e.g., a slight difference in the shipment date or quantity within an agreed tolerance) or major (e.g., wrong product shipped). The buyer (importer) may choose to accept a mismatch in the system – effectively waiving the discrepancy – which would then still trigger the BPO payment obligation. If the mismatch is not accepted (i.e., a material discrepancy), the parties might correct the data (if it was an error) and re-submit, or, if the issue reflects a real problem in performance, they might have to resolve it outside the BPO (the BPO could remain unfulfilled or be amended). Only when the data is matched or mismatches are explicitly accepted will the obligation to pay become binding (Bank Payment Obligation | Türk Ekonomi Bankası ).
6. Settlement (Payment): Once a successful match is confirmed, the process moves to settlement. On the due date agreed (which could be immediately upon match or a future date for deferred payment), the obligor (buyer’s) bank pays the obligor bank’s obligation to the recipient (seller’s) bank (Bank Payment Obligations (BPO) and the URBPO). Typically, the buyer’s bank will debit the buyer’s account for the amount (or utilize a credit line if the buyer is being financed) at this time. The seller’s bank, upon receiving the funds, will credit the seller’s account with the proceeds (or if it had already given an advance to the seller, it uses the funds to cover that). The BPO transaction is then complete.

This workflow shows that from the buyer and seller’s perspective, no physical documents are flowing through banks, but the banks are still very much involved in the transaction – they verify and match data and crucially, the buyer’s bank guarantees payment to the seller’s bank if all conditions are met (Bank Payment Obligations (BPO) and the URBPO) (Bank Payment Obligations (BPO) and the URBPO). The exchange of information happens digitally and in advance of payment, which gives both parties confidence: the seller knows payment is secured, and the buyer knows they won’t be debited until the shipment data is as agreed.

Trade Data Matching and the ISO 20022 TSMT System

The engine that makes the BPO possible is the trade data matching platform and the use of standardized electronic messages. BPOs rely on the ISO 20022 messaging standards for trade finance, specifically the series of messages with the prefix “TSMT” (Trade Services Management). These messages were developed jointly by SWIFT and the industry to support BPO processes ().

Here’s how data matching works in the BPO context:

• Transaction Matching Application (TMA): Both banks participate in a Transaction Matching Application, such as SWIFT’s Trade Services Utility (TSU) or similar platforms. This is essentially a secure electronic workspace where trade data from both sides is submitted and automatically compared. The TMA can be thought of as a neutral black box that only declares “match” or “mismatch” based on the data it receives, applying the rules set in the baseline. SWIFT’s TSU was one of the first such platforms, and it uses the ISO 20022 TSMT message set to communicate between banks. (Other technology providers or consortiums may offer compatible matching applications as well, but SWIFT’s network was the primary driver for early BPO adoption.)
• ISO 20022 TSMT Messages: ISO 20022 defines a whole range of structured XML messages for trade matching, numbered TSMT.001 up to TSMT.052 (). These cover every step of the process – from baseline creation (e.g., TSMT.001 might be a baseline submission message) to amendment requests, status messages, data set submission, mismatch notifications, etc. For example, when the buyer’s bank sets up the baseline, it would use a specific TSMT message to send the baseline data to the matching application and to the seller’s bank. Likewise, the seller’s bank uses a corresponding message to either accept or counter-propose the baseline. When the seller presents an invoice data set, another TSMT message carries those details in a structured format. Because both banks use the same standards, the matching engine can line up the fields and verify consistency automatically.
• Data Elements in a Baseline: The baseline is the core record of the transaction against which everything will be matched. It contains extracts of key information from the commercial documents of the trade. According to the ICC, a baseline’s data elements typically represent information from the purchase order, the commercial invoice, and transport/shipping documents, and can include insurance or certificate details as needed (). Some of the critical data fields captured in a baseline include: the identities of the buyer and seller and their banks (often identified by names and BIC codes), the transaction reference numbers, details of the goods (quantity, description), the amount and currency to be paid, shipment and delivery terms, the required documents (e.g., “invoice, transport document, insurance certificate”) whose data will later be checked, the due date or term of payment, any tolerance for discrepancies, and the applicable law or URBPO reference (Bank Payment Obligations (BPO) and the URBPO) (Bank Payment Obligations (BPO) and the URBPO). By agreeing on these data points up front, both banks know exactly what must match in order for the obligation to come due.
• Automated Matching: Once the baseline is established, subsequent data submissions (like an invoice data set or shipping data set) are automatically compared against the baseline within the TMA (e.g., TSU). The matching engine will check each required field. For instance, it will verify that the invoice amount is equal to the PO amount (within any allowed tolerance), that the shipment date is within the agreed period, that the transport document number provided by the seller matches one of the expected documents, etc. If everything matches, the TMA issues a match confirmation to both banks. If not, it will flag a mismatch and identify which field(s) differ. This automation dramatically speeds up the process – matching can occur within minutes of data submission, as opposed to days of document couriering and manual review under traditional LCs. It also reduces human error and subjectivity: the rules for what constitutes a match are predetermined, so there’s no ambiguity.
• Data Integrity and Security: Because the whole system runs on authenticated bank-to-bank communication (often over SWIFT’s secure network), the data’s integrity is high. Both banks trust that the data received via the TMA truly came from the other bank (who in turn got it from their client). Electronic data exchange also opens the door to integrating with corporates’ internal systems. Many companies can feed data from their ERP (Enterprise Resource Planning) systems directly to their bank via APIs or SWIFT messages, meaning the information flow can be end-to-end digital. This reduces the need for re-keying information and can further cut down errors. In fact, corporate adopters of BPO often integrate their supply chain management software or ERP with their banks’ systems to send and receive these ISO 20022 messages, creating a seamless process from issuing a purchase order to receiving payment ().

In short, data matching underpins the reliability of the BPO. It ensures that payment only occurs when the transaction data aligns with what was agreed, protecting the buyer, and that the decision to pay is not based on subjective judgment but on objective data criteria, protecting the seller from unfair refusal. The use of global standards like ISO 20022 and platforms like SWIFT TSU also means that any banks in the BPO ecosystem are speaking the same language, which facilitates broader adoption.

Risk Mitigation and Security Features of BPO

One of the primary reasons to use a BPO is to mitigate payment risk in international trade. In this respect, a BPO offers protection comparable to a letter of credit – and in some ways, it can even reduce certain risks inherent in documentary trade. Here’s how BPO helps manage risk:

• Assurance of Payment: For the exporter (seller), the BPO provides a bank-backed guarantee of payment. The seller is effectively replacing the credit risk of the foreign buyer with the credit risk of a bank (the obligor bank). Assuming the obligor bank is financially sound, this substantially reduces the risk of non-payment. Just like under an LC, as long as the seller fulfills the conditions (here, achieving a data match), they are assured to receive payment from the bank, even if the buyer were to default or go bankrupt in the meantime. This bank payment undertaking is irrevocable and independent, which means once the obligation is triggered, the buyer’s bank must pay regardless of any disputes between buyer and seller in the background (Bank Payment Obligation A new payment method). (Of course, if the data never matches due to a dispute, the obligation isn’t triggered – but then the seller wouldn’t ship in theory, preserving their control over the goods.)
• Conditional, Data-Driven Control: For the importer (buyer), the BPO ensures that payment will only be made if the seller delivers according to the agreed terms. The condition for payment is the matching of data that the buyer had a hand in agreeing to. If the seller fails to ship or ships wrong goods (reflected as data that doesn’t match the baseline), the buyer’s bank will not be obliged to pay unless the buyer agrees to accept the discrepancy. This gives the buyer similar control as with an LC, where they wouldn’t have to pay against discrepant documents. Moreover, because the buyer often is the one to initially provide or confirm the baseline data and can see the seller’s data in real-time, there is full transparency; the buyer is less likely to encounter surprises. In fact, BPO can reduce the incidence of discrepancies compared to LCs – since many data mismatches can be caught and corrected early in the process (even at PO stage or before shipment), rather than after documents have been presented post-shipment.
• Fraud Reduction: Traditional paper-based trade is vulnerable to fraud (e.g., forged documents) and discrepancies. BPO’s digital nature helps combat some of these issues. With electronic data direct from trusted sources (often transmitted straight from a company’s IT system to the bank), the scope for document forgery is reduced. Also, because no physical documents are circulating that could be lost or tampered with, the risk of document handling errors goes down. The automated checks will catch inconsistencies that a human might overlook. That said, it’s important to note that BPO does not guarantee the quality or existence of goods – banks deal in data, not goods. So the buyer still carries performance risk (just as with an LC: banks check documents, not goods). But the fact that both parties have agreed on the dataset and see the matching results mitigates the risk of certain types of fraud. In summary, BPO offers a level of security by using data as a proxy for documents, reducing fraud and errors through automation (Bank Payment Obligations (BPO) and the URBPO).
• Neutral Intermediary (Bank) Involvement: Because a bank is interposed in the transaction, trust is enhanced. The buyer and seller might not fully trust each other, but both can trust the banks to follow the rules. The banks, in turn, trust the ICC URBPO framework. Just as LCs introduced the concept of an independent trusted intermediary, BPO continues that tradition in a digital way. The bank’s obligation is what gives the instrument teeth. Sellers can also request their bank to add additional comfort – for instance, a seller might only enter into a BPO if the obligor bank is highly rated, or else ask for their own bank to secure confirmation or insurance for the obligor bank’s payment (outside of the URBPO scope, but as a parallel arrangement).
• Known Timing of Payment: Once the data matches, the BPO sets an irrevocable payment date – this could be immediate or a future due date, but it’s locked in (). For the seller, this eliminates the uncertainty of when they will get paid (especially compared to open account where the buyer might delay payment). And for the buyer, it means the obligation to pay is only at that date, not earlier, which helps in cash flow planning. In other words, BPO guarantees payment and timing, which reduces the risk of late payment or non-payment from the seller’s perspective and ensures the buyer isn’t paying before they’re supposed to.
• Legal Framework and Enforceability: URBPO rules give confidence that the BPO is recognized as a standard banking instrument. Early on, ICC obtained legal opinions that a BPO would be treated similarly to an LC under various national laws, meaning it should be enforceable in courts if ever a bank tried to renege. Each BPO specifies a governing law (often the law of the obligor bank’s country) (Bank Payment Obligations (BPO) and the URBPO), and because it’s essentially a contract between two banks referencing URBPO, it is a robust obligation. This mitigates the legal risk of using a new instrument – banks and corporates can be confident the BPO stands on solid legal ground (much of the language mirrors LC concepts).
• Not Transferable, but Assignable: One risk-related aspect is that the BPO is not transferable to another beneficiary the way an LC can be (where a seller could transfer it to a sub-seller). URBPO explicitly states the BPO is bank-to-bank and non-transferable (). However, it is possible to arrange an assignment of proceeds. For example, if the seller wants the payment to actually go to a third party (perhaps a supplier or a financing party), the seller’s bank can arrange to transfer the money to that third party once received. This is similar to assigning the proceeds of an LC – it doesn’t change the beneficiary of the BPO (the seller’s bank remains the beneficiary from the obligor bank’s perspective), but it directs who ultimately gets the funds. Also, if needed, banks could offer a service analogous to transferring an LC by setting up back-to-back BPOs or other mechanisms, but these would be outside the standard and on a case-by-case basis ().

In essence, the BPO gives exporters a secure payment promise and importers a guarantee that they will only pay for what they ordered. It mitigates the risk of non-payment, late payment, or payment for wrong goods through an independent banking mechanism. Both parties gain confidence to trade, even if they are new to each other or in volatile markets, without resorting to full documentary credits.

BPO as an Enabler for Supply Chain Finance (SCF)

Beyond being a payment instrument, the BPO plays a significant role as an enabler of Supply Chain Finance. Supply Chain Finance (SCF) refers to techniques that optimize cash flow for buyers and sellers in a supply chain – often through financing solutions like receivables discounting, payables extension, and inventory finance. According to the Standard Definitions for Techniques of Supply Chain Finance (ICC, 2016), the BPO itself is not classified as a specific SCF technique, but rather an enabling framework that can support various financing arrangements (). Here’s how BPO can facilitate different types of trade financing:

• Post-Shipment Finance (Receivables Discounting): Once a BPO is issued and the transaction data is successfully matched (i.e., after shipment, when the obligor bank’s payment obligation is firm), the seller or the seller’s bank holds a strong receivable – essentially a claim on the obligor bank, payable at the agreed future date. This receivable can be discounted for early payment. In practice, the seller’s bank will often provide the seller with the payment immediately after match (or shortly thereafter), less a financing fee, rather than waiting until the due date. The bank is willing to do this because the risk it holds is not the exporter’s risk anymore, but the risk of the obligor bank (typically a well-rated international bank). This is analogous to an LC where a confirming or negotiating bank might pay the exporter at sight even if the LC is usance, because the bank has the undertaking of the issuing bank. Under a BPO, the discounting of the deferred payment is a straightforward proposition since the obligor bank’s liability is confirmed (). This kind of financing improves the seller’s cash flow – they get their money right after shipping (or data match) – while the buyer still pays later as per terms. It’s a win-win: the seller gets immediate funds, the buyer effectively gets extended credit (since their bank will only debit them at maturity).
• Pre-Shipment Finance (Packing or Work-in-Progress Finance): The presence of a BPO can also facilitate pre-shipment finance for the seller (). Pre-shipment finance (sometimes called packing credit) means providing funds to the exporter to produce, process, or prepare the goods before shipment. Normally, banks might give pre-shipment loans against an export LC or a confirmed order from a creditworthy buyer. In the case of BPO, once the baseline is established (i.e., the buyer’s bank has issued the BPO conditional on shipment data match), the seller’s bank has some comfort that if the seller ships as agreed, the obligor bank will pay. This assurance can be used to justify a pre-shipment loan to the seller. Essentially, the seller’s bank can lend working capital secured by the pending BPO payment. If the seller then ships and the data matches, the loan will be repaid from the BPO settlement. (If the seller fails to ship, the loan might be at risk – so the bank will still underwrite the seller’s performance risk – but the BPO reduces the buyer credit risk component.) For the seller, this means they can fund the production of the goods even if they wouldn’t normally have the cash, which is especially valuable for SMEs or cash-constrained suppliers.
• Extended Payment Terms (Buyer’s Payables Finance): One of the advantages of a BPO is the flexibility in timing of the payment. Buyers often want to maximize their days payable (take longer to pay) to improve cash flow, whereas sellers want to minimize days sales outstanding (get paid faster). A BPO can facilitate both through a finance arrangement. For example, a buyer and seller might agree on extended payment terms – say the buyer will pay 90 days after shipment instead of the usual 30. Under open account alone, that puts all the cash flow burden on the seller. But with a BPO in place, the seller’s bank can step in at shipment to finance the seller (as described in post-shipment finance above), so the seller effectively gets paid at shipment minus a small interest cost. The buyer, on the other hand, only has to pay at 90 days to their bank. From the buyer’s perspective, their bank is essentially providing reverse factoring or payables finance – paying the supplier’s bank now and collecting from the buyer later. The BPO provides the security to the supplier’s bank that the payment in 90 days is guaranteed by a bank, not just a hope that the buyer will pay on time. In the BP (British Petroleum) case study, BP used BPOs for commodity purchases in a way that allowed them to only use their credit lines when the shipment was about to arrive (instead of when the order was placed), effectively giving them extended time to pay suppliers without hindering the suppliers’ cash flow (BP agrees first European multi-bank BPO | Global Trade Review (GTR)). This demonstrates how a BPO can be leveraged to unlock working capital for the buyer while still assuring timely payment to the seller.

By enabling these financing techniques, BPO supports a range of SCF solutions:

• It turns trade data into a financing trigger. Once a match occurs, banks know the trade is real and can attach financing to it with confidence.
• It leverages the buyer’s bank credit. Often in SCF, the stronger credit (buyer) is leveraged to help finance the weaker party (seller). In a confirmed BPO scenario, the seller effectively benefits from the buyer’s bank’s credit rating.
• It improves cash flow for both sides. Sellers get faster access to cash (via discounting), and buyers get more time to pay (the bank intermediates the timing).
• It is particularly useful in open account trade flows where traditionally the seller had to either wait for payment or factor invoices at a high cost. With a BPO, the factoring (discounting) cost might be lower because the risk is the obligor bank’s risk, which could be rated higher than the buyer itself, leading to better financing rates.

To sum up, while the BPO is first a payment instrument, it secondarily serves as a platform to inject financing into the supply chain at various stages. Banks and corporates have recognized this and in many cases, the decision to utilize BPO is driven by the desire to implement supply chain finance programs (for example, a large buyer could roll out BPO-based terms to key suppliers to give them comfort and enable those suppliers to get financing). The ICC specifically notes that BPO opens new possibilities for financing in addition to its role in securing payment ().

Benefits of BPO for Buyers and Sellers

The BPO brings a host of advantages to all participants in a trade. We’ll break down the benefits for exporters (sellers) and importers (buyers) separately, and also note how banks and the broader trading relationship benefit.

Benefits for Exporters (Sellers)

For companies selling internationally, especially those dealing with buyers on open account, the BPO can significantly improve their position:

• Payment Security (Reduced Non-Payment Risk): The most obvious benefit is that the seller obtains a secure payment undertaking from a bank. This assurance of payment is comparable to having an LC or a bank guarantee – it greatly reduces the risk of not getting paid (). If the buyer fails to pay or goes insolvent, the seller still has the obligor bank obligated to pay. For sellers in markets or industries where open account has become standard, BPO offers a way to get similar security to an LC without the hassle. This can be a game-changer for small or medium exporters who cannot afford an LC for every shipment but still want to mitigate risk.
• Faster Access to Funds (Improved Cash Flow): Once the shipment data matches, the payment date is fixed. If the BPO is at sight or if the seller’s bank agrees to finance, the seller can get paid much faster than waiting for an open account payment term. Even if the BPO is usance (payable after some delay), the seller’s bank can often provide a discounted payment immediately upon data match because the bank knows it will receive funds from the buyer’s bank later (). This earlier access to cash means the seller can reinvest in their business sooner, pay their suppliers, or fulfill other orders without waiting, thereby improving the working capital cycle.
• Simplified Process & Lower Costs than LCs: Compared to letters of credit, BPOs involve no physical documentation to prepare and present to banks, which reduces administrative burden. Sellers don’t need to assemble a complex dossier of documents for bank scrutiny. The data submission is typically electronic and can be automated, saving time. This can translate to lower bank fees as well – with an LC, sellers often pay advising fees, confirmation fees, discrepancy fees, etc. With a BPO, the fee structure is typically simpler (likely a one-time fee for the BPO issuance and perhaps a fee for each data match, depending on the bank). Fewer discrepancies also mean fewer extra charges. Overall, the transaction cost may be lower for the seller, which is particularly beneficial for SMEs or for lower-margin trades.
• Fewer Discrepancies and Disputes: Because the criteria for payment is just matching data (which the seller knows in advance) and because the buyer is involved in checking data upfront, the seller is less likely to face disputes at the last minute. In a traditional LC, a small typo in a document can lead to non-payment and a headache negotiating a waiver. In BPO, such issues are often ironed out in the data stage. The phrase “acceptance of mismatches” exists – meaning minor issues can be resolved by the buyer’s acceptance electronically (Bank Payment Obligation | Türk Ekonomi Bankası ). This is a more straightforward path than having to officially waive discrepancies under an LC. For the seller, that means more certainty that once they’ve shipped correctly, payment will not be held up by red tape.
• Speed and Efficiency: Sellers benefit from the fact that the matching confirmation can happen within hours of sending the data. For example, a seller might upload invoice and shipping data the same day the goods depart, and get a confirmation of match almost immediately (BP agrees first European multi-bank BPO | Global Trade Review (GTR)) (BP agrees first European multi-bank BPO | Global Trade Review (GTR)). They could potentially receive funding that very day. There’s no waiting for courier of documents overseas and no waiting the 5-10 days for an LC to be checked. This speed can be crucial if the seller is reliant on the funds or if they need to release goods quickly. Moreover, the overall time and effort saved on paperwork allows sellers to focus more on their business and less on document preparation.
• Access to Finance for SMEs: Smaller exporters often struggle to get affordable financing. Banks might be hesitant to lend against just an invoice from an unknown foreign buyer. But with a BPO in place from a reputable bank, an SME exporters suddenly has a bank-guaranteed receivable. This can make it much easier to obtain financing (be it discounting from their own bank or even selling the receivable to a third-party funder) because the risk is tied to the obligor bank. In essence, the SME can leverage the credit of the larger buyer or its bank. This democratizes access to trade finance – in an ideal scenario, even an SME in an emerging market can export on open account to a large buyer, and still enjoy security and financing as if it had an LC. BPO thus helps increase SMEs’ access to trade finance by reducing reliance on traditional collateral and providing a banking instrument that can be used to raise funds.
• Stronger Customer Relationships: Offering or requesting a BPO can be seen as a sign of a collaborative relationship. It shows that the seller trusts the buyer enough to ship on data match (rather than insisting on full documentary checks), and the buyer cares enough to secure a bank obligation for the seller. This enhances the trading relationship and can lead to more business. As noted in industry reports, companies that completed BPO transactions laud its potential to enhance long-term relationships between trading parties (). Sellers who can provide flexible open-account terms but still secure their risk via BPO might become preferred suppliers to big buyers.

Benefits for Importers (Buyers)

Buyers (importers) also gain significant advantages by using BPO as opposed to other payment methods:

• Extended Credit and Better Cash Flow Management: With BPO, a buyer can often negotiate more favorable payment terms from the seller. Since the seller knows they have bank-guaranteed payment, they may be willing to offer longer payment tenors or accept payment at a later date. The buyer, therefore, can improve their days payable outstanding – essentially get goods now and pay later, which is great for cash flow. Crucially, the buyer’s bank may only have to fund the payment when it’s actually due, not from the moment of shipment. In a letter of credit, the buyer often needs to have credit capacity tied up from the moment the LC is issued (before shipment). In a BPO, as illustrated by the BP example, the buyer can wait until goods are almost arrived or data is matched to start using their credit line (BP agrees first European multi-bank BPO | Global Trade Review (GTR)). One expert noted that with BPO, buyers “start using their credit lines only when the ship arrives and not while it’s being prepared” (BP agrees first European multi-bank BPO | Global Trade Review (GTR)). This means if an order is canceled midway (before shipment), the buyer has not needlessly encumbered their capital – a flexibility LCs don’t easily allow. In short, buyers get more time to pay without jeopardizing the seller’s confidence, effectively benefiting from supplier financing facilitated by the bank obligation.
• Simplified Trade Administration: BPOs eliminate much of the paperwork that import departments deal with under LCs. The buyer does not need to manage the issuance of an LC months in advance, nor scrutinize a stack of original documents upon arrival. Instead, they deal with digital data, which can be integrated into their own systems. They receive the shipping documents directly from the seller (so they still get what’s needed for customs), but they are freed from handling documents through the bank. This can lead to lower transaction costs (banks may charge lower fees to the buyer for a BPO than an LC issuance) and less internal overhead (fewer discrepancies to resolve, fewer communications back-and-forth). Essentially, BPO can streamline the procurement and accounts payable process for importers.
• Confidence in Receipt of Goods as Ordered: While banks under BPO don’t check the physical documents for discrepancies as they would under an LC, the buyer still has a high degree of control that the shipment meets the agreed terms. Since the BPO requires matching the data the buyer agreed to in the baseline, the buyer is assured that the seller had to input data that matches what was expected (or the buyer would simply not authorize the match). If the seller shipped something completely different, it would likely show up in the data (or the seller wouldn’t even attempt to present, since they know it wouldn’t match). Additionally, because the buyer typically gets the actual documents directly, they can verify quality/quantity on their own terms without delaying payment (payment is handled by the bank obligation). In many cases, the BPO will be structured so that the buyer only pays upon or after arrival of goods, giving the buyer a chance to inspect or ensure everything is in order. Overall, the buyer can be more relaxed about performance risk knowing that payment isn’t released unless the agreed conditions are met, and they still hold the ability to approve mismatches.
• Speed in Supply Chain: BPO can speed up the physical supply chain from the buyer’s perspective. Under LCs, sometimes goods are held up because documents are stuck in banking channels or because of discrepancies that need resolution. With BPO, the buyer receives documents directly without delay (Bank Payment Obligations (BPO) and the URBPO) and can clear the goods immediately. The electronic matching happens in parallel and doesn’t hold up the cargo. This is particularly useful for just-in-time supply chains or when goods are needed urgently. Any hiccups in data can be sorted out quickly via electronic communication, rather than couriering amendments or such. So the buyer benefits from faster availability of goods.
• Potential Cost Savings: Buyers might find BPOs cost-effective. While banks will charge fees for providing a BPO (the buyer’s bank will likely charge an issuance fee or an obligor fee similar to an LC issuance commission), these fees might be offset by savings elsewhere. For example, fewer discrepancy fees (which often end up on the buyer’s account in LCs), fewer amendment charges, and possibly better pricing from sellers (if sellers feel comfortable, they might not pad the price for risk). Moreover, if the buyer’s bank has an efficient system, the operational cost of handling a BPO can be lower than an LC, which could translate to competitive fees. From a holistic view, the total cost of ownership of the transaction can be lower.
• Strengthened Supply Chain & Supplier Relations: By offering to pay via BPO, a buyer signals to the seller that they are committed to a fair and secure transaction. This can improve trust. A buyer with a strong bank relationship can essentially extend that strength to its suppliers, which is especially meaningful if the buyer is a large company dealing with smaller suppliers. The suppliers feel supported (they’re getting a bank guarantee of payment), which can make them more willing to extend favorable terms or prioritize that buyer’s orders. In competitive procurement, being able to offer a BPO payment term could make a buyer more attractive to suppliers who would otherwise be nervous about open account. It’s a tool to balance risk and maintain goodwill in the supply chain.

Overall, the buyer gains flexibility and efficiency, while still maintaining control and securing their supply of goods. BPO allows the buyer to operate in an open-account mode (which they typically prefer) but with much less risk of something going wrong compared to pure open account. This is why BPO is often described as a “win-win” – it addresses key pain points for both sellers and buyers.

Benefits for Banks and the Trade Ecosystem

While our focus is on buyers and sellers, it’s worth noting that banks also benefit from offering BPOs, which in turn is good for the trade finance ecosystem:

• Banks can expand their services in the open account space, staying relevant as LCs decline in usage. They can earn fee income from BPO issuance and related financing services, while providing value to clients.
• The four-corner model and standardization mean banks don’t have to build one-off solutions with each corporate; they have a globally accepted method to facilitate trade, which can increase efficiency and volume of trade finance they handle ().
• With BPO, banks also get better visibility into their corporate clients’ trade flows (since they see purchase orders and shipping data), potentially allowing them to offer more tailored financing or other products around those flows.
• The use of BPO can lead to stronger client relationships for banks: a bank that helps its client implement BPO-based supply chain financing is likely to deepen that relationship on both sides (with the buyer who issues BPOs and the seller who benefits from them).
• On a macro level, instruments like BPO can help close the trade finance gap by making financing more accessible. They are particularly promising for regions and sectors where traditional LCs are less common but trust is still an issue. BPO can boost trade in emerging markets by giving more secure options that are digitally accessible.

Implementation and Considerations: Contracts and Documentation

To successfully use a BPO, there are some important practical and contractual considerations for companies and banks:

• Commercial Contract Terms: The sales contract between buyer and seller must clearly specify that payment will be made via a Bank Payment Obligation. It should outline the key terms that will go into the BPO baseline: for example, the amount, the latest shipment date, the payment due date (tenor), what documents/data are required (invoice, bill of lading, etc.), and crucially, it should specify the banks involved (which bank will issue the BPO and which will receive it) and that ICC URBPO rules will apply. By agreeing on these in the contract, both parties know what to expect, and this agreement serves as the foundation for the baseline that the banks will later mirror (Bank Payment Obligations (BPO) and the URBPO). Also, the contract can state what happens in case a BPO match is not achieved (perhaps fallback arrangements, though typically if no match, no delivery should occur or an alternative payment must be pursued by mutual consent).
• Agreement with Banks: The buyer will have to have an arrangement with their bank to issue BPOs. This often means the buyer applies for a BPO issuance much like they would apply for an LC. The bank will assess the buyer’s credit and assign a credit line or lending facility to cover the BPO (since the bank is taking on an obligation). The buyer will sign an agreement (perhaps a supplement to their trade finance agreement) that, among other things, requires them to reimburse the bank on due date for any payment made, and possibly to pay certain fees. The seller, on the other side, will need an agreement with their bank to receive BPOs. The seller’s bank (recipient bank) might have the seller sign an agreement that if a BPO is issued in their favor, how the bank will inform them and pay them, etc., and any fees for advising or processing the BPO. Both banks also need to be part of a BPO network (like SWIFT’s TSU) and adhere to URBPO. In practice, banks that offer BPO will have internal guidelines and client onboarding procedures for it. It’s wise for companies to talk to their banks early to ensure they can handle BPO and to set up the necessary tech connections (like enabling SWIFT MT 798 for corporates or other interfaces for sending data to the bank).
• Technology Integration: As mentioned, one of the strengths of BPO is digital integration. Corporates should consider integrating their order and invoicing systems with the bank’s BPO platform. This could be via a bank-provided portal where data can be uploaded, or a direct host-to-host connection sending XML messages. While smaller companies might use manual input on a web portal, larger companies will want straight-through processing from their ERP. During implementation, a company might need to adjust its internal process: for example, ensuring that the sales and logistics teams provide the required data in the right format to the finance team or directly to the bank. The ICC has noted that implementing BPO can be a “business paradigm shift” touching sales, legal, accounting, and operations () () – meaning all those departments should be prepared for a new way of working (less paper, more data exchange). The good news is many companies already use electronic data for invoices and payments, so extending that to trade data is feasible ().
• URBPO and Legal Documentation: Both banks will explicitly reference the URBPO in the BPO they establish. The BPO is usually issued electronically, but there may be a brief BPO issuance document or message that gets generated, containing key terms of the obligation (akin to an LC instrument but digital). This will include references like the URBPO publication, governing law, etc. Companies usually won’t see that message directly (it’s bank-to-bank), but they should receive some form of advice from their bank confirming the BPO details. It’s important that the companies verify that those details match the contract. Any amendments (changes in amount, dates, etc.) must be agreed by both buyer and seller and then effected through the banks via the matching system.
• Costs and Fees: Companies should discuss fees with their banks. Typically, the buyer (importer) will pay an issuance fee or commission to the obligor bank for issuing the BPO (similar to an LC opening commission, often a percentage per annum applied to the amount for the duration until payment). The seller might pay a fee to its bank for advising the BPO or for each data set handled. If financing is involved (discounting), there will be interest charges to consider. Early on, some banks offered attractive pricing on BPO transactions to encourage use. Over time, pricing is expected to reflect the risk and effort – which is generally less than an LC, but more than pure open account.
• Bank Readiness: Not every bank globally is enabled for BPO. Before relying on a BPO, the buyer and seller should confirm that their respective banks offer BPO services and are part of a compatible matching network. As of the mid-2010s, dozens of major banks joined the BPO initiative (BPO and Supply Chain Finance: The Perfect Symbiosis? – The Global Treasurer), but some smaller banks might not have invested in it. If a seller’s bank cannot handle BPO, the seller might need to find an intermediate bank that can act as recipient (almost like using a correspondent). However, this adds complexity. Ideally, trading partners will use banks that are already participating in the BPO ecosystem (often these are large international or regional banks). The ICC, SWIFT, or national banking associations sometimes provide lists of banks that have capability.
• Scalability and Multi-Bank Transactions: In large deals or when a corporate uses multiple banks, there are ways to structure BPO transactions accordingly. For instance, a large importer who has a syndicate of banks financing its purchases could theoretically split orders and have different BPOs issued by different banks for portions of the deal. However, a single BPO is a one-obligor-bank to one-recipient-bank obligation by design (). To distribute risk or involve multiple banks on one side, banks have to use additional techniques. One proven approach is risk participation: the obligor bank might internally arrange for other banks to take a share of the BPO exposure (either funded or unfunded) through separate agreements. This doesn’t change the outward-facing BPO, but it means behind the scenes multiple banks share the risk. Another approach is the “multi-bank BPO” framework, which really refers to the standard four-corner model (two banks) as opposed to the three-corner model (one bank doing both sides) (BP agrees first European multi-bank BPO | Global Trade Review (GTR)). In 2014, BP facilitated a large petrochemicals trade using a BPO where BNP Paribas was the obligor bank and another bank (Isbank) was the recipient, calling it a multi-bank BPO deal (BP agrees first European multi-bank BPO | Global Trade Review (GTR)). That highlights that bigger transactions can be done via BPO with the right banks involved, even across borders. If a single BPO amount is extremely large, banks might also consider syndicating via parallel BPOs (e.g., splitting the contract into two BPOs each handled by a different pair of banks for portions of the amount). All these need careful coordination but are possible. For most everyday transactions, this isn’t needed, but it’s good to know BPO can scale to large deals – banks just manage the risk among themselves much like they do with big LCs (through confirmations or participations).
• Fallback Plans: It’s prudent to have a contingency plan in case the electronic matching hits an impasse (for instance, if there’s a technical failure or a dispute). Buyer and seller can agree that if a BPO fails to match due to technical error, they’ll still honor the deal via another method (like revert to an LC or simply proceed on open account with perhaps a bank guarantee). Such situations have been rare, but planning for them is part of good risk management. Similarly, if one party’s bank can’t perform (say the obligor bank has sanctions issues at the time of payment), the parties should communicate and find solutions (like arranging a different bank to step in).

In summary, implementing BPO requires aligning the commercial agreement, the banks’ arrangements, and the technology and processes. Companies should involve their treasury, trade finance, legal, and IT teams when setting up a BPO capability. Once set up, executing transactions becomes quite smooth. Many early adopters have noted that after a learning curve, processing a BPO is efficient and repeatable, making it ideal for regular trade flows.

Conclusion: A Modern Tool for Secure and Efficient Trade

The Bank Payment Obligation represents a significant innovation in trade finance, marrying the trust and security provided by banks with the speed and efficiency of data-driven processes. For businesses engaged in international trade, a BPO can offer the best of both worlds: the comfort of bank-intermediated payment (like a letter of credit) and the simplicity of electronic, paperless transactions (like open account). By using BPO, exporters gain peace of mind and quicker access to money, importers gain flexibility and streamline their supply chain, and banks continue to play a crucial role in facilitating global commerce in a digital era.

In the context of Supply Chain Finance, BPO is a powerful enabler – it opens doors for financing at multiple stages of a trade, helping to bridge financing gaps especially for small suppliers. It’s a tool that can strengthen partnerships: large corporates can support their smaller partners, and all parties can benefit from greater transparency and predictability. As ICC and SWIFT have standardized the BPO through URBPO and ISO 20022, the framework is in place for businesses and banks worldwide to adopt it confidently (Bank Payment Obligations (BPO) and the URBPO) ().

While the uptake of BPO started gradually, awareness has grown. Many global banks have piloted BPO transactions and proven its value. Going forward, as supply chains become ever more digital and as companies seek resilience (for instance, the ability to secure trade transactions without relying solely on physical documents – a lesson underscored by recent global disruptions), the BPO is well-positioned to play a bigger role. It stands as a future-proof instrument aligned with the ongoing digitization of trade.

For companies considering BPO, the advice is: work closely with your banking partners. Ensure both your buyer or seller and the banks are committed and capable. Start with a pilot transaction to familiarize all parties. Leverage the ICC resources and official guides to understand the rules and best practices. And importantly, educate internal stakeholders – the more seamless the integration of data and processes, the more value BPO will deliver.

In conclusion, the Bank Payment Obligation is a compelling option for international payment and finance. It reduces risk, improves efficiency, and enhances financing opportunities. Whether you are an SME exporter looking for secure payment, or a large importer aiming to optimize working capital, the BPO offers a modern solution to age-old trade challenges. As one trade finance expert succinctly put it: the BPO is an irrevocable commitment to pay, triggered by data – bringing trade finance into the digital age with reliability and confidence (BPO and Supply Chain Finance: The Perfect Symbiosis? – The Global Treasurer) (BPO and Supply Chain Finance: The Perfect Symbiosis? – The Global Treasurer).

Sources:

• ICC Banking Commission, Uniform Rules for Bank Payment Obligations (URBPO), ICC Publication No. 750 (Bank Payment Obligations (BPO) and the URBPO) (Bank Payment Obligation | Türk Ekonomi Bankası).
• SWIFT & ICC, Bank Payment Obligation – FAQs and Guidance.
• Trade Finance Global, What is a Bank Payment Obligation? (Definition and comparison to LCs) (Bank Payment Obligations (BPO) and the URBPO) (Bank Payment Obligations (BPO) and the URBPO).
• Global Trade Review (GTR), “BP agrees first European multi-bank BPO” – Case study on BPO in practice (BP agrees first European multi-bank BPO | Global Trade Review (GTR)) (BP agrees first European multi-bank BPO | Global Trade Review (GTR)).
• The Global Treasurer, “BPO and Supply Chain Finance: The Perfect Symbiosis?” – Discussion on BPO’s role in SCF (BPO and Supply Chain Finance: The Perfect Symbiosis? – The Global Treasurer) (BPO and Supply Chain Finance: The Perfect Symbiosis? – The Global Treasurer).
• Commerzbank Whitepaper (Trade Finance Global), “Whitepaper on BPO” – Benefits analysis for all parties.