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Trade Finance
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BPO: a Valuable Component in Supply Chain Finance

by Frank-Oliver Wolf, Global Head Cash Management & International Business, Commerzbank AG

Frank-Oliver WolfIn an era of technological progression and innovation, corporate demand for efficient, reliable trade solutions is increasing; a trend reflected in the fact that no less than 90% of international trade flows are now conducted on open account.

Yet while corporates may be relatively comfortable trading on these terms with longstanding, trusted counterparties, new relationships in unfamiliar trade corridors are best approached with an element of caution. In this respect, open account trading offers little in the way of risk mitigation – particularly when compared with the traditional, secure, stalwart solution of the letter of credit (LC).

The answer, therefore, could lie with the bank payment obligation (BPO). BPO offers a level of security that cannot be provided when trading on open account while, at the same time, eradicating the significant documentation demands of LCs. What is more, with demand for liquidity, management of risk and working capital increasing across the supply chain, BPO also offers the opportunity to attain financing and manage risk throughout the value chain.