by Vinod Madhavan

Corporates have always demanded automation in trade and supply chain finance (SCF). Whilst significant gains in automation have been achieved in the cash area, trade and supply chain finance has yet to shake off its unwieldy reputation when it comes to embracing automation. Whilst the benefits of electronification of supply chain finance are obvious, implementation has been replete with challenges - resistance to industry adoption, archaic processes, legal and compliance-related issues.

Corporate treasurers should monitor the developments concerning the Bank Payment Obligation (BPO) - an industry-driven adoption of standards which aims to address the divide between the risk profiles of documentary trade vs. open account and to help the corporate sector realize operational efficiencies.

Macro trends in electronification of SCF

Electronification of supply chain finance consists of automation in the financial supply chain, i.e., automation of the payment process ("procure to pay") and the invoice process ("order to cash") across the entire supply chain and, if possible, on a standardized single platform. In some scenarios, there is also automation in financing using appropriate triggers in the supply chain.

These developments emanate from technological advances, as well as the increased process automation and easy access to information, the electronification of purchase orders, e-invoicing, invoice matching services, open account payments, etc. This also helps corporates to realize material administrative productivity efficiencies in addition to allowing downstream optimization, e.g., centralized invoicing if the corporate goes down the path of a re-invoicing centre.

Among the many macro trends/drivers pushing increased electronification of supply chain finance, two merit mention:

1. Globalization and improvements in infrastructure

Over the last decade, globalization and improvements in transportation and logistics have led to massive gains in turnaround time. From the procurement-to-manufacturing process to the delivery of goods and services, the physical supply chain has become far more efficient than the financial supply chain, which is still buried in cumbersome physical documentation. This has become one of the key catalysts in the electronification of supply chain finance.

2. Emerging market supply chains

Faster growth in international trade with emerging markets is apparent, but that the end-to-end supply chain is increasingly becoming entirely located in these emerging markets is interesting. Corporates initially looked to leverage cost arbitration by moving production to the emerging markets. Subsequently, the demand from the growth in the domestic markets in these locations meant that the output from production would be met by domestic consumption. This is different from the traditional supply chain model, of the buyer's being in a developed market and the supplier in emerging markets. The inefficiencies inherent in emerging markets mean that corporates and corporate treasurers are increasingly focused on getting traction in electronification.

Benefits of (and resistance to) electronification

All participants in the supply chain ecosystem benefit from better risk management and reduction in the high transaction costs associated with processing paper invoices and payments. Corporates, both buyers and suppliers, can realize benefits by avoiding costs of delayed/incorrect and missing documentation. Additionally, they as well as intermediaries, including banking service providers, can benefit by avoiding duplication in data entry at multiple points in the supply chain.

Even though all participants in the supply chain can realize the benefits, adoption of electronification has been fairly slow. Some of the key reasons are:

Lack of common standards:

Lack of common standards in terms of electronic file or messaging standards and/or competing proprietary standards has impeded the adoption of electronification. This has been further compounded by changes in geographic flows of international trade, especially toward emerging markets.

Legal framework and lack of legal precedents

Lack of legal precedents concerning electronification of documents in emerging markets is a major hindrance. A number of developing markets have archaic procedures of licensing/ reporting/legalization that make the transition to electronic documents very difficult. As a result, in most cases, there is a need to continue with processing paper in an off-line mode with an aim to de-link the financial transaction flow from the paper flow.

Perfection of assignment of receivables and enforceability of purchased receivables

In addition to the above, nuances of the "perfection of assignment", as per local jurisdiction, need to be taken into consideration, especially when the suppliers reside in more challenging regulatory environments. Perfection of assignment is critical to ensure that the assignee has the legal rights to the receivable inflows in the event of a liquidation of the supplier, rather than the cash going into the liquidator's pool. And "perfection" requires adhering to local differences that vary from market to market. The need to notarize invoices is one such example.

Regulatory complexity

Along with evolution of international trade, the regulatory requirements for banks and corporates have also become complex. Compliance and sanctions requirements have increased, and counterparty risks need to be actively managed, monitored and, in certain instances, reported on. The complexity of tax regulations, especially in emerging markets, further complicates matters.

Is BPO a key step toward the solution?

ICC and SWIFT have collaborated to launch the Bank Payment Obligation (BPO) in their quest to promote greater efficiencies in the supply chain in a bank-agnostic manner. To achieve this, the two organizations worked with key stakeholders in the supply chain arena to deliver a complete package of new rules for the BPO, the URBPO (Uniform Rules for BPO). In-addition, new messaging standards (ISO 20022 standards) and a cloud application (SWIFT's TSU) have also been leveraged to build the business framework around the BPO.

The new rules and messaging standards enable banks to leverage electronic transaction data exchange (electronified information relating to the purchase order, invoice and transport documents) to offer corporates the benefits of better risk mitigation, increased visibility and quicker turnaround times. It's important to note that the rules and messaging standards are system-independent. Banks could initiate BPOs on applications other than the TSU.

Both the buyer corporate and the supplier/seller corporate can realize specific benefits from using the BPO. Below is a quick summary of these benefits:

In our opinion, the BPO has reached the fusp for increased adoption because it potentially offers solutions to the blockages to electronification in SCF mentioned earlier, specifically:

• The URBPO offers a common standard of interface within the banking industry, leveraging ISO 20022 standards, that is application/vendor-agnostic. Also, the BPO's operations within the TSU are governed by TSU's operational guideline, which is known to all participating banks.

• The BPO is likely to have a strong legal footing as a financial instrument for which ICC will develop industry standards that will apply to a BPO transaction, irrespective of the platform and bank creating and transacting it, thereby forming a robust foundation. Following the rollout of the URBPO, banks will have an industry-wide framework to leverage in the event of disputes between banks akin to that in UCP 600. In that sense, the URBPO is likely to benefit from grandfathered precedents from the UCP, which was first issued in 1933.

• The BPO should also find increased and easy acceptance within the various regulatory regimes, especially in emerging markets, after the rollout of the URBPO.

• Finally, financing solutions that will be offered around the BPO, ranging from pre-shipment financing to post-shipment post-acceptance financing, will be governed by the terms and conditions between the bank and the corporate. It is expected that banks will address potential issues around the perfection of assignment, in addition to ensuring compliance with local regulatory requirements.


With the concerted effort from the supply chain ecosystem participants for electronification, coupled with the embrace of technological advancements, corporate treasurers can and should leverage the rollout of the URBPO to realize the benefits from its early adoption. This will be a major step in the journey toward the holy grail of supply chain management - an integrated end-to-end solution/operating model, fully automating buyers' "procure-to-pay" and suppliers' "order-to-cash" cycles, allowing both buyers and suppliers to focus on leveraging the macro-trend of the growth in international trade.

Vinod Manhavan is Managing Director & Global Head Local Corporates products, Receivables & Supply Chain, Transaction Banking, Standard Chartered Bank. His e-mail is