By Denise Bedell
BP Chemicals expects great reward from the Bank Payment Obligations—or automated letter of credit—program it launched recently, according to David Vermylen, global credit manager for petrochemicals at the firm. BP chemicals is one of two companies—Vale of Brazil being the other—that is involved in a proof of concept pilot using SWIFT’s Trade Services Utility to handle BPO information transfer.
Vermylen expects savings of around $2 million a year with BPOs—which will not replace L/Cs but act as a complement to them, he said. But the value goes much beyond just cost savings, he noted.
First and foremost, it reduces administration and documentation, and vastly reduces the time-to-payment on secured trade account receivables. With an L/C at site it can typically take 10-14 days to receive funds—while awaiting documents to arrive. But with a BPO the data flows electronically, and thus payment is released much sooner. The receiving bank can use it as collateral for pre-shipment and post-shipment finance, and in addition it is a competitive differentiator, said Vermylen. “We become the seller of choice.”
Vermylen also focused on the increased job satisfaction of A/R department employees who no longer have to stress over last minute credit decisions or trying to get an L/C amended.
With half of the group’s $14 billion in annual revenues in Asia, and 50% of its exposures in L/Cs, Vermylen said there was a lot of upside in digitizing the documentation around that. He began looking at the program in February and by April it was established, he noted. “We went live in May.”
“We were looking for a buyer to participate,” Vermylen said. Petrochemicals outfit Octal of Oman came on board, and, according to Vermylen, it has been smooth sailing so far. “The biggest hurdles were with contracts and resolutions,” he said, adding that there were really no teething problems.