The Global Supply Chain Finance Forum (GSCFF) – comprising BAFT (Bankers Association for Finance and Trade ), FCI (previously known as Factors Chain International), the International Chamber of Commerce (ICC), the International Trade & Forfaiting Association (ITFA) and the Euro Banking Association (EBA) – today announced plans to update its Standard Definitions for Techniques of Supply Chain Finance (Standard Definitions) to provide further clarity on the distinctions between the individual techniques.
Alongside the existing Receivables Purchase and retitled Loan sub-categories, a newly created Advanced Payable sub-category now includes three techniques: Corporate Payment Undertaking (CPU), Dynamic Discounting (DD) and Bank Payment Undertaking (BPU).
Sean Edwards, Chairman, ITFA, told TFG: “Payables Finance has proved resilient during the pandemic and it’s more important than ever that this versatile technique is well and widely understood. This new paper expands on how this tool is used. Education is key to ensuring the take-up by users and finance providers alike and ITFA is pleased to have been part of this group effort.”
This update highlights and confirms the quality of the original content – first published four years ago – and the need to be agile in a dynamic field such as supply chain finance. Thus, it is intended to reflect an up-to-date view of current market practices within supply chain finance, in particular by establishing greater clarity between the Payables Finance technique under the Receivables Purchase category and the CPU technique.
“The new definition for the corporate payment undertaking (CPU) is the latest release of the SCF definitions to provide greater clarity on this unique aspect of this fast growing sector. CPU is a buyer-led initiative which falls under the category of payable finance, without the requirement of the assignment of the underlying receivable to the financial institution, relying completely on the buyer’s irrevocable payment undertaking,” Peter Mulroy, Secretary General at FCI told TFG.
“Given the positive contribution that supply chain finance products provide with respect to liquidity in the COVID-19 environment, we are active supporters of the benefits that the Standard Definitions for Techniques of Supply Chain Finance have had on industry dialogue on the topic. As a member of the GSCFF, BAFT will continue to advocate for its usage and contribute to relevant updates.” – Stacey Facter, Senior Vice President, Trade Products, BAFT added.
CPU is a buyer-led programme within which sellers in the buyer’s supply chain can, at their option, access liquidity by requesting a discounted early payment. However, unlike a Payables Finance scenario, the finance provider does not purchase the underlying receivable from the seller, but rather, fully relies on the buyer’s irrevocable payment undertaking.
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Christian Hausherr, Chair of the GSCFF, and European Product Head of Payables Finance, Trade Finance & Supply Chain Finance at Deutsche Bank, says: “At the time of publication, the Standard Definitions were deemed to be complete and widespread acceptance of the terminology confirms their benefit for the wider industry. Today, the GSCFF aims to bring further clarity to the techniques, with new description of CPU, DD and BPU. Adapting to current business practices, these updates will continue to encourage greater adoption of the Standard Definitions by market participants.”
The first description document on CPU has also been released today, with subsequent documents on DD and BPU expected over the coming months. Each description document will provide an overview of the technique’s definition, involved parties, distinctive features and variations, relevant risks and benefits, among other technicalities. Once the series has been published, a final updated version of the master Standard Definitions document will be made publicly available.