Bank payment obligation (BPO)
A bank payment obligation, or BPO, is the buyer's bank's promise to pay the seller's bank once the order, transport and invoice data match. Banks deal only with data, and both banks must use the same matching system.
Open account ships the goods before the invoice is due, so the seller finances the buyer for 30 to 90 days
In an open account sale the goods ship before payment is due, typically in 30, 60 or 90 days. The seller carries the buyer's payment risk and can manage it with export credit insurance, a standby letter of credit or receivables finance.
Supplier terms fund importers, and an early payment discount has a price to test against the cost of funds
Open account terms of 30, 60 or 90 days let an importer receive goods before paying. A discount for paying early can be turned into an annual rate and compared with the importer's own value of funds, the test the US Treasury sets for federal agencies.
Most world trade relies on short-term credit, extended by the seller, the buyer or a bank
The WTO estimates 80 to 90 percent of world trade relies on trade finance, mostly short-term. Banks directly support about one-third of global trade, and funded trade loans averaged about 3.5 months.