What is Bank Payment Undertaking (BPU)? Benefits, Process, and Case Study by Artley Finance (HK) Limited

BPU means Bank Payment Undertaking, and it is a formal, irrevocable commitment made by a bank to pay a specified amount to a seller (beneficiary) on behalf of a buyer, provided that the seller fulfills specific conditions, such as the presentation of compliant documents or delivery of goods or services.

BPU is a bank financial instrument commonly used in international trade and financial transactions to assure sellers that payment will be made upon meeting agreed terms, thereby reducing buyer and seller risks.

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1. What is Bank Payment Undertaking
(BPU)? Benefits, Process, and Case
Study
Bank Payment Undertaking (BPU) is a formal, irrevocable commitment made
by a bank to pay a specified amount to a seller (beneficiary) on behalf of a
buyer, provided that the seller fulfills specific conditions, such as the
presentation of compliant documents or delivery of goods or services.

BPU is a bank financial instrument commonly used in international trade and
financial transactions to assure sellers that payment will be made upon
meeting agreed terms, thereby reducing buyer and seller risks.

SWIFT (VERBIAGE) OF BANK PAYMENT UNDERTAKING (BPU)

(Text may vary in substance but the essential undertaking must be maintained)
FROM
BANK NAME:
ADDRESS:
BANK TEL:
BANK FAX:
BANK OFFICER NAME:
SWIFT CODE:
ACCOUNT NAME:
ACCOUNT NO:
TO
BANK NAME:
BANK ADDRESS:
BANK TEL:

2. BANK FAX:
BENK OFFICER NAME:
SWIFT CODE: ACCOUNT
NAME: ACCOUNT NO:
TRANSACTION CODE:
BG NO:
CURRENCY:
AMOUNT:
ISSUING DATE:
MATURITY DATE:
AT THE REQUEST OF OUR CLIENT: <RECIEVERS NAME> FOR THE BENEFIT OF:
<SENDERS NAME>, WE,
<BANK NAME>, HEREBY IRREVOCABLY CONFIRM THAT WE ARE PREPARED TO
UNDERTAKE THE FOLLOWING:
BANK NAME:
ACCOUNT NUMBER:
ACCOUNT NAME:
SWIFT CODE:
1. TO RECEIVE, VIA SWIFT MT760 INTO OUR CLIENT’S ACCOUNT, <RECEIVERS
ACCOUNT>CASH -BACKED, ASSIGNABLE,
TRANSFERABLE, DIVISIBLE AND UNCONDITIONAL BANK GUARANTEE (“USD
X00M”); AND,
2. TO SWIFT TRANSFER A PRINCIPAL AMOUNT <(XX% OF VALUE OF BG
AMOUNT) X00 MILLION USDS> WITHIN F IVE (5) DAYS
TO THE BELOW-LISTED ACCOUNT AFTER SUCCESSFULLY RECEIVING AND
AUTHENTICATING THE (“USD X00M”); BANK
GUARANTEE /DELIVERED VIA SWIFT MT760 TO OUR CLIENT’S ABOVE
ACCOUNT.
WE, HEREBY CONFIRM THAT THE (XX% OF VALUE OF BG AMOUNT) USD X00
MILLION ARE GOOD, CLEAN AND CLEARED FUNDS
DERIVED FROM A LEGAL SOURCE.

3. FOR AND ON BEHALF OF:
ISSUING BANK
ISSUING BANK ADDRESS
BANK OFFICER 1
TITLE (PIN)
BANK OFFICER 2
TITLE (PIN) -
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Key Features of a Bank
Payment Undertaking (BPU):
Irrevocable Payment Commitment: Once issued, the bank’s obligation to pay
is binding, provided all stipulated conditions are met.
Document-Based Assurance: Payment under a BPU depends on the
presentation of required documents (e.g., invoices, bills of lading, or
inspection certificates) that prove the seller has met the agreed terms.
Risk Mitigation for Sellers: A BPU guarantees payment, mitigatin g concerns
about buyer creditworthiness or defaults.
Conditional Nature: The bank will only release payment after verifying the
documents meet the terms stated in the BPU agreement.
Common Use in Trade Finance: BPUs are frequently used in international
trade transactions to facilitate secure and transparent business operations.

4. How Does a Bank Payment
Undertaking Work?

Agreement Stage: The buyer and seller agree on the terms of the
transaction, including the issuance of a BPU.
Bank Involvement: The buyer’s bank issues a BPU in favor of the seller,
committing to pay upon meeting specified conditions.
Document Submission: The seller fulfills the agreement terms and submits
the required documents to the buyer’s bank for verification.
Verification and Payment: Once the bank confirms the documents are
compliant, the bank makes payment to the seller as agreed.
Key Points to Understand:
1. Purpose of BPU: A Bank Payment Undertaking is a commitm ent by
a bank to pay a specified amount to a seller or beneficiary once
certain conditions (e.g., delivery of goods or documents) are met.
It provides security to both parties in a financial transaction.
2. Cost of Issuance: Banks charge fees for issuing financial
instruments like BPU because they are taking on a risk and
providing a service. This cost may include arrangement fees,
processing charges, and ongoing commitment fees.
3. Risk Management: Issuing a BPU involves the bank’s obligation to
make payment on behalf of their client if the specified conditions
are fulfilled. Banks evaluate the risk involved and may require
collateral or credit facilities before issuing the BPU.
4. Regulation and Policy: Financial instruments are issued under
strict regulations to ensure they are not misused or provided
irresponsibly. Banks must justify issuing such commitments as
part of sound financial practices.

5. Benefits of Bank Payment
Undertaking:
For Sellers:
Guarantees timely payment and minimizes risk.
Provides confidence in cross-border trade.
For Buyers:
Allows buyers to defer payment until the seller meets delivery conditions.
Facilitates smoother trade negotiations and trust building.
For Banks:
A fee-based service that helps banks support their clients’ financial and
trade needs.

BPU vs. Letters of Credit (LC):
Criteria Bank Payment Undertaking (BPU) Letter of Credit (LC)
Nature Irrevocable payment obligation Payment guarantee with stricter terms
Document Focus Document-based, but less rigid Rigid document verification required
Usage Often in supply chain finance Trade finance, imports/exports
Obligation Payment triggered upon document review Payment tied to strict LC compliance
Bank Payment Undertaking (BPU) SWIFT Verbiage Example
Case Study: Artley Finance (HK) Limited Facilitates Bank Payment
Undertaking (BPU) for a Malaysian Company
A mid-sized Malaysian manufacturing company, GlobalTech Industries Sdn
Bhd, secured a large international contract to supply specialized machinery
parts to a European buyer. The deal was valued at USD 15 million, with
delivery scheduled over three months. While the buyer was reputable, the
Malaysian company sought financial assurance to avoid payment risks
before production and shipping.

6. Client’s Challenge
1. Cash Flow Concerns: GlobalTech required upfront capital to source
raw materials and initiate production.
2. Buyer Payment Risks: The company wanted a formal financial
commitment from the buyer’s bank to ensure payment upon
delivery of goods.
3. Trust in International Trade: GlobalTech needed a trusted
financial partner to structure the deal and manage risk
seamlessly.
Artley Finance’s Solution
Artley Finance (HK) Limited, a leading financial services provider in Hong
Kong, specializing in trade finance solutions, stepped in to structure a Bank
Payment Undertaking (BPU) solution.
Steps Taken by Artley Finance:
1. Client Assessment and Documentation:
• Artley Finance verified the commercial contract between
GlobalTech Industries and the European buyer.
• The client provided necessary documentation, inc luding
purchase orders, proforma invoices, and financial
statements.
2. Arranging the BPU:
• Artley Finance coordinated with a top-rated international
bank to issue an irrevocable Bank Payment
Undertaking in favor of GlobalTech Industries.
• The BPU guaranteed payment of USD 15 million upon
submission of compliant shipping and delivery
documents (e.g., bills of lading, quality inspection
reports).
3. Pre-Production Financing:
• Leveraging the BPU, Artley Finance helped GlobalTech
secure a short-term bridge loan to fund raw materials
and production costs.
4. Execution and Delivery:
• Upon completion of production, GlobalTech shipped the
machinery parts and submitted the required documents
to the issuing bank.
• The bank verified the documents and released the
payment to GlobalTech Industries as per the BPU terms.

7. Outcome
1. Risk Mitigation:
• GlobalTech was assured of payment, reducing financial
exposure in the international deal.
2. Improved Cash Flow:
• The BPU allowed GlobalTech to access pre-production
financing, enabling smooth operations.
3. Successful Contract Fulfillment:
• GlobalTech delivered the machinery on time,
strengthening its relationship with the European buyer.
This case highlights the role of Bank Payment Undertakings in enabling
secure, risk-free transactions and facilitating smooth cross-border trade
operations.

A happy client shares their success story with Artley Finance (HK) Limited’s trade
finance solutions.

Client Testimonial
“Artley Finance provided us with a seamless and structured financial solution. The
Bank Payment Undertaking gave us the confidence to execute our largest
international contract without any payment concerns. Their expertise in trade

8. finance made all the difference.”
– Mr. Tan Wei Ling, CFO, GlobalTech Industries Sdn Bhd
Summary
A Bank Payment Undertaking (BPU) acts as a secure payment commitment
from a bank, ensuring that sellers receive payment once conditions are
fulfilled. It builds trust in trade and financial transactions while offering
flexibility and risk mitigation for all parties involved.

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solutions like Bank Payment Undertakings (BPU), bank guarantees, standby
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smooth cash flow, and business growth.
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