Payment risk management in foreign trade: A review of bank payment obligation (BPO)

This study aims to review and study one of the newest method of payments being used while doing trade internationally between different nations which is "Bank Payment obligation". As this newly created method was first introduced in 2013 after cooperation between SWIFT -the leading company in financial communication solutions- and International Chamber of Commerce (ICC). In the first part, the study discusses different types and dimensions of risks inherent with foreign trade transactions in order to hedge against them in proper ways. In the second part, the study gives a comprehensive overview about most famous methods of payment being used in International Trade nowadays. Further, it gives a complete explanation of advance payments, open accounts, Letter of Credits (L/C), Documentary Collections (D/C) and consignment sales method of payments. In addition, the study draws a comparison between method of payments in terms of risks involved for exporters and importers. Finally, by using the descriptive approach, the study reviews and explains in details the Bank Payment Obligation as a new, modern and fully electronic method of payment. Also, the study explains different aspects in BPO's rules, process, parties, benefits, advantages, disadvantages, challenges, weaknesses and its relevance for today's foreign trade transactions. Keywords: Foreign trade risks, Bank Payment Obligation, Letter of Credit, Method of payments in Foreign trade.