Underwear Co was a small but stable underwear brand, popular in several eastern European countries. Recently, Underwear Co received a larger-than-usual order from a new client who needed the goods fast. In order to purchase the goods without tying up all of their cash flow, Underwear Co needed a Proof of Blocked Funds. Otherwise, they would have to use their reserve working capital at the start of production which would create unnecessarily inconvenient cash flow deficiencies.
Underwear Co. was already our client, and had used our services to facilitate a number of previous transactions. Naturally, they came to us for help.
The Problem
Underwear Co was eager to meet this order. However, upon contacting their supplier, they learned that the underwear could not be manufactured in time. The manufacturer recommended that Underwear Co contact another, smaller supplier known for delivering high output with a quick turnaround.
The new supplier was ready to take on their order but realized that it would utilize 100% of its capacity to produce. They needed some way to trust that Underwear Co was capable of paying for the goods and not going to take the goods and run once they were produced.
The Solution
Universally accepted as the premier messaging platform for banks worldwide, SWIFT allows banks to send secured electronic communications and to transmit the issuance and confirmation of financial instruments. Underwear Co. discussed the transaction with their supplier and the supplier agreed because they were satisfied that the buyer (Underwear Co) had sufficient funds to pay for the goods and that tittle to the goods would not transfer unless and until payment was released.
After issuing the SWIFT message, Underwear Co’s new issuer quickly accepted and produced the goods. Once the goods were produced, the supplier presented the documents to us to hold as collection items until the goods were paid for by Underwear Co. Underwear Co. paid the supplier by wire and we released title to the goods to them. Underwear Co was able to deliver its new shipment on time and has since continued to do business with the same client.
In this transaction, we used two popular tools – (a) proof of blocked funds and (b) Document Payment or Collection Item Facility – we hold documents until payment is made by the party who is seeking to purchase the items represented by the documents.
