Should Irrevocable Payment Undertakings Be Classified as Bank Debt or Trade Debt?
Geoff Wynne authored the article, "Should Irrevocable Payment Undertakings Be Classified as Bank Debt or Trade Debt?," which first appeared in the April 2020 issue of Butterworths Journal of International Banking and Financial Law.
In the article, Geoff discusses the widely debated question in the world of supply chain finance of whether irrevocable payment undertakings are considered to be bank debt or trade debt. He examines what is at stake for the parties involved in the debate and explains that Irrevocable Payment Undertaking (IPU) may now be independent and not just irrevocable, and it is this very structural independence that makes trade debt seem like bank debt.
Rating agencies have repeatedly called for the reclassification of Supply Chain Finance payables (which include IPUs) to be bank debt, but the lack of transparency on companies’ balance sheets may be better addressed through the imposition of stricter disclosure requirements. Overall, Geoff suggests a better approach may be to keep the IPU as being irrevocable rather than independent.