IBOE — INTERNATIONAL BILL OF EXCHANGE
A bill of exchange is a written, unconditional order by one party (the drawer) directing another (the drawee) to pay a fixed sum to a named party or to the bearer, on demand or at a set date. It is one of the oldest instruments in trade finance, and banks still lend against it every day. What makes one bankable is not its registration. It is who is obligated to pay it, and whether a bank has taken full banking responsibility for that obligation.
What Makes an IBOE Bankable
| Element | What the funding bank looks for |
|---|---|
| The party obligated to pay | A drawee the bank can underwrite. A drawee owes nothing on a bill until it accepts it, so an unaccepted bill is an order to pay, not yet an obligation. |
| Full banking responsibility | A recognized bank's own unconditional undertaking to pay: acceptance or aval written on the bill, or a guarantee or standby letter of credit issued by SWIFT MT760. This is what makes a bill marketable to other banks. A delivery instruction (MT542, Deliver Free) or a free-format message (MT799) moves or describes an asset; it commits no bank to pay. |
| The underlying transaction | The sale, contract or debt that gave rise to the bill, documented by parties other than the holder. |
| Governing law | The national law that governs the bill, settled by counsel. "International" describes the bill; it does not supply a governing treaty. |
What a UCC Filing Does, and Does Not Do
Many IBOE packages arrive with a UCC-1 financing statement attached. Banks file and search UCC records routinely in secured lending, so a credit officer reads a UCC-1 for exactly what it is:
| A UCC-1 does | A UCC-1 does not |
|---|---|
| Give public notice that a secured party claims an interest in a debtor's property | Confirm that an instrument exists, or what it is worth |
| Establish that party's priority among creditors | Make anyone liable to pay the bill |
| Pass the filing office's checks of form, fee and indexing | Mean the filing office reviewed the accuracy or validity of what was filed |
How the Eleven Items Apply
The eleven pre-compliance items make a deal bankable whatever the asset. For an IBOE, these are the particulars:
- The original bill or an authenticated copy, with every endorsement in sequence (item 3: Proof of Ownership)
- The standing of the acceptor or avalising bank: a bill is worth what its acceptor is good for (item 4: Valuation & Appraisals)
- The underlying transaction that created the bill, with its contract and performance documents (item 5: History of Assets)
- Counsel's position on governing law and enforceability (item 8: Competent Legal Representation)
- The holder's own bank's position on the bill (item 9: Banking Relationships)
Start With Your Own Bank
A funding bank lends against what another bank stands behind. If the holder's own bank will not stand behind the bill, the first task is to learn why, and to ask the right desk:
- Has your bank reviewed the bill, and what did it say? A written reason for a decline is the specification for what to fix.
- Which desk reviewed it? A branch manager runs accounts. Bills are handled by trade finance, correspondent banking or private-banking credit; ask for a referral there.
- Will your bank accept or avalise the bill, or issue a guarantee or standby letter of credit against it? If not, what would it need to do so?
Where the Law Sits
| Framework | Status |
|---|---|
| UN Convention on International Bills of Exchange (New York, 1988) | Not in force: 5 parties of the 10 required. UNCITRAL status page |
| Geneva Uniform Law on Bills of Exchange (1930) | National law across many civil-law jurisdictions |
| Bills of Exchange Act 1882 | United Kingdom, and the model for many Commonwealth statutes |
| UCC Article 3 | United States, where a bill of exchange is called a draft |
Where a bill is bankable, the Institution is capable of coordinating funding against it through a funding bank chosen to suit the use of funds.
First impressions are formed by the documents. The eleven pre-compliance items, the monetization workflow, and three ways to get the paperwork right — prepare it yourself, engage a professional, or retain Magister Operis — apply to every asset class: Monetization & Trading.
Every engagement is governed by the firm's Method and Disclaimer; intermediaries should also review Broker 101 and the firm's Due Diligence standards.