Position Paper on Irrevocable Payment Undertakings (IPUs)

The Legal Committee of the ICC Banking Commission prepared a paper originally dated June 2019 on irrevocable payment undertakings (IPUs).  This followed discussions on what could be done to assist in the financing of trade receivables generated by the sale of goods or the supply of services.

In the paper IPUs are described as irrevocable (rather than independent ) payment undertakings. They are not to be replacements for promissory notes.  The paper analysed the use of IPUs in receivable finance transactions to evidence an irrevocable obligation to make payment for goods or services.  The paper suggested that an IPU would be useful as a bankable undertaking to evidence such a payment  obligation.    It noted that to create an IPU the buyer would have to waive its rights to withhold payment as a means of dealing with a claim for defective goods but that this right would not be lost.  It also acknowledged the importance of keeping such an IPU as trade debt and not bank debt.  The paper analysed how trade debt could be arguably transformed into bank debt if held by a bank.

The paper suggests wording to be used to evidence the IPU.  This wording could be inserted into an invoice for example.  The paper acknowledges that there needs to be a discussion on the commerciality of IPUs and considers the arguments for and against the use.

The paper concludes that there is an appetite in the market for at least such a position paper on the subject and requests that this position paper be published on the ICC website.