SWIFT MT400 Usage for the settlement of proceeds

The SWIFT MT400 is an advice of payment sent by the collecting bank to the remitting bank. A lot of things happen before the funds are collected and the SWIFT MT400 message is sent. That is why in the previous article, we explained what documentary collections are and the roles that collecting and remitting banks play in the collection process. It is strongly recommended to read that article if not done yet. It will make the understanding of this article much easier.

In the SWIFT documentation, it reads that the SWIFT MT400 “may also be used for the settlement of proceeds.” In this article we look at that specific case and consider an example.  The SWIFT MT400 can be used for settlement of proceeds when both collecting and remitting bank have a direct account relationship or are interconnected through a clearing system. And that is generally the case when seller and buyer are located in the same country or in diffrent countries belonging to the same monetary zone.

Let’s consider a company from Finland that exports goods or services to a spanish company. Both companies are located in the Eurozone as well as their banks. Banks probably are connected to a clearing system like EURO1/STEP1 which can process SWIFT MT400 messages.

The following picture illustrates the main players and the funds transfer.

SWFT MT400 With direct account relationship

SWFT MT400 used for the settlement of proceeds

The collecting bank collects the collection amount from the buyer and transfers the proceeds to the remitting bank through a clearing system like EURO1/STEP1. But the MT400 can also be sent over the SWIFT Network if both banks have an account relationship. The collecting bank would be saying to the remitting bank: “I have received the money, you can debit my account with you and credit the final beneficiary.”

The table below contains the fields that are transported in the SWIFT MT400 Message. As usual, we have added a column (comments) to provide further explanation and make the things clearer for our readers.

Explanation Format Comments
Sender CAIXESBB The Sender is the collecting bank. The Sender BIC appears in header block (Block 1) in the MT400 Input and in the application block (Block 2) in the MT400 Output.
Message Type 400 The message type is the second field of the block 2.
Receiver NDEAFIHH The Receiver is the remitting bank. The Receiver BIC appears in header block (Block 1) in the MT400 Output and in the application block (Block 2) in the MT400 Input.
Message Text This introduces the Text block (block 4). All the fields below are in the text block of the MT400 message.
Sending Bank's TRN :20:7850COLLECTION This field is mandatory and of format 16x. It is the collection number or reference assigned by the Sender. See all the allowed characters on this page.
Related Reference :21:289895DOCREMIT The field is mandatory and of format 16x. It is the collection number or reference assigned by the Receiver. The sender gets it from the documents received from the receiver. See all the allowed characters on this page.
Amount Collected :32K:D000STEUR500000, The amount collected is mandatory and can be provided in three different formats according to the options A, B and K. Option K is chosen in this case with format 1!a3!n2!a3!a15d (Day/Month)(Number of Days/Months)(Code)(Currency)(Amount)
Before the amount, we read D000ST. D000 expresses the maturity date of the collection, 0 days in this case.
The code ST means the collection is for payment after sight, so right after presentation.
Proceeds Remitted :33A:080805EUR499425, The Proceeds Remitted is mandatory and provided in the format 6!n3!a15d (Date)(Currency)(Amount).
Note that the Proceeds Remitted = Amount Collected - Details of Charges. The remitting bank and its customer, the seller do not get the full collection amount.
Details of Charges :71B:/STAMP/EUR325,
Two types of charges are mentionned here. One is a stamp duty of 325 EUR. And the other is an amendment fee of 250 EUR. So this tells us that the remitting bank did send an MT430 Amendment of Instructions on this collection.
End of message text/trailer

Read this page on the SWIFT formatting rules and Character sets of MT Messages to get additional information and understand what 16x and the format of the field options mean.

Narratives and notes on this SWIFT MT400 Message

As usual, there is more in this message than meets the eye. The following narrative and notes allow to get a deeper understanding of the message content.

Narrative and note 1 (Main purpose of this SWIFT MT400 Message)

The Sender (CAIXESBB), CAIXABANK is sending the proceeds (after collecting the funds from the buyer) to the Receiver, Nordea Finland. When the receiver gets the messages, he understands not only that the amount was collected, but at the same time he receives the proceeds.

Narrative and note 2 (There are only sending and receiving banks in this SWIFT MT400 Message)

No other bank than the sending and receiving bank appears in this message. More specifically there is no correspondent (F53 or F54). That means that an account relationship exists between sender and receiver either directly or through a local clearing system. The SWIFT MT400 is therefore used to settle the funds.

Narrative and note 3 (The proceeds in the SWIFT MT400 Message)

The proceeds is different from the collection amount. The collecting bank deducts commissions, expenses and other fees from the collection amount. The remaining amount is the proceeds. The remitting bank receives the proceeds and takes its charges also. The final beneficiary, the seller, receives the proceeds deducted from all the charges taken by its bank for the services provided.

This ends our analysis of this SWIFT MT400 Advice of Payments message. The next question to answer is: if there is no account relationship between the banks, what is the meaning of the SWIFT MT400 and how is it then used? That will be the topic of the next article.

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