Usage of MT400 SWIFT Message to announce the proceeds

The MT400 SWIFT Message 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 MT400 message is sent. That is why in a 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.

The previous article was about the usage of the MT400 SWIFT Message for the settlement of proceeds. We saw that as prerequisite for settlement, an account relationship must exist between sender and receiver either directly or through a local clearing system.

The key question about the MT400 meaning in this context (and the answer)

In this article, the following question will be answered: if there is no account relationship between collecting and remitting banks, what is the meaning of the MT400 SWIFT Message and how is it then used?

Before going through an example, let’s me directly give you the answer by highlighting two key points:

  1. When both banks do not have a direct account relationship the settlement of proceeds must go through their correspondents. As a consequence, additional banks must be involved in the payment (settlement of proceeds) and must appear in the MT400 SWIFT Message.
  2. The MT400 SWIFT Message is used only to inform the remitting bank that the collection amount has been paid by the buyer and that the proceeds will be credited to the remitting bank’s account with its correspondent.

The second point makes us think of the MT103 Announcement. An announcement informs the receiver that funds are coming, but does not carry the actual funds.  In a similar way when there is no account relationship between the collecting and remitting banks, the MT400 informs the receiver that funds are coming, but it does not carry the actual funds. In this context, the MT400 is therefore used like an announcement.

We will illustrate that with an example where a company from China exports goods or services to a French company. Both companies agree that the payment will be made in USD.

MT400 SWIFT Message to confirm the collection of funds and announce the proceeds

MT400 SWIFT Message to confirm the collection of funds and announce the proceeds

The French company’s Bank is Barclays Paris, the collecting Bank. The Chinese company’s Bank is Bank of Taizou. Since the proceeds are to be paid in USD, correspondent banks must be involved and an account in the USA must be credited.

After collecting the funds, Barclays Paris sends the MT400 directly to Bank of Taizou. As you can see on the table below, the MT400 SWIFT Message contains the fields 53, 54 and 57. Correspondents are involved as expected. So the MT400 is advising the receiver, Bank of Taizou, that the payment has been collected and at the same time is announcing that funds are coming through the banks in F53, F54 and F57.

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

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 MT400 SWIFT Message

This MT400 SWIFT Message contains a lot of information. Few points will be highlighted for a better understanding of this message.

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

The Sender (Barclays Paris), is informing the Receiver, Bank of Taizou, that funds have been collected from the buyer and that the proceeds will be settled through correspondents. Since the sender has specified correspondents in the message, the receiver understands that the MT400 SWIFT Message does not carry the funds. It is just an advice or announcement.

Narrative and note 2 (The correspondents in this MT400 SWIFT Message)

In addition to the collecting and remitting banks, there are three additional banks in the fields F53, F54 and F57 of this message

Field 53 (Barclays London) is the correspondent of Barclays Paris. But Bank of America (F54 – BOFAUS3N) is the correspondent of Bank of China, not of Bank of Taizou. That is because Bank of Taizou does not own an account with Bank of America, but has an account with Bank of China. Bank of Taizou therefore uses Bank of China’s services to settle transactions in USD. The proceeds will be credited to the account of Bank of China, but the funds are for Bank of Taizou, the ultimate creditor.

The Account With Bank field contains BKCHCNBJ110. That means the receiver, Bank of Taizou, has an account with Bank of China (BKCHCNBJ110). The proceeds will ultimately be credited to the Bank of Taizou’s account with Bank of China. But Bank of China must receive the funds first. So the receiver (TZBKCNBT) has an account with F57 (BKCHCNBJ110) which itself has an account with F54 (BOFAUS3N). And the sender (BARCFRPP) has an account with F53 (BARCGB22) which itself has an account with F54 (BOFAUS3N) and the loop is closed. We see how the money will move until it reaches Bank of Taizou’s account.

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

Two types of charges are deducted from the collection amount: the commission of the collecting bank and the fees for Wharfing and Warehouse. In the SWIFT standards, we see that many other codes are available for various types of fees. Furthermore, there is a field 73 Details of Amounts Added (not used in this message) where the sender can specify the details of amounts added to the amount of principal. It is theoretically possible that the remitting bank gets an amount greater than the collection amount.

This ends our analysis of this MT400 SWIFT Advice of Payments message. You are probably wondering what the MT202 looks like and how it is used to settle the proceeds. That will be the topic of a future article.

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