What is CPU full form in banking?

The CPU full form in banking is Corporate Payment Undertaking. It refers to a formal commitment made by a corporate entity to meet financial obligations, which is frequently used in trade finance, supply chain financing, or business-to-business transactions. In this arrangement, the corporate entity, who is often a major customer, assumes the duty of paying suppliers or service providers for products and services supplied within an agreed-upon date.

Significance of CPU in banking:

The corporate payment undertaking enables suppliers to obtain financing based on the corporate buyer’s credit rating and payment commitment, rather than their own credit standing. This arrangement is especially effective in businesses where suppliers have long payment periods and require prompt access to cash to continue operations. Suppliers can typically acquire financing at reduced interest rates from banks or financial institutions by taking advantage of the corporate buyer’s superior credit score.

Advantages for large corporate:

Large corporations benefit from the CPU because it allows them to maintain stronger ties with suppliers and ensure a more stable supply chain. It also enables them to maximize their working capital by extending payment terms without putting financial strain on their suppliers. Suppliers benefit from reduced financial uncertainty, improved cash flow, and perhaps lower borrowing costs.