Proof of funds is often requested by a seller of a product or service. To do this a bank will issue a letter that is confirmation that a certain party can complete a contract, continue with a contract or continue with negotiations. The proof of funds verification of deposit is used by the account holder to prove to another third party that they are credit worthy and have the funds available. Letters of this nature are usually requested by the third party who is involved in the negotiations which include, amongst others, asset purchases.
A letter that is used as proof of funds verification of deposit is not a bank statement; it does not show any history of transactions nor does the letter indicate neither the date the account was opened, what the opening balance was nor any average balances. The format of the letter varies between institutions but is really no more than a letter issued by the bank where the account is held which gives little more than the account holder’s name, the account number and the current balance.
In commodities trading, international trade and import-export there often comes a time during the negotiations that the seller requests a proof of funds verification of deposit. In many cases this comes in the form of a Swift MT799 or an MT999. Both of these Swift messages confirm that the required funds are available and in place to consummate the trade. Although neither are yet a promise to neither pay, nor any form of a guarantee, an MT799 can be at times construed to be irrevocable whereas a MT999 cannot. An MT799 is authenticated between banks by a test key which is automatically inserted into the message; this is decoded at the other end. An MT999 is identical but has no test key.
The objective or purpose of all this is to send a signal to the bank that the buyers bank is ready, willing and able to stand at the ready to transact.
In cases where significant funds are involved, a blocked funds proof of funds letter may be required. This ensures that the funds are set aside for the purpose. These funds cannot be pledged for any other transaction or use, blocking or freezing the funds is often done using A Swift MT760.
