My article (forthcoming in Journal of Law and Commerce) explores 1) the current status of the law governing digital payment rights and 2) the uses of payment rights in modern trade and supply‑chain finance. It compares the legal and functional aspects of receivables, electronic negotiable instruments, and digital tokens, proposing an optimal legislative approach built around core functional elements rather than legacy categories. The paper’s central research question is which legal approach best supports emerging digital financing paradigms such as deep‑tier supply chain finance using irrevocable payment undertakings (IPUs) and digital trade tokens (DTTs). It analyzes three families of solutions: (i) digital functional equivalents of paper instruments (eg MLETR‑style electronic transferable records and e‑invoices), (ii) frameworks built on receivables/assignments, and (iii) regimes creating new digital assets embodying payment rights (eg Japan’s electronically recorded monetary claims, UCC Article 12 controllable accounts, UNIDROIT DAPL digital assets). Methodologically, the article isolates six core elements any law must feature—definition of the right, transfer mechanism, divisibility, protection of transferees, enforcement, and conflict‑of‑laws rules—and tests each legal model governing receivables, negotiable instruments, and digital tokens against these elements in the context of concrete digital financing structures.
Traditional payment rights: receivables and negotiable instruments
The article first restates the transactional and legal features of receivables and negotiable instruments as classical trade‑finance building blocks. Receivables finance, such as factoring, rests on assignment, typically perfected by registration under secured transactions or factoring laws, supported by harmonization efforts under the UNIDROIT Model Law on Factoring and the UNCITRAL Model Law on Secured Transactions. Negotiable instruments (bills of exchange, promissory notes, checks) embody abstract, unconditional payment rights whose transfer by negotiation can confer a holder‑in‑due‑course status, historically supported by conventions and domestic laws such as the Geneva Conventions and UCC Article 3. While receivables frameworks have been continually modernized, the article notes increasing criticism that negotiable instruments law is anachronistic and poorly suited to contemporary digital practice.
Emerging digital finance paradigms: IPUs and DTTs
The paper then presents two emerging paradigms: (1) deep‑tier supply chain finance (DTSCF) built around irrevocable payment undertaking (IPUs), and (2) blockchain‑based schemes using DTTs such as BIS Project Dynamo. In DTSCF, a credit‑worthy anchor buyer issues an IPU that can be partially transferred along lower‑tier suppliers, allowing SMEs to access finance based on the anchor’s credit rather than their immediate buyer’s. In DTT structures, a bank or fintech issues programmable tokens backed by fiat held in segregated accounts, with tokens divisible and transferable among supply‑chain participants and potentially conditioned on the satisfaction of ESG criteria. Both paradigms require legal recognition of payment rights that can be split and assigned across tiers and jurisdictions while giving financiers robust protection and efficient enforcement.
Legal approaches to digital payment rights
One pathway is to recognize electronic functional equivalents of traditional instruments. The UNCITRAL Model Law on Electronic Transferable Records (MLETR) recognizes electronic transferable records (ETRs) that reify payment rights using functional equivalence, technological neutrality, and a concept of ‘control’. Singapore, Costa Rica and the UK’s Electronic Trade Documents Act exemplify this approach, which leverages existing negotiable‑instrument law rather than creating a new asset class. Latin American e‑invoicing reforms (eg Peru, Colombia) take a different approach by cloaking invoices with negotiability, turning them into registered electronic instruments enforceable via expedited proceedings and often integrated into securities‑holding infrastructures.
A second approach creates new digital asset classes not tied to paper equivalents. Japan’s Electronically Recorded Monetary Claims Act introduced electronically recorded monetary claims, addressing deficiencies in both receivables assignment and paper instruments. The 2022 UCC Amendments add Article 12 on controllable electronic records (CERs), recognizing controllable accounts/controllable payment intangibles. The Amendments provide for a qualifying purchaser concept that imports a negotiability‑like protection while retaining receivables‑style features. UNIDROIT’s DAPL includes rules on transfer, security rights, ‘innocent acquisition’, and party‑autonomy‑based conflict‑of‑laws, while treating linked underlying assets via deference to other law.
Application of the six core elements
The heart of the article systematically evaluates how each legal category performs against six functional elements needed for IPU/DTT‑type paradigms.
- Scope/definition:
MLETR‑style and e‑invoice laws are constrained by the existence of a paper analogue or statutory definition; they may not comfortably encompass programmable IPUs or token‑based DTTs with conditions beyond pure unconditional payment. Japan’s electronic claims law and Latin American negotiable invoices are limited to specified claims or trade invoices. UCC 12 and DAPL adopt broad, technology‑based definitions, capturing IPUs as controllable accounts and DTTs as digital assets, with the system conferring control powers.
- Transfer mechanism and third‑party effectiveness:
Receivables frameworks rely on registration, efficient where many rights are transferred to a single financier, but cumbersome for heavily fractional, multi-tier transfers. Paper/digital instruments use delivery/control; MLETR and UCC 12 recognize ‘control’ as an equivalent to the functions of possession.For IPUs/DTTs, the article argues that platform‑based control is a superior mechanism to repeated public registrations for each partial transfer.
- Divisibility:
Negotiable instruments law generally rejects partial transfers that preserve negotiability; a transferee of part only becomes a mere assignee, losing holder‑in‑due‑course benefits. Receivables and controllable accounts can be split, albeit with statutory protections allowing account debtors to ignore instructions to divide payments, a concern mitigated where platform rules automate collections.Digital asset regimes thus align better with the paradigms’ need for fractionalization than classic negotiable‑instrument law.
- Transferee protection / degree of transferability
The article compares levels of legal protection for transferees that may be summarized as follows:
| Right type | Baseline protection for transferee |
| Receivable | Assignee ‘steps into shoes’ of assignor; defenses can be waived. |
| Negotiable instrument | Holder in due course takes free of many claims and defenses. |
| Controllable account / CER | Qualifying purchaser takes free of property claims; debtor defenses can be waived, but some personal defenses remain unless contractually excluded. |
| Digital asset under DAPL | ‘Innocent transferee’ concept modeled on qualifying purchaser. |
For IPUs and DTTs, characterizing them as controllable accounts or digital assets allows high transferability and robust protection, without the rigidity and unconditionality constraints of negotiable instruments law.
- Enforcement mechanisms
Receivables and controllable accounts mainly rely on extra‑judicial collection; negotiable instruments and some e‑invoice regimes enjoy expedited judicial procedures. The article notes that for platform‑based paradigms, parties are more focused on ongoing participation and automated payment flows than litigation, but suggests States should consider extending expedited procedures to functional equivalents where appropriate.
- Conflict of laws
Receivables rules usually use the location of the transferor, and negotiable instruments laws use the lex situs of the paper, which becomes problematic once the instrument is dematerialized or reified in a network. MLETR and most e‑invoice statutes do not provide specific conflict‑of‑laws rules, forcing courts to analogize to paper instruments, a complex exercise for cross‑border digital records. UCC 12 and DAPL embrace party autonomy for digital assets, allowing the governing law of the CER/digital asset’s jurisdiction to be specified in the record or system, with waterfall default connecting factors if a choice is absent. This model is best suited to multi‑jurisdictional IPU/DTT platforms where a single applicable law for proprietary issues significantly reduces cost and uncertainty.
Main conclusions and proposed legislative strategy
The article concludes that laws governing receivables and negotiable instruments are insufficient to support the most innovative digital financing paradigms. It argues that digital‑asset‑oriented frameworks like UCC Article 12 and UNIDROIT DAPL offer the most adaptable foundation: they permit broad definitional scope, control‑based transfer, divisibility, strong (though slightly less absolute than negotiable instruments) transferee protection, and coherent conflict‑of‑laws solutions suitable for cross‑border platforms.Normatively, the paper recommends that States avoid creating three parallel regimes (receivables, digital negotiable instruments, and digital‑asset‑tethered payment rights) for the same economic functions, which would inflate due diligence and coordination costs. Use a product‑focused reform strategy (PRS), which is to start from specific financing paradigms (such as DTSCF with IPUs and DTTs), identify the six core functional elements they require, then design or adapt the law to meet those needs rather than retrofitting transactions into existing categories. Overall, the article’s main contribution is to recast the debate from ‘which traditional category should digital payment rights fit into?’ to ‘which mix of legal tools, focused on core functional elements, best supports specific digital trade‑finance products?’.
The author's article can be accessed here.
Marek Dubovec is Director of Law Reform Programs at the International Law Institute (ILI) and Part-Time Professor of Practice at the James E. Rogers College of Law, University of Arizona.
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