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It is impossible to be in international business without involving your bank for all the services provided by your bank such as advice on financial issues and potential risks. It is true that a significant barrier for SMEs is the lack of information on international business procedures, documentation and banking procedures required to do business abroad. For result oriented and cost effective international business, you will definitely need access to accurate and timely information and sound knowledge of banking.
Payment Options in International Trade
Obviously in an international business all payments are made through a bank either via wire transfer or cheque, the latter not being preferred for not being the fastest. Following are some of the common methods of payment in international trade.
1. Bankers draft is a cheaper option and easier to obtain but there is a risk of loss in transit. Its only advantage against checks is quick credit to the exporter.
2. Letter of Credit. This international trade instrument is mutually convenient for both the parties. Payment is made after the exporter presents the copy of BOL (Bill of Lading) which he receives from the shipping company and LOC to the bank, irrespective of whether the consignment has reached the destination or not.
3. Wire transfer is by far the fastest and cheapest option in which the importer will instruct his bank to transfer the amount to the exporter’s bank account. For the first time, the transfer takes place in approximately 10-15 days depending on the destination country and routing bank. International wire transfers are done through intermediary banks / correspondent banks.
4. Although not widespread, some Chinese manufacturers accept Paypal for small amounts such as US$5,000, but require an additional 3% to cover the charges. PayPal is the fastest and easiest method of payment in international trade.
Banks that are serving international trade understand the important role that they need to play. Many large banks maintain correspondents worldwide to provide quick delivery of real currency, wired money or drafts. You can choose your bank for International Business Account on the basis of whether the bank can grant advances against account receivables. However, the bank may require your account to be secured through export credit insurance provided by the Export Import Bank of the United States. Banks let you enter into a forward exchange contract with your bank and decide the amount of foreign currency you will receive when you are dealing in convertible currencies. As long as you are in international business, you need to be in tune with your bank.
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