It is impossible to be in international trade without involving your bank for all the services they provide, such as advice on financial issues and the potential risks involved. It is true that a critical obstacle for SMEs is the lack of information about international trade processes, documentation and banking procedures necessary to conduct business abroad. For profitable and results-oriented international trade, you will definitely need access to accurate and timely information and a solid understanding of banking.
Payment Options in International Trade
Obviously, all payments in international trade are made through a bank, either by bank transfer or check, the latter not being preferred because it is not the fastest. The following are some of the common forms of payment in international trade.
1. Banker’s Draft is a cheaper and more readily available option, but there is a risk of loss in transit. The only advantage it has over the check is a faster credit that the exporter obtains.
2. Letter of credit. This international trade instrument is mutually convenient for both parties. The exporter is paid once he submits the copy of the BoL (bill of lading) he receives from the shipping company and the LoC, to the bank, regardless of whether the shipment reached the destination or not.
3. Bank transfer is by far the fastest and cheapest option where the importer will instruct his bank to transfer the amount to the exporter’s bank account. The first time, the transfer is made in approximately 10 to 15 days, depending on the country of destination and the routing bank. International wire transfers are made through intermediary banks/correspondent banks.
4. Although not to a great extent, some manufacturers in China accept Paypal for smaller amounts, such as US$5,000, but require an additional 3% to offset the charges. Paypal is the fastest and easiest means of payment in international trade.
Banks serving international trade understand the critical role they have to play. Many large banks correspond around the world to provide fast delivery of real currency, wire money, or wire transfers. You can choose your bank for the international trade account based on whether the bank can advance accounts receivable. However, the bank may require that your account be insured through export credit insurance provided by Export Import Bank of United States. Banks also allow you to enter into forward currency contracts with your bank and lock in the amount of foreign exchange you receive when you trade convertible currencies. You need your bank to be with you while you are in international trade.
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