It is impossible to be in international trade without involving your bank for all the services they provide, such as advice on financial matters and the possible risks involved. It is true that a critical obstacle for SMEs is the lack of information on international trade processes, documentation and banking procedures necessary to conduct business abroad. For profitable and results-oriented international trading, you will definitely need access to accurate and timely information and a solid knowledge of banking.
Payment options in international trade
Obviously, all payments in an international trade are made through a bank, either by bank transfer or by check, the latter being preferred because it is not the fastest. The following are some of the common forms of payment in international trade.
1. The bank draft is a cheaper and easier option to obtain, but there is a risk of loss in transit. The only advantage it has against the check is faster credit than the exporter.
2. Letter of credit. This international trade instrument is convenient for both parties. The exporter is paid once they present the copy of the BoL (bill of lading) that they receive from the shipping company and the LoC, to the bank, regardless of whether the shipment reached its destination or not.
3. Bank 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. The first time, the transfer takes about 10-15 days, depending on the destination country and the route bank. International electronic transfers are made through intermediary banks / corresponding banks.
4. Although not to a great extent, some manufacturers in China accept Paypal for smaller amounts, such as $ 5,000, but require an additional 3% to offset the charges. Paypal is the fastest and easiest form of payment in international trade.
Banks serving international trade understand the crucial role they must play. Many large banks maintain correspondents around the world to provide fast delivery of real currency, wire transfers, or money orders. You can choose your bank for the international trade account on the basis of whether the bank can make advances against accounts receivable. However, the bank may require that your account be insured by export credit insurance provided by Export Import Bank of United States. Banks also allow you to enter into a forward exchange contract with your bank and to set the amount of foreign exchange that you receive when trading in convertible currencies. You need your bank to be with you while you are in international trade.
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