Role of banks in international trade

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 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 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 easier option to obtain, but there is a risk of loss in transit. The only advantage it has over the check is faster credit for the exporter.

2. Letter of credit. This international trade instrument is mutually convenient for both parties. The exporter is paid once he presents the copy of the BoL (bill of lading) that he receives 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 routing bank. International wire transfers are made through intermediary banks/correspondent banks.

4. Though 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 must play. Many large banks maintain correspondence around the world to provide fast delivery of real currency, wire money, or money orders. You can choose your bank for the international trade account based on whether the bank can make advances against 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 set the amount of currency 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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