Import & export guidelines

Trade services

Import and export is may be an extremely interesting and lucrative business but it is much harder than you think. You are dealing with many more elements that usual. To begin with you are dealing with foreign currency; new markets, unknown languages and people make it extremely complicated. You have to also remember that trading involves higher investment as well. That’s where your bank comes in with its trade services. These trade services enable exporters and importers to carry on their business with any glitches. Depending on the type of trade the bank provides various services enabling quick payments and easy transactions. Let us find out more about the different types of trade methods.

Advanced Payment

This is when the seller is paid for the goods in advance. This is when the seller is in a better bargaining position than the buyer and can demand payment before the shipment. This may pose as a risk to buyer as there are many factors in play including cross border trade and the actual shipping of goods. In some cases the buyer may not have the ability to open letters of credit through the banks. There is a high possibility that the buyers are rich in cash reserves and want a cash discount from the seller. In advance payment options, trade services in the form of bank guarantee comes in handy to the buyer. The Bank Guarantee from seller ensures that the buyer will be paid one way or another.

Collections Method

This when both the exporter and the importer need some backing from the banks and need to use the trade services the most. Here only after the contract is made between both the parties and the goods are shipped does the question ob of payment arise. This way the buyer can make the payment once he has rechecked the documents. After the goods have been shipped the seller sends the necessary paperwork to the remitting bank that in turn sends it to its branch in the buyer country for payment. Here there are two ways for the seller to get this money through Documents against payment where the ownership of the goods is only transferred to buyer after he pays for it or through Documents against Acceptance where the buyer accepts to pay for the goods at a later date in full and receives full ownership after a Bill ox exchange is drawn. Trade services come heavily into play here. Since there is no bank undertaking this method is best for traders who have worked before and trust each other implicitly.

Open Account trading

This is a first possession then payment scenario. Here the seller takes on more risk than the buyer as he receives payment after the goods have been shipped to the buyer.

Documentary Credit Method

This is the most common mode of payment for domestic and international trade. It puts both buyer and seller on common ground and benefits them the most. It only because of the various trade services provided by banks that the documentary credit method takes place. A written document ensures that the seller is paid according to the terms and conditions paid down by buyer. The payment is usually up to a certain limit and requires a few documents as well. Since banks act as intermediaries, the issues relating to trust between the buyer and the seller are taken care of with the trade services they provide.

 Some of the trade services provide by banks are

To importers: Advance Remittance, Direct Import Payment, Import Bill Collection. Letters of Credit, Booking Forward Contracts for Foreign Currency Exposures, Issue of Foreign Bank Guarantee. To exporters: Advance payment, bill collection, bill negotiation under LC etc.

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About the author

Kushwaha Singh is a small businessman, availing services with different banks.

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