The current outlook for the United States dollar is continued weakness, and United States exports are doubling the pace of import growth.
“The key is to work with a commercial banker who understands the client’s business, is knowledgeable about what financial programs exist and also works to keep the client’s best interests in mind,” says Ross Weigand, Commercial Group President of MB Financial Bank in Chicago.
Smart Business asked Weigand about the current economic climate and what specific international banking products are available.
Why is now a good time to take advantage of international banking services?
This may be an opportune time for companies to take advantage of the relatively weak dollar by finding business partners abroad interested in their products. The United States Department of Commerce recently released the 2007 International Trade In Goods & Services Report that showed that United States export activity increased by 12.2 percent to $1.6 billion in 2007 over 2006, while imports increased 5.9 percent to $2.3 billion. As a result, the trade deficit narrowed by 6.2 percent. This represents a decline in the annual trade deficit for the first time since 2001. United States exports continue to grow at a record pace, more than doubling the pace of import growth.
When the U.S. dollar regains strength should companies abandon international banking or keep at it?
The current outlook for the dollar is continued weakness due to falling interest rates, persistent liquidity concerns, a soft housing market and presidential election uncertainties. However, the dollar is bound to strengthen at some point and establishing foreign trade opportunities can lead to long-term relationships that can remain in place no matter the domestic economic cycle.
What are some typical international banking product offerings?
International banking products typically include Letters of Credit (LCs), Import and Export Collections, Export Financing Programs and Foreign Country Analysis.
International LCs streamline the fine points and reduce the uncertainties of international payments, and generally make it easier for your business to trade with new vendors and customers, protecting both parties. The bank that issues the LC guarantees payment on the buyer’s behalf. To receive payment, the seller must present documents as required by the terms of the LC. The use of LCs provides confidence in making and receiving payments from foreign companies. Domestic companies can make sure their suppliers receive timely payment, and they also minimize the risk of not being paid by overseas customers.
How are Commercial LCs used?
Commercial LCs for export secure payment from the company importing your goods, are issued by the importer’s local bank and can be authenticated by a U.S. bank. Commercial LCs for import are used as an instrument for paying overseas suppliers and are issued by your bank, thereby guaranteeing payment on your behalf; your supplier is required to present documents to receive payment. These LCs are different than traditional Stand-By LCs, which are commonly used in domestic sales transactions and for security deposits, insurance premium payments, in lieu of bonds, etc.
What’s the value of the other product offerings?
Import and Export Collections streamline international buying and selling when you’re dealing with trusted trading partners. This payment method is simpler and less expensive than letters of credit but still offers protection for the buyer and seller. Your commercial bankers can also help you assess risk even before you contact prospective vendors or customers through international credit investigations. Import and Export Collection arrangements offer bank-to-bank control to ensure importers receive their goods and exporters receive payment. Exporters typically initiate this process, which goes like this: exporters forward shipping documents to their local bank; the bank sends the documents to the importer’s bank for processing and payment; when the importer’s bank receives payment, that bank releases the shipping documents to the importer and the payment to the exporter’s bank; payments can be made as sight drafts, time drafts or clean drafts.
Export Financing Programs provide domestic United States exporters the ability to obtain financing that isn’t typically available. This includes using foreign accounts receivable as collateral and advancing against a larger percentage of inventories designated for export. Your experienced commercial banker can connect you to programs from the Export-Import Bank of the United States (Eximbank) and/or the SBA to take advantage of these affordable and accessible government programs. Foreign Country Analysis can help assess the stability and also the creditworthiness before contact is made or a relationship is developed with global business partners. Typical reports include a country-specific risk analysis, which will look at the political situation, regulatory environment and the size of financial institution, its ownership, return on assets and history.
ROSS WEIGAND is a Commercial Group President with MB Financial Bank in Chicago. Reach him at firstname.lastname@example.org.