Border-crossing with your bank Featured

7:00pm EDT November 28, 2005
In today’s world economy, business borders aren’t defined by country or even by continent. If your company is based near Canada, you probably have quite a few customers with an international address. And beyond immediate U.S. neighbors, you might fulfill orders for or purchase products from overseas vendors.

Just as customs are different in every country, so are currency and payment processes. So, what’s the difference between collecting money from a customer overseas and one in your backyard? Business is business, right?

Not necessarily.

Terminology and documents exchanged during international business transactions can easily get lost in translation. Not every organization in the world deals in U.S. currency, and obstacles to collecting payment from a foreign company are greater than when dealing with local vendors.

Banks can serve as an intermediary. By taking advantage of a financial institution’s international services, business owners enlist an adviser as they fulfill and accept transactions from international vendors.

Here are some international banking services you might consider before initiating your next global transaction.

  • Exchange services — Your bank can buy and sell foreign currency notes, allowing you to make or receive payments in Euros, Yen, Canadian dollars — most currencies in the market. For companies that require representatives to travel overseas, a bank can exchange currency before and after trips.

  • Wire transfers — If you have customers or vendors overseas, the most convenient way to pay them for products and services is through a wire transfer. Most often, transfers are in U.S. dollar denominations, but they can also be done in foreign currencies; or your bank may also sell you a foreign draft. These are checks payable in the country of the vendor. In other words, if your vendor is in China, the foreign draft check would pay this company in Yen.

When business owners have the capability to efficiently perform monetary transactions with international clients, they are more likely to earn repeat business from these companies. Also, a U.S.-based company expands its vendor options when it has the capability to easily make wire-transfer payments to foreign vendors.

  • Collections services — When an international company ships products to a U.S-based business, it also sends documents: an invoice, packing list, document of title and customs information, for example. But when you conduct business with a customer for the first time, there is a degree of mistrust from both parties. Here, the bank can serve as an intermediary.

A bank can manage the payment process, serving as a collections agency, in a sense. Documents are shipped separately from products and directly to the bank. It presents these to you for payment, and wires monies overseas. This way, both parties can rest assured that a trusted mediator is facilitating payment transactions.

  • Letters of credit — Letters of credit are similar to collections services but offer greater security to business owners. By issuing a letter of credit, a bank becomes the importer on behalf of the customer. It guarantees payment to the party overseas. A letter of credit means that a financial institution provides full faith and credit and assumes liability for the payment transaction.

The key word here is payment.

Sometimes, business owners have misconceptions about what a letter of credit really means. While banks assume liability for documents exchanged between U.S. and international clients with a letter of credit, this is not a form of insurance on products ordered from an overseas company.

Business owners can take advantage of international banking services for overseas payment transactions, which are quite a bit more complicated than those within U.S. borders. In fact, some governments mandate that international transactions must be handled through a letter of credit or collection basis; it is a way for countries to control incoming and outgoing currency. Only banks can serve in this role.

As you explore global business opportunities, consider how banks can provide a collections buffer between your company and overseas vendors. Financial institutions can alleviate uncertainty when dealing with new customers.

Craig Johnson is president and CEO of Franklin Bank in Southfield, Mich. Reach him at (248) 386-9860.