How Does International Banking Work?

by Melvin Richardson ; Updated July 27, 2017

To initiate global transactions, you need a bank that has the capability to help you enter the global market. International business deals with buying and selling products and services and transacting with other countries. Of vital importance is knowledge about financing your imports and exports. Companies that do business internationally need a bank that is able to help them perform a variety of transactions.

Process

If a company wants to become proficient with international transactions, then it needs to explore all of the financing options that are available. The speed at which you can interact internationally is also of vital importance. There are a number of trade financing products used by companies transacting internationally. One of the major sources is the letter of credit. This letter helps the seller ensure that payment will be made. When a letter of credit is received from a bank, the exporter is getting confirmation that the importer's payment to the exporter will be made. In fact, the bank is guaranteeing payment will be made. If, for some reason, the importer cannot meet the terms and agreements and come up with the payment, then the bank will step in and make the payment. The exporter is performing a risk-free transaction under these terms and conditions.

Options

An international bank should be well versed with other methods of international financing. Some companies use banks that issue letters of credit by way of the Internet. This really speeds the transaction along because it gives the exporter the ability to see the letter of credit immediately. Goods and services can then be released to the importer or buyer because payment has been guaranteed by the bank. International financing is so important because you want to make sure favorable payment terms are available. You become much more competitive when your terms are favorable, and it keeps you from losing a customer to the competition. When you offer more secure terms, it puts you in a more favorable position compared to other companies. Your own bank should be able to let you know which financing options are available to you for exporting, but you can also check with the Department of Commerce Export Assistance Center. There should be a local office in your immediate area. Other places that will provide you with assistance include the Small Business Administration office as well as the Export-Import Bank in Washington, D.C.

About the Author

Melvin J. Richardson has been a freelance writer for two years with Associated Content, and writes about topics such as banking, credit and collections, goal setting, financial services, management, health and fitness. Richardson has worked for several banks and financial institutions and gained invaluable experience and knowledge. Richardson holds a Master of Business Administration in Executive Management from Ashland University in Ashland Ohio.

Cite this Article A tool to create a citation to reference this article Cite this Article