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 [email protected].