If we’re going to do international commerce, a bank or banks will be involved. Choosing the right bank and managing it correctly can make the difference between getting paid or not.
For example, a Denver solar film producer is selling product to an importer in India. The Colorado firm needs to involve a bank to facilitate payments on the transaction.
What are the common mistakes this solar film producer could face?
(1) Using non-international bankers to handle international deals.
International payments and collections is its own specialty and has its own language. There’s a plethora of details and paperwork involved in international transactions, and your banker may have no experience in international arenas. You don’t want them to learn on your deal.
(2) Assuming a “bank is a bank.”
Banks become true partners in foreign sales. Beyond the financial transactions, banks may be able to help you in a more consultative way. A good bank should be with you early on and educate you constantly.
(3) Poor use of bank resources.
Banks are pillars in a community. Your banker should know people who can add expertise to your deal. A good international banker in Denver should be able to connect you to people who have done deals in India, understand the culture and advise you about customers.
(4) Not understanding a capability issue.
Banks can help finance work in process, as well as inventory. If the Indian firm was ordering $10 million worth of product, the bank potentially could finance the solar film manufacturing.
In other words, a large contract doesn’t have to fully overwhelm our solar firm’s resources. This work-in-process financing is in addition to funding existing inventory to be shipped to India.
(5) Not knowing if they need a bank with a relationship, or a bank with a branch.
So many bankers talk about “relationships” they have overseas with other banks. But does our solar film company need a bank with an office and dedicated people in India?
That question can be answered only if we know the size and urgency of the transaction, what additional services are required and how complex the transaction is. Does the film company get paid when the solar panels are placed on a truck in Denver? Do they get paid when the goods are delivered to New Delhi? Are they paid only on successful installation?
The simpler the transaction, the less representation you need.
(6) Not understanding the details of the contracts in place.
According to Catherine Cronin, export finance officer at Premier Bank in Denver, “You need to know who is responsible for each part of the contract, and you need to know what in the contract triggers payment.”
She also agrees with the benefit of using a bank’s consulting services, and working with a lender with the ability to round up people who are experienced in transactions such as these, to help you correctly structure your transaction.
(7) Assuming the bank takes any risk.
They may risk an unhappy client, they may risk a delay in time or unnecessary labor in finishing up your deal — but if your buyer doesn’t pay you, it isn’t implied that the bank will cut you a check for $10 million.
8) Moving too quickly.
In many countries, there are requirements to register transactions, obtain import credits and have many rounds of government involvement, including security, customs and licensing. If these types of requirements aren’t checked out in advance, it can delay your transaction — even if the buyer and the seller both want the deal done.
9) Not being honest with the bank.
If our solar film company is really shipping solar film, tell the banker this. But if a shipment includes anything other than solar film — software, chemicals of any kind, chicken parts, grapefruit juice, video recordings, for example — that should be disclosed as well. Paperwork and affidavits will be signed. And there’s a strong possibility the box will be opened and checked, either in the U.S. or India.
10) Not checking the reputation of the bank.
With today’s access to technology, it’s easy to find business information. Default rates, lawsuits, pending litigation, shady deals, known acquaintances, stock-manipulation accusations and more all can be found with a few clicks of a mouse.
It would be bad business judgment for our solar company to pick a bank with a soiled reputation, even if the transaction ultimately gets completed.
The theme remains the same: Do your homework. Check out your business bank, and make sure you get to know it. Then you can spend less time worrying about your transaction and more time keeping your client happy.
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