Introduction to subject. After placing an order the Buyer should pay and the Seller should get payment for the goods supplied

After placing an order the Buyer should pay and the Seller should get payment for the goods supplied. It is here that banks play a vital part, because all payments are effected through banks.

The main functions of banks are to accept and hold deposits, to honour cheques and bills of exchange (drafts) drawn on them, and to nt advances in the form of loans and overdrafts.

Banks also provide services such as keeping customers' accounts, obtaining and giving information, transferring funds for payments and investments, handling foreign currency transactions, collecting payments, discounting bills of exchange; issuing letters of credit, financing imports and exports; acting as trustees, executors and guarantors, looking after securities and other valuables.

By means of these services banks not only see to it that justice is done to both buyer and seller, but that the timelag between order and delivery is overcome without loss to either party. These services have to be paid for, but are not expensive and are almost indispensable - the bank comes into every transaction at some stage or another.

A short explanation of some banking terms

Current account: The account into which a client pays his trading receipts and on which he draws his cheques. As a rule no interest is paid on a current account and banks make charges for handling these accounts unless an agreed minimum balance is kept in over an agreed period of time. However there are special current accounts which have certain requirements, e.g. a minimum balance, and minimum amount for cheques being passed, which offer interest.

Many firms have more than one current account, e.g. a No.1 account for paying wages and overheads and a No.2 account for paying suppliers.

Deposit account: Surplus funds from the current account are held in this and receive interest.

Interest: The charge or profit due for lending money.

Loan: Money banks lend to their customers. A loan will usually be covered by negotiable securities, e.g. shares, with repayment specified on the agreement.

Overdraft: A debit balance up to a certain limit on a bank current account of a customer. This may be authorized by the bank.

Cheque: An order in writing from a person to his bank to pay on mand a certain sum to a named person.

Security: A document of value given as cover for a loan (Collateral security = additional or supporting cover).

Methods of payment in foreign transactions

Tere are different methods of payment accepted in foreign trade:

1. In cash; 2. In advance; 3. By Banker's transfer; 4. By International Giro; 5. On an open account; 6. For collection; 7. By Bill of Exchange; 8. By Letter of Credit.

Let's look into each method one by one starting with less frequently prac­tised methods.

Payment in cash is practised in small transactions only and usually upon receipt of the goods, in this case it is called COD or cash on delivery/spot cash (payment is made within three - five working days after the delivery) and is used in the home trade.

Payment in advance might be helpful to a buyer in urgent need or where the buyer is unknown to the seller, or in case of a single isolated transac­tion. The actual method of payment in such cases would probably be by banker's draft or banker's transfer.

Banker's transfer: transfer of money from the bank account of a debtor to the bank account of his creditor by order of the debtor. The transfer is carried out at the current rate of exchange. Such transfers are, of course, subject to any exchange control regulations of the countries concerned.

International Giro: payment by International Giro, which replaced Money Orders, can be made whether the buyer has an account or not, to a supplier whether he has an account or not. The International Giro form is obtained from any post office, filled in, then handed to the Post Office who forwards the order to the Giro centre which will send the amount to a post Office in the beneficiary's country where the supplier will receive a postal cheque which can be cashed or paid into the bank account.

Payment on an open account is usually effected against documents in full or by installments if agreed between the parties. Open account terms would be granted by a seller to a buyer of unquestioned standing or to a customer in whom he has complete confidence, e.g. regular buyers, agents or distributors. Payment, might then be made monthly or quarterly sxchange or banker's transfer.

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