International Payments

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International payments , also foreign payments (AZV) is the payment the transfer of cash over national borders away.

General

International payment transactions are part of payment transactions and, with the introduction of the euro, have made the purchase of sorts and thus also foreign trade considerably easier. Likewise, the fact that around half of German imports come from the area of ​​the European Economic and Monetary Union (EMU) and exports are only rarely delivered to other continents, testify to the fact that international payment transactions are becoming more and more economically equivalent to national ones.

Nevertheless, foreign trade is more important than ever. Significant countries from the European area sometimes do not belong to the European Union and in some cases do not belong to the member states of the EMU. This is, for example, Germany's neighbor Switzerland as well as travel destinations such as Great Britain and Sweden . Private and especially corporate customers of every credit institution do not limit their activities to the European area. For example, numerous trading partners of German companies are based in the United States or are based in densely populated and economically interesting Asian countries.

In times of increasing population , economy , international division of labor and consumption, the need for foreign trade is becoming increasingly important.

Usual forms of international payments

Variety trade

Trading in currency, i.e. foreign cash , is one of the many services provided by a credit institution. A bank keeps a certain stock of types and keeps them ready for customers who buy them before starting a trip. The inevitable fact that the varieties have to be bought, shipped, insured and stored, results in personnel and insurance costs as well as significant interest losses . The costs incurred are covered by the bank by charging the customer for both the purchase and sale of sorts.

Determining a price for buying and selling varieties depends on various economic and logistical factors:

  • The respective and current exchange rate indicates the price for foreign book money and influences the price of the currency through daily fluctuations. The current market situation also plays a role here, because the prices of the competition as well as the seasonal influences of the main travel season and the resulting larger amounts of money are all cost factors.
  • The amount of work involved in checking, counting, packing and shipping the types must ultimately be covered by personnel costs.
  • The fact that varieties cannot be invested profitably while they are in storage causes the bank to lose interest.

A distinction is made between whether the trading of types takes place with a private person or with another bank. The banks always calculate the price among themselves at a lower rate than would be usual for counter prices, since in interbank trading usually higher amounts of money are recorded.

Purchases and sales by customers can be processed both in cash and via a euro account. Another possibility would be billing via an existing foreign currency account. Because the purchase and sale via a foreign currency account is valued as trading in book money, there is a premium or discount that ultimately regulates the difference to the current price of the currency. Switzerland is the arena for the European trade in varieties. This is where credit institutes conduct their business with larger purchases and sales of varieties. Billing takes place in euros or US dollars .

Transfer

Bank drafts

The use of bank checks is limited to international and often even intercontinental payments. Bank checks are particularly suitable if the payment is made in a third country, but the payer should not be aware of this. The debtor buys a check from his credit institution, thus ensuring that the issuing bank is now obliged to pay the beneficiary. The advantage of this is that the actual collection path for the check only runs to the bank drawn and not to the country of issue. This ensures that the checks are usually cashed or purchased more quickly.

Bank checks can be denominated in euros as well as in foreign currencies, with checks in foreign currencies being drawn on a correspondent bank in the country of the respective currency . This correspondent bank ultimately cashes the check from the issuing bank. Checks in euros are usually drawn on domestic banks instead of going to a branch abroad.

In most cases, bank checks are used to issue order checks that differ from other checks with two parallel lines (crossed check). These checks are valued as crossed checks in Germany and must therefore only be credited to the account of the owner. Order checks can be made out to the order of a beneficiary person or company. An issue to a foreign credit institution with which there is no correspondence is possible with an order by letter to credit the check to the beneficiary's account. Order checks can only be passed on by means of an endorsement , which states in writing that the right of ownership of the paper has been deposited on the back of the check.

The beneficiary's use of a bank check in a foreign currency is advantageous in that there is no exchange rate risk compared to a private check . Since the check amount or the equivalent value is always debited immediately upon issuance, the person making the check incurs a loss of interest in contrast to the private check.

Travelers checks

The traveler's check , and Traveler Check called, is basically a special cashier's check. They are internationally recognized as a means of payment and are insured against loss or theft, which makes them safer than a standard cashier's check or cash. As a rule, lost travelers checks are replaced on site and within 24 hours, provided that the buyer of the checks can identify himself and state which papers have been lost and which have already been cashed.

When selling traveller's checks, particular attention must be paid to the issuing regulations and, above all, the double signature on the check. For example, the buyer of travelers checks has to sign the checks for the first time when they are handed over by the bank and a second time when they are cashed. Together with the checks, the customer receives a sales statement in which the numerical identification of the individual checks is listed as well as the name of the issuing institution, the customer and the exact address. When buying traveler's checks, there is also a commission , which in Germany is one percent of the face value and at least ten euros. The equivalent value of the check is settled either in cash or via the customer account. There is also the possibility that travelers checks can be made out to two people. After purchasing the papers, both customer signatures are given, whereas when redeeming only one of the two signatures is sufficient. This additional effort is also reflected in the commission, which increases to a rate of 1.75 percent with a minimum fee of 12.50 euros.

Travelers checks are purchased from banks. In addition, many hotels , restaurants and other businesses in Germany accept travelers checks as a method of payment. EUR travelers checks, i.e. checks denominated in euros, are redeemed free of charge in Germany, whereas commissions are incurred when redeeming them abroad, the amount of which depends on the redeeming office. Foreign currency travelers' checks are usually paid out in local currency. At the customer's request, redemption can also be made in the respective foreign currency, with the equivalent value of the check being converted at the current check purchase rate in the domestic currency. As a result, the customer receives a lower payment in foreign currency than the check is actually worth. Travelers checks presented by third parties will be credited to the customer's account with an endorsement and signature on the back of the paper, just like a crossed check.

Travelers checks do not have a period of validity and can therefore easily be kept by the customer until they go on their next trip.

Document collection

The documentary collection is a way of payment processing and payment guarantees the participation of the bank account of the payer . In this case, the intermediary bank acts as an intermediary between two trading partners so that both the interests of the exporter , who as payee , the payment of its delivery expected as well as the interest of the importer , of the ownership of the purchased goods would obtain, is protected. Here, the debtor are documents against payment made ( english documents against payment ) or against adoption of a change ( english documents against acceptance ) handed out.

The parties involved enter into a specific legal relationship with one another. For standardization of the settlement procedure within the banking system were from the International Chamber of Commerce in Paris guidelines developed that must be decided by the banks in their contractual relationship based. These “Uniform Guidelines for Debt Collection” (ERI) came into force on January 1, 1996 and have been used worldwide since then.

Letter of credit

A documentary credit is an abstract , conditional promise to pay from the importer's bank account . This bank undertakes to make payment to an exporter, provided that documents that conform to the credit can be presented. Abstract in this sense means that the promise of the debtor bank is not in any legal relationship to the actual basic transaction , but is to be viewed as a separate and independent commercial transaction in addition to the purchase contract . The addition conditional , on the other hand, means that the promise of debt can only be regarded as fulfilled if the services promised in the letter of credit and the documentary submission of the contents were carried out in accordance with the contract.

In this respect, the letter of credit offers an opportunity to protect both the interests of the buyer and those of the seller in a single foreign transaction. With this form of processing, the buyer can ensure that he only has to provide his service as soon as the seller has dispatched his goods and can prove this by submitting documents. In return, the seller can ensure that he receives his promised payment after delivery and evidence of documents.

While the document collection does not require a thorough and detailed examination of the documents, the documents have a high priority in the letter of credit processing and are therefore subject to a strict examination. Since the letter of credit is a conditional promise to pay, the invoice amount may only be paid out with documents in accordance with the contract. As a result, the documents have to be adapted according to the “Standardized Guidelines and Uses for Documentary Credits”.

As a recognized legal basis for documentary credit, the "Uniform Customs and Practice for Documentary Credits " (ERA) are accepted almost worldwide . Their bindingness in the processing is only guaranteed by their inclusion in the contract, as the ERA still does not form international law. The ERA were developed by the International Chamber of Commerce in Paris, using the current version of the guidelines that came into force on January 1, 1994.

Risks in foreign trade

Economic Risks

Since the various trading partners are geographically very distant from one another, it is rather difficult and cumbersome to obtain further information on the respective contractual partner than would be the case if the business were to take place in the same country. In addition, different laws and customs come together in different countries, which in the event of a dispute are difficult or impossible to enforce.

As with a domestic transaction, there is a risk with a foreign transaction that a buyer may not take delivery of the goods from a seller ( manufacturing risk ) , cannot pay ( credit risk ) or that the goods of a seller are damaged during transport ( transport risk ) or arrive abroad late ( Performance risk). Due to the distance that results when trading abroad, the risk factors mentioned increase accordingly.

If the business exceeds the borders of the EMU, the trading partners must agree on a common currency with which the business can be transacted. A disadvantage can arise for those who do not pay in their home currency, as they must also take into account the fluctuations in the foreign currency exchange rate (exchange rate risk). An agreement can be reached if the currency of a third country is used. In this case, the exchange rate risk exists for both parties.

Political Risks

In addition to the economic risks, there are also a number of risk factors that can be attributed to the political situation in a country. Extraordinary major events such as war, revolution or strike can have a negative impact on the processing of a foreign business. Likewise, problems for democracy can arise through long-term contracts, agreements and alliances, since the sovereignty of decision-makers and officials is restricted.

Long-term or short-term political decisions are particularly risky. For example, it can be decided that the currency of one country may not be exchanged for another (conversion ban), that the currency may not be transferred abroad (transfer ban) or that payments from the state are prohibited ( payment ban ) or postponed ( moratorium ) .

See also

swell