The motivation of the buyer and seller causes them to have differing desires in terms of the method and timing of payments: buyers want to make payment after goods are received and sellers ideally want to receive payment before shipment is made. The buyer and seller must therefore come to an agreement on what method of payment will be utilized before the transaction can take place.
The payment method ultimately determines what tools you may require from National Penn Bank. Below is a diagram of the payment methods and the desirability of the buyer and seller. Underneath each payment method is a list of products that are typically associated with that method.
Selling on an open account is the most risky form of payment for the exporter, while cash in advance is the most risky for the buyer. A buyer may reject a cash in advance request for a number of reasons, including a lack of cash, lack of trust or simply because the competition does not require it. Therefore, a buyer and seller typically agree on a payment method somewhere in between, which means the buyer’s and seller’s bank are involved. The chart below summarizes the various payment methods, when goods are available and the risks involved.
Incoming and Outgoing International Payments
International payments include both incoming and outgoing payments. Outgoing payments can be made by a wire transfer or by a draft. A wire transfer is the electronic transfer of funds from one financial institution to another through the Federal Reserve wire communication system (also known as Fedwire), Tested Telex or SWIFT. Funds transfer through these mechanisms are immediate and irrevocable; it is the fastest and most secure way to send funds abroad.
A foreign bank draft, on the other hand, is a negotiable instrument drawn on one of our correspondent banks in the country involved. It is payable in the currency of that country and made payable to the specified beneficiary. Once the beneficiary has received the draft, he may present it to the bank on which it is drawn for payment. If it is presented to an intermediary bank, the draft will be processed similar to clearing a domestic check. To obtain current exchange rate information, call National Penn Bank's International Group at (888) 461-1864. Remember that exchange rates are dynamic and can change frequently, so the actual rate for a given transaction will be the one that’s in effect when the payment is authorized.
Incoming payments are often made by wire transfer, however, the payment method may also be made in the form of a check. If the check is not payable in U.S. dollars, is drawn on a foreign bank, and/or is not micro-encoded, the bank must submit the check for collection. Foreign check collection consists of submitting a check, drawn on a foreign bank, to that particular bank for payment. The check may be in either U.S. dollars or foreign currency. This process involves forwarding the check under separate cover to the foreign bank and awaiting remittance of proceeds, which commonly takes four weeks to six months. Only upon receipt of funds by National Penn Bank is the customer’s account credited. On the other hand, cash letter items are foreign checks that can be collected very quickly because they are properly drawn on a major bank in a country with an efficient collection system. National Penn Bank extends credit with recourse to you pending final payment of the check by the party against whom the check was drawn.