Partners in international trade
A HSBC case study

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Page 4: Import and export finance

Hsbc 5 Image 4Arranging payment to the satisfaction of both importer and exporter can be a problem. The exporter would ideally like payment in advance of shipping goods, while importers like to delay payment until goods have been received. HSBC assists both import and export customers by acting as a trusted third party.

Other than ‘open account’, there are two well-used methods of dealing with the transfer of finance – ‘collection’ and ‘documentary credit’.

With a collection, the exporter will ship the goods to the importer and will also send documents associated with the transaction to his (the exporter’s) bank. The exporter’s bank will then forward the documents to the importer’s bank with instructions to collect payment from the importer. When the importer pays – or promises to pay – his (the importer’s) bank, the documents are released to the importer, so he can collect the goods. The importer’s bank then pays the exporter’s bank, which in turn, pays the exporter.

Once the documentary credit is issued, the exporter prepares the goods for shipment. When the exporter dispatches the goods, he sends the documents relating to the goods to his bank. The importer will need these documents in order to collect the goods, but for a time the goods are under the control of the bank. The exporter’s bank pays the exporter and sends the documents to the importer’s bank, to be reimbursed. Documents move along the chain. Once the importer pays his own bank, the documents are released to him and he can then collect the goods.

To avoid confusion in these transactions, the exporter’s bank is known as the advising bank and the importer’s bank is called the issuing bank.

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Electronic Data Interchange

The use of EDI is one way in which HSBC is helping its customers to manage this complex supply chain. EDI is where two or more companies in the supply chain exchange information in agreed formats electronically, so that the computers can process the data automatically. (E-mail is not the same as EDI.)

The electronic banking services system within the HSBC Group is known as Hexagon. Hexagon includes trade services, cash management, payments and information reporting.
Hexagon has a specially designed module for the transfer of electronic commercial documents. These can then be moved from a computer in one company to a computer in another. This removes the problem of reproducing documents and the possibility of errors.

EDI links both importers and exporters which brings additional benefits to HSBC’s customer supply chain system. For example, customers can raise an order for goods and, using HSBC’s system, send it to a supplier or buyer electronically.

HSBC | Partners in international trade