BANKING

1. BANKING

2. Banks in the UK • TWO GROUPS: • 1. Merchant banks – tend to encourage larger organizations to use their services, and while the facilities they offer are similar to the commercial banks, • they specialize in areas of international trade and finance, discounting bills, confirming credit status of overseas customers through confirming houses, acting in the new issue market (placing shares) and in the bullion and Eurobond market

3. They are, in addition involved in shipping, insurance, and foreign exchange markets. • 2. Commercial banks offer similar services but are particularly interested in private customers’ accounts, encouraging them to use their current account, deposit account, savings account, and credit facilities. They will lend money, against securities, in the forms of overdrafts and loans, pay accounts regularly by standing orders, and transfer credits through the bank Giro system

4. Essentially the difference between the merchant and the commercial banks is the latter’s availability to customers with their numerous branches throughout the UK, their low charges, and the laws which govern the way each organization handles its affaires. • The big commercial banks are Barclays, Lloyds, Midland, and National Westminster;

5. Commercial bank facilities in the UK • 1. Current accounts – can be used by anyone in the UK provided they can supply a reference or references. The advantages of this account include cheque payments. As a matter of extra security the customer, when paying by cheque, is required to provide a cheque card, which makes the bank responsible for the cheque passed, up to the limit stated on the card

6. Although cheques can be drawn immediately, they will take three working days before the amount is debited or credited to an account. • When depositing cash or cheques, a paying-in slip is used to record the deposit, its counterfoil, with the bank’s stamp and cashier’s initials, being proof that the deposit was made

7. It is possible to overdraw an account, i.e. take out more money than there is in credit, but this can only be done with the bank manager’s agreement, otherwise the customer’s cheque may not be honoured. However, many banks offer special current accounts where overdraft facilities are automatically included, for an extra charge • As a rule interest is not paid on current account credit balances and charges are made for transactions

8. 2. Deposit accounts – do pay interest to a maximum established by the bank, but the customer can be asked to give notice of withdrawal, and can only withdraw on a withdrawal slip handed in at the branch where the account is kept. There are no overdraft facilities • There are various types of other accounts, e.g. a budget account, where the bank will pay a customer’s bills spread over a twelve month period • With some of these accounts there are penalties for withdrawing money before the agreed date

9. 3. Credit cards – offer credit facilities to customers making purchases in shops, and for a basic charge plus interest, calculated monthly, the customers can buy goods up to a limit on most cards, but with a Barclay’s Premier Card, the limit can be over 7,000 pounds, Access, Barclaycard and Visa are internationally recognized

10. 4. Standing orders and direct debits – customers making regular payments such as rent, or mortgage repayments, can ask the bank to transfer the money to the payee on a particular day every month. A standing order or a direct debit is one method of doing this. In the latter case, however, once the instructions are given, for a period of a year, the order cannot be cancelled unless the payee agrees.

11. 5. Loans and overdrafts for large amounts are usually allowed on a formal agreement. A loan will usually be covered by a negotiable security, e.g. shares, with repayment specified on the agreement. Interest in the UK is not controlled by law, but market forces • The other services the banks offer include acting as trustees and executors, offering insurance, foreign exchange, and discounting services, and negotiating documents

12. Specimen letters • Administrative letters: request for a standing order: • Dear Sir, • Ref: account No 33 152 110 9051 • We have just moved at the above address and would like to pay our monthly rent of 574.00 pounds to our landlords, Richards & Long, 30 Blair Street, London SW7 1LN, by standing order. • Would you please arrange for 573.00 pounds to be transferred from our No 2 account to their account with Dewlands Bank, Leadenhall Street, London EC2, on the 1st of every month beginning 1 May this year? • Please confirm that the arrangement has been made.

13. Write a request for a loan

14. Say what the loan is for (expand business after having tested the market, many orders which could not be fulfilled because lack of money, raw materials, • Specify the loan (quantity), what it is for, the time need to repay it, what security you offer ( shares, government bonds, buildings, land) • Enclose company’s current balance sheet

15. International banking • Bill of exchange – is an order sent by the drawer (the person asking for the money) to the drawee (the person paying) stating that the drawee will pay on demand or at a specified time the amount shown on the bill. If the drawee accepts the bill, he will sign his name on the face of it and date it. • The bill can be paid to a bank named by the drawer, or the drawee can name a bank he wants to use to clear the bill. In this case the bill will be kept in the drawer’s bank until it is to be paid.

16. A sight draft or sight bill is paid on presentation. In a documents against payment (D/P) transaction, the sight draft is presented to the importer with the shipping documents, and the importer pays immediately, at presentation or at sight. • A bill paid “after date”, or “after sight” can be paid on or within the number of days specified on the bill. Therefore “30 days after sight” means that the bill can be paid 30 days after it has been presented

17. Overseas bills in the UK are known as foreign bills and those within the UK as inland bills. A clean bill is one that is not accompanied by shipping documents. • The advantage of the exporter of payment by bill is that the draft can be discounted i.e. sold to a bank at a percentage less than its value, the percentage being decided by the current market rates of discounting. So even if the bill is marked 90 days, the exporter can get the money immediately. The advantage for the importer is that he is given credit. The bank, however, will only discount a bill if the buyer has a good reputation.

18. Bills can be negotiable if the drawer endorses the bill: if the beneficiary of the bill wanted to pay another manufacturer, he could write on the back of the bill (endorse it) and the bill would become payable to the person who owned it. • A dishonoured bill is one that is not paid on the due date. In this case the exporter will protest the bill – he will go to a notary, lawyer, who will, after a warning, take legal action to recover the debt.

19. Abbreviations: • B/E bill of exchange; • D/s says after sight, • D/P documents against payment, • D/A documents against acceptance • L/C letters of credit

20. Letters of credit – have been used for centuries in one form or another to enable travellers to obtain money from overseas banks. The process begins with the traveller asking his bank to open a letter of credit in his favour for a specific amount which is debited to his account. The bank then drafts a letter which will allow him to draw money on overseas banks with whom the home bank has an agreement. The foreign banks will then draw on the home bank to recover their payments.

21. This method of obtaining money has now generally been replaced by Euro cheques, traveller’s cheques and credit cards. But documentary credits – letters of credit accompanied by documents – are widely used in the import/export trade. • There are two types of documentary credit: • 1. revocable – those that can be cancelled • 2. irrevocable – those that cannot be cancelled – is more used in overseas business transactions

22. The stages in an irrevocable documentary credit transaction: • 1. the importer agrees to pay by documentary credit, and tells his bank that he will do so by completing an application form which names the exporter and states: the amount to be paid, the documents concerned; what the consignment consists of; whether the shipment is c.i.f., f.o.b.; details of dispatch and any other documents involved: certificate of origin, consular invoice, certificate of quality; and the length of time the credit will be available

23. 2. the importer’s bank will then select a bank in the exporter’s country to act as its agent, and will notify them that the credit has been opened. • 3. the agent bank will notify the exporter that a credit has been opened, and they may add their own confirmation – they will promise to see that the conditions of payment against documents will be fulfilled. If they confirm the letter, the L/C is known as confirmed credit and the agent bank as the confirming bank

24. 4. the exporter ships the goods before the credit expires and sends the shipping documents (bill of lading, insurance certificate, invoice) to the agent bank who checks the documents against the condition and pays him • 5. the agent bank will then send the documents and debit the importer’s bank with the cost and charges, which are calculated as a percentage of the total amount of the invoice, plus an extra charge if the letter is confirmed

25. 6. the importer’s bank then checks the documents, pays the agent bank, and sends the documents to the importer so that he can claim the goods.

26. Transportation and shipping • Road transport – tends to be cheaper and more direct than others • Trucking – lorries increased capacities to carry goods, (particularly after the introduction of containers), because of: • faster services • Road improvements • Accessibility abroad with ferries - they can drive off without unloading

27. Rail transport – faster than road which is necessary especially when transporting • - perishable goods (fish, fruit, meat) • -bulk commodities (oil, grain, coal) in greater volume than road transporters There is a link between road and rail through companies such as Freightliners – transferring goods from train to truck – but there are special ferries available to take trains across seas, the Channel, straits Note: rail transport – more expensive than road haulage

28. Air transport • Some goods lose value or deteriorate in very short period of time: newspapers, flowers • Air transport is used for speed particularly over long distances • Insurance tends to be cheaper as consignment spends less time in transit • But with bulk consignments air is much more expensive and uneconomical • The main document used Air Waybill (AWB) • It consists of 12 copies distributed to the airline, exporter, importer and customs

29. Documentation • Consignment notes are used in road and rail transportation • Like the AWB they are not documents of title, so ownership of the documents does not mean ownership of the goods • They are not negotiable – they cannot be bought, sold, transferred by the consignor (the exporter) or the consignee (the importer)

30. Consignment notes and waybills are obtained by the consignor filling out an instructions for dispatch form, and paying the freight charges (the cost of sending the goods) • These charges are calculated in size (volume), weight or value, and sometimes risk, particularly if special precautions have to be taken

31. Most freight companies are private carriers, which means they are only responsible for negligence – not taking proper care of goods • The correspondence in transport is generally between the sellers and freight firms, or sellers and forwarding agents, who send goods on behalf of the seller • The customers are kept informed by advice notes which give details of packing and when goods will arrive