Question

Can anyone please explain the buyers bank and sellers bank in trade finance.

Answer 1

Seller bank will send the documents of the trade which happened to the buyer bank, along with the instructions of the payment to be collected on behalf of the seller. On receipt of payment from the buyers bank , the sellers bank will transfer the net proceeds to the sellers/exporters account.

Buyers bank is also called as presenting bank and it presents the documents to buyer for payment based on the collection instruction. Once it receives the amount from the buyer, the buyers bank deducts its commision and transfers the net proceeds to the sellers bank.

Below diagram will give you a clear view on the proceedings.

1. Seller ships goods to buyer as per the contract of sale.
2. All the documents of the trade are provided to the sellers bank (remitting bank) with instructions for collectin of payment from the buyer.
3. Seller bank transfers the documents & instruction of payments to the buyers bank (presenting bank)
4. Buyer bank intimates the buyer for payment with all the documents received.
5. Buyers bank after deducting its commisions for the transaction transfers the remaining money to sellers bank and notifies the sellers bank through a SWIFT system
6. Seller banks then credits the payment to the seller account in local or foreign currency as per the invoice or sellers instructions.

Hope it clarifies.

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