It covers payment methods and information on, banking systems, foreign exchange controls, and U.S. and correspondent banking.
Methods of Payment
Australia has a wide range of export financing options available. A few basic tools are described below. U.S. companies should choose the option that is favorable to both transacting parties. We recommend consulting the international services division of a U.S. or Australian financial institution for a more complete description and recommendations regarding the best option for a given transaction.
Cash in Advance
The exporter demands cash in advance before exporting. From the buyer’s perspective, this is the least popular method. A U.S. exporter requiring cash in advance lowers his risk but potentially reduces his competitive position. Modified forms of this method (e.g., deposit with progress payments) are normally used for custom-built equipment or other unique products.
Letters of Credit
These documents substitute credit issued from the buyer’s bank. In the case of Confirmed Irrevocable Letters of Credit, the confirming bank is guaranteeing payment by the issuing bank. A Letter of Credit (L/C), however, includes terms and conditions that the exporter must perform to receive payment. This is a very secure form of payment and is frequently used for new or unknown clients, where there is a higher risk of nonpayment. Offering more flexibility, and not as onerous as Cash in Advance, Letters of Credit still represent an obligation on the Australian importer’s credit line and will incur bank fees.
Commercial Bills of Exchange
These bills of exchange (sight and time drafts and cash against documents) are processed through the banks of both parties involved in the transaction. Like an L/C, banks do not guarantee payment or release shipping documents until both parties meet the terms of the exchange.
This method carries higher risk than Letters of Credit as the importer may refuse to pay. The exporter should obtain credit references or have long-standing relationships with the importer before offering this form of financing. Importers prefer this method because it does not affect their cash flow or tie up commercial credit lines. These advantages to the importer have made it one of the most widely-used forms of trade financing.
Most Australian imports from the U.S. allow payment terms from 30-180 days from the date of the shipping documents. This method carries the greatest risk to the exporter but is the most attractive to the importer.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide.
Foreign Exchange Controls
Australia does not restrict the flow of currency into or out of the country. There are, however, cash reporting obligations under the Cash Transaction Reports Act (CTRA). To control tax evasion and money laundering the Australian Transaction Reports and Analysis Center (AUSTRAC) must receive reports of international currency transfers of AU$10,000 or more. AUSTRAC does not inhibit normal currency transfers associated with international trade.
The Australian dollar is freely convertible, and Australia’s official policy is not to defend any particular exchange rate level. Reserve Bank intervention is minimal and occurs only to curb extreme foreign exchange market volatility. Only authorized foreign exchange dealers, including trading banks and most merchant banks, make foreign exchange transactions. There are no specific restrictions regarding the remittance of profits, dividends, or capital.
The four largest retail banks in Australia are Westpac Banking Corporation, Commonwealth Bank of Australia, Australia, and New Zealand Banking Group (ANZ), and National Australia Bank (NAB). They all have AA – ratings. Nevertheless, trade finance liquidity is an issue here as in the rest of the world.
While the banking system in Australia is reliable and transparent, there are structural and operational differences from the American system. Historically, Australian banks have not operated under the restrictions that limited U.S. bank operations between 1933 and the repeal of the Glass-Steagall Act. In Australia, the distinction between retail banks and investment banks has become increasingly blurred.
The Australian banking system is undergoing progressive deregulation and privatization. Foreign banks are allowed to enter the financial market. Retail banks, in general, now provide a wider range of financial services, including: life and general insurance, stock brokering, and security underwriting to retail customers, in addition to making corporate and consumer loans. This places them in competition with brokerage houses and merchant banks.
The Australian Government permits non-Australian banks to operate as branches to serve the wholesale market. However, banking regulations only allow retail banking activities through a locally-incorporated subsidiary.
The Reserve Bank of Australia (RBA) sets monetary policy and regulates the payment system. The Australian Prudential Regulation Authority (APRA) oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurance, friendly societies (co-ops), and most members of the superannuation industry. APRA currently supervises institutions holding approximately US$3.7 trillion in assets for almost 24 million Australian depositors, policyholders, and superannuation fund members (APRA).
U.S. Banks & Local Correspondent Banks
Please see below for a list of American and Australian banks and financial institutions. Adelaide Bank Ltd, AMP, Australia and New Zealand Banking Group Limited (ANZ), Australian Prudential Regulation Authority, Australian Transaction Reports and Analysis Center, Bank of America NA, Bank of Queensland Ltd, Bank West, Bendigo Bank Ltd, BT Financial Group, Citibank Australia, Commonwealth Bank of Australia, Country Limitation Schedule, Export-Import Bank of the United States, JP Morgan Australia Pty Ltd, Macquarie Bank Ltd, Merrill Lynch Australasia, Morgan Stanley Australia Limited, National Australia Bank Limited, OPIC, SBA’s Office of International Trade, State Street Bank and Trust Company, St. George Ltd, Suncorp Group, U.S. Trade and Development Agency, Commodity Credit Corporation, and Westpac Banking Corporation.