"Prolonged Expenses for Import Purchases": Strategies to Finance and Avoid Exhaustion
Navigating International Payments: A Ural Company's Struggle
In the realm of Ural businesses, international payments present a significant challenge. This predicament isn't confined to exporters alone; even those importing equipment and components, especially from China, experience hurdles. Direct transfers frequently fail, banks often refuse to process payments, and previously effective schemes are no longer viable. The fear of secondary sanctions looms large.
According to Ivan Rastegaev, the chief executive of Woodbag, an international logistics and procurement company, the current situation is somewhat improved compared to six months ago, but the problem remains critical. At a recent seminar of the Sverdlovsk region's investment attraction agency, he discussed the payment methods most commonly employed by companies when transacting with foreign partners. Our website has identified the key ones.
Direct Overseas Payment
This is the most straightforward method, yet its reliability is abysmally low - official statistics show less than 10% of payments are direct. Banks often decline to process transfers, particularly if there's suspicion of double designation of goods.
The primary issue is that payments may not arrive at all. You might find a pair of banks with a functional payment channel, say between Russia and China. However, this scheme usually works only once or twice before stopping. And if someone managed to make a direct payment to China, it doesn't guarantee it will work for you.
Direct payment to suppliers is not a dependable tool for business planning. You can send money, and it may take a month to arrive... or never arrive at all.
Let me share an example from our experience. We received a payment to our Chinese legal entity, agreed with the bank to credit it. After shipping the goods, we ourselves invested the money, bought the goods, and sent them to the client in Russia. We approached the bank with the export declaration - and the bank said:
- Sorry, we've changed our minds.* - Why?
- Because the declaration states that the cargo was sent via RZD, and RZD is under sanctions.*
In the end, the money was returned to the client in Russia. Fortunately, he is our partner, and we managed to sort things out. But Chinese suppliers don't have such relationships with Russian clients. Therefore, Chinese companies simply lose motivation to discover new collaboration schemes with Russia.
Note: It's worth checking if a Chinese bank could consider your product as "sanctioned" through the "Alta-soft" services by HS code: if it's listed in the table of sanctioned goods, there's a high probability the Chinese bank will refuse to credit the payment.**
Payment in Rubles through Agents
Currently, approximately 60-70% of all payments are facilitated through agents in Russia. There are two options: payment to a resident and to a non-resident.
If you pay a Russian legal entity - a resident, you simply transfer rubles to its account. Where the money goes next, the client often doesn't know. Later, on behalf of some foreign company (for example, from Hong Kong, the Emirates, Turkey), your supplier receives a foreign currency payment.
The advantage of this scheme is that operations with your agent occur within a single legal framework, and the ruble payment arrives swiftly and without currency control. However, this method also carries a significant drawback: you need to be crystal clear about where your money will go next to avoid complications with customs.
The scheme of working with foreign agents who have ruble accounts in Russia is also utilized by Ural companies. It has its own benefits and drawbacks. Among the advantages are that you immediately pass through currency control, you can potentially reduce the risk of delays through correspondent banks, and there's the possibility of breaking the payment chain, thereby hiding the trail of payments from Russia.
But if something happens to the money, finding this non-resident and asserting your rights is virtually impossible. Suing someone in another country is practically unrealistic. The reliability of the scheme significantly increases if you receive guarantees from some Russian company that the payment will be made.
Insights:
In an attempt to tackle international payment issues, companies might explore alternative methods. Some general strategies include:
- Cryptocurrencies: Decentralized digital currencies could be used to bypass traditional banking restrictions.
- Online Payment Services: Digital wallets and other online payment services might offer more flexibility than traditional banks.
- Barter and Countertrade: Exchanging goods or services directly without money could be another option.
- Third-party Payment Platforms: Services like Revolut, TransferWise, and others facilitate international transactions with multiple payment methods.
- Alternative Banking Channels: Working with banks in countries with fewer international transaction restrictions could be an option.
- Letter of Credit (L/C): This financial instrument can secure transactions between buyers and sellers in international trade.
Regardless of the chosen method, regulatory compliance, stability, security, and cost-efficiency are crucial considerations.
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In the context of the Ural Company's struggle with international payments, Ivan Rastegaev, the chief executive of Woodbag, discussed the payment methods most commonly employed by companies when transacting with foreign partners, noting that direct overseas payments, although straightforward, are unreliable due to low success rates and the potential for banks to decline processing transfers (I'm not sure if banks will process the payment). As an alternative, many companies facilitate approximately 60-70% of all payments through agents in Russia, where payments to a resident Russian legal entity in rubles are transferred swiftly, but the destination of the money later is often unclear (I'm not sure where my money will go next).
