Detailed explanation of the different modes and processes of RMB payment and settlement in cross-border trade

In cross-border trade, there are various methods of RMB payment and settlement. This article will introduce in detail several common models: agency bank model, clearing bank model, NRA model and cross-border export income settlement model.

Agent bank mode

The agency bank model refers to a domestic bank with international settlement capabilities signing a RMB agency settlement agreement with an overseas bank, opening an RMB inter-bank current account for it, and thereby providing cross-border RMB collection, payment, settlement and other services on behalf of the overseas bank. Take the transaction between overseas enterprise A and domestic enterprise B as an example. Under this model, A needs to open a settlement account at overseas Citibank, and B needs to open an account at domestic Agricultural Bank of China; at the same time, Citibank must sign a RMB settlement agency with Bank of China. Agreement, and Bank of China will open a RMB interbank current account for the former. The specific business steps are as follows:

1. A issues payment instructions to Citibank;
2. After deducting the money from Account A, Citibank sends instructions to Bank of China through the SWIFT system;
3. After verifying the balance of the RMB interbank current account, Bank of China will perform the deduction operation;
4. Through China Modern Payment System (CNAPS), Bank of China transfers the payment to Agricultural Bank of China;
5. Finally, Agricultural Bank of China completes the settlement of B.

SWIFT and CNAPS play a key bridging role in this process. The former is an international inter-bank communication network, and the latter is a domestic inter-bank clearing system.

Clearing bank mode

In contrast, the clearing bank model requires the People’s Bank of China to designate a specific overseas bank as the RMB clearing bank. The clearing bank then signs an agency settlement agreement with the overseas commercial bank and opens a RMB interbank current account for the latter. The core difference in this model is where the funds are settled. Under the correspondent bank model, the settlement of funds occurs overseas, while in the clearing bank model, since domestic banks have branches overseas and are designated as clearing banks, fund settlement can be completed within the clearing bank. For example, when Citibank opens an account at an overseas branch of Bank of China, fund transfers can be carried out through the bank’s internal system.

NRA mode

The NRA model allows overseas enterprises to open non-resident accounts (NRA) in domestic banks, which can be used directly for payment and settlement. Although this process is similar to B2B payments between domestic enterprises, the procedures for opening an NRA account are more complicated and are strictly regulated by the State Administration of Foreign Exchange. In addition, it should be noted that there is an essential difference between NRA accounts and offshore accounts (OSA). The former is a domestic account and is subject to foreign exchange controls, while the latter is not subject to such restrictions.

Cross-border export income settlement model

The settlement of cross-border export income involves two basic processes: export first and then receive payment, and first receive payment and then export. Both need to ensure that export enterprises and foreign buyers sign trade contracts denominated in RMB, and complete customs declaration procedures and tax declarations through formal channels.

Export first and collect later

1. Sign a trade contract;
2. Delivery according to contract;
3. Declaration in RMB;
4. Foreign businessmen pay for goods;
5. Export enterprises submit relevant documents to the bank;
6. The bank enters information into the People’s Bank of China management system;
7. Apply for export tax rebate.

Collect payment first and then export

1. Sign a trade contract;
2. Foreign businessmen pay for goods;
3. Submit payment instructions to the bank;
4. Bank entry information;
5. Delivery according to contract;
6. Declaration in RMB;
7. Update customs declaration information;
8. Apply for export tax rebate.

The above is an introduction to several main modes of cross-border trade RMB payment and settlement and their detailed processes. Each model has its applicable scenarios, and enterprises should choose the most suitable solution according to their own needs.