Thuyết trình môn thanh toán quốc tế assignment methods of payment

NATIONAL ECONOMICS UNIVERSITY
INTERNATIONAL PAYMENT

ASSIGNMENT
TOPIC:

METHODS OF PAYMENT
Group 6 :

1. Đặng Khánh An
2. Đỗ Đức Anh
3. Ngyễn Hữu Bảo
4. Nguyễn Thu Hà
5. Trần Cẩm Tú
6. Hà Tú Linh
7. Trần Thị Thu Hằng


Hà Nội 2017

Contents
I. Open account ......................................... 3
1. Definition .......................................... 3
2. Features of open account method or characteristics of an open account .. 3
3. Procedure of open account payment ......................... 4
4. Advantages of method of open account payment ................. 4
5. Risk .............................................. 4
6. Applying case ........................................ 5
7. Note .............................................. 5
II. Collection of payment.................................... 5
1. Definition .......................................... 5

2. Features............................................ 5
3. Parties ............................................. 5
4. Types of collection of payment ............................ 5
4.1. Clean Collection: ................................... 5
4.2. Documentary Collection .............................. 7
5. Legal Documents ..................................... 8
• Uniform Rule for Collection 522 ........................... 8
III. Bank remittance ..................................... 10
1. Definition : ........................................ 10
2. Parties in bank remittance ............................... 10
3. Types of bank transfer ................................. 10
IV. Documentary credit ................................... 11
1. Definition: ......................................... 11
2. Features of Letter of credit (L/C) .......................... 12
3. Parties: ........................................... 12
4. Function of L/C: ..................................... 12
5. Types of L/C: ....................................... 12
a. Standard types of L/C: ................................ 12
b. Special types of L/C ................................. 13
6. Procedure: ......................................... 14
7. Legal documents of LC ................................ 14
8. Important features of UCP: .............................. 14
9. Term of LC ........................................ 15

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I. Open account
1. Definition
Open account method means that the seller delivers goods or services to the buyer without

receiving cash, a bill of exchange or any other legally binding enforceable undertaking at
the time of delivery, and the buyer is expected to pay according to the terms of the sales
contract and the seller’s latter invoice

2. Features of open account method or characteristics of an open account
• Applicability: Recommended for use in secure trading relationships or markets or
in competitive markets to win customers with the use of one or more appropriate
trade finance techniques.
• Time: as agreed between a buyer and seller, net 15, 30, 60 day terms, etc., from
date of invoice or bill of lading date.
• Risk: Exporter faces significant risk as the buyer could default on payment
obligation after shipment of the goods. ( highest risk )

• Trust: the exporter and importer trust one another implicitly, and they have traded
together for a number of years.
• Pros (advantage)
- Boost competitiveness in the global market
- Establish and maintain a successful trade relationship
• Cons (disadvantage)
- Exposed significantly to the risk of nonpayment
- Additional costs associated with risk mitigation measures

3


3. Procedure of open account payment

1)
2)
3)

4)
5)

First, the Seller (exporter) and the Buyer (importer) make a contract
Then the goods will be shipped to the buyer from the seller
After that the buyer go to the importing bank to set up wire transfer
The amount from importer’s bank will be wired to exporter’s bank
Then the exporting bank will transfer credits into the seller’s account

4. Advantages of method of open account payment
•
•
•
-

Exporter
Easiest payment method, low expense, friendly payment method
Reduce document expense
Reduce prices
Increase exporter’s completion in international market
Importer
Pay the goods after receiving all of the cargo
To be the credited by the exporter in specific duration time
Both parties
Reduce bank expense (because bank does not participate in open account
method)
There are only two parties to be exporter and importer

5. Risk
Risks

to •Buyer defaults on payment obligation.

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•Delays in availability of foreign exchange and transferring of funds from
buyer’s country occur.
•Payment is blocked due to political events in buyer’s country.

Seller

Risks
Buyer

to

•Seller does not ship per the order (product, quantity, quality, and/or shipping
method).
•Seller does not ship when requested, either early or late

6. Applying case
-

Exporter and importer trust each other
Use in regular transactions
Use in pay transport expenses, commission expenses, guarantee expenses...

-

Must regular specific kinds of currency
Define specific currency value to be paid in shipping date
Which kinds of currency transfer will be used in payment date – Mail transfer or
TTR transfer

7. Note

II. Collection of payment
1. Definition
Collection of is process, in which after deliver the goods, the seller instructs his bank
to forward documents related to the export of goods to the buyer’s bank with a request
to present these documents to the buyer for payment, indicating when and on what
conditions these documents can be released to the buyer.

2. Features
-

Collection order between exporter and exporting bank is not a contract
In collection of payment, banks are only intermediary in payment method
Collection of payment is only implemented after the seller delivers goods basing on
issuing documents

3. Parties
We have 4 parties join in this method:
- Principal (Seller, Exporter, Drawer)
- Drawee (Importer, Buyer)
- Remitting Bank (Principal’s Bank, seller’s bank, exporter’s bank)
- Collecting Bank and/or Presenting Bank (Buyer’s Bank, Importer’s Bank)

4. Types of collection of payment

4.1. Clean Collection:
• Definition: Clean Collection are collections of financial documents (promissory
notes, Checks, payment slips, etc…) without attacted commercial documents
(invoices, shipping documents and insurance documents)
• Procedure

5


•
•
•

Advantages
Simple
Beneficial to the importer
Receiving cargo and
paying the cargo are
separate

•
•
•
•
•

Disadvantage
Export may not be paid for
shipping the cargo
Payment time is slow

because of some reasons
as follow:
Up to good will of the
importers/buyers
Up
to
transferring
document process
Do not take all advantages
of bank

• Applying cases
1. Paying services expenses of importing and exporting activities
2. Importer and exporter trust each other/one another
3. Parent company and branches (MNCs, MNEs)
 Accepted and application of the case: The method of obtaining a slippery slip does
not apply much in trade payments, as it does not guarantee the seller's rights as the
buyer's receipt is completely separate from the payment stage, the buyer may receive.
No payment or late payment. For buyers applying this method is also
disadvantageous because if the draft comes sooner than the voucher, the buyer must
pay immediately while not knowing whether the seller's goods are in compliance
with the contract or not.

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4.2. Documentary Collection
• Definition: Documentary Collections are collections of financial documents, which
may have attached commercial documents, or collections of commercial documents
without financial documents

• Procedure

•

•

•

•

Advantages
Overcome disadvantages of
clean collection. Payment and
Shipment
are
connected
together
Collecting bank will control
commercial documents instead
of sending directly to importer
when deliver the cargo
For the seller to use this method
is not expensive, and the seller
is helped by the bank to control
and control the transport
document until guaranteed
payment.
The benefit to the buyer is that
there is no obligation to pay if
the documents have not been

inspected in some cases,

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•
•
•

•

•

Disadvantages
The importer can refuse to
receive the cargo
Payment time is slow
For exporters at risk as
importers do not accept the
goods sent by not receiving the
documents.
The importer's credit risk,
political risk in the importing
country and the risk of the
goods may be kept by the
customs.
Paying too late, from delivery
to receipt may take several
months to a year.

including goods.
• Type of Documentary Collection:
In this method, we divide into 3 kinds include: D/P; D/A and D/OT or D/TC
1. Documents against payment (D/P)
In D/P terms, the collecting bank releases the documents to the buyer only upon
full and immediate cash payment. D/P terms most closely resemble a traditional
cash on delivery transaction
2. Documents against Acceptance (D/A)
In D/A terms, the collecting bank is permitted to release the documents to buyer
against acceptance (signing) of a bill of exchange or signing of a time draft at the
bank promising to pay at a later date (usually 30,60, or 90 days)
3. Acceptance Documents against Payment) (D/TC)
An acceptance documents against payment has features from both D/P and D/A:
- The collecting bank presents a bill of exchange to the buyer for acceptance
- The accepted bill of exchange remains at the collecting bank together with the
documents up to maturity
- The buyer pays the bill of exchange at maturity
- The collecting bank releases the documents to the buyer who takes possession of
the shipment
- The collecting bank sends the funds to the remitting bank, which then in turn
sends them to the seller
• Role of bank in documentary collection
Banks act upon specific instruction givens by the principal (seller) in the
collection order
- Banks are required to act in good faith and exercise reasonable care to verify that
the documents submitted appear to be as listed in the collection order.
- Banks are not liable nor can they be held accountable for the acts of third parties
- Banks also assume no responsibility regarding the quantity or quality of goods
shipped
- Without explicit instructions, the collecting bank takes no steps to store or insure

the goods
- If a collection remain unpaid or a bill of exchange is not accepted and the
collecting bank received no new instructions within 90 days it may return the
documents to the bank from which it received the collection order

5. Legal Documents
•
•
•
•

Uniform Rule for Collection 522
Rules of collection
National law
International law

• Uniform Rule for Collection 522
1. Definition

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The ICC Uniform Rules for Collections are a practical set of rules to aid bankers,
buyers, and sellers in the collections process.
This is a legal document that, when using the collection method, needs to be
investigated.
2. Content
• The URC underline the need for the principal and/or the remitting bank to attach
a separate document—the collection instruction—to every collection subject to
the Rules; makes it very clear that banks will not examine documents; addresses

problems banks experience in respect of documents against acceptance and
documents against payment; clearly indicates that banks have no obligation to
store and insure goods when instructed.
• This document consists of 26 articles, 7 sections, of which:
• General provisions and provisions (Articles 1-3)
• Form and structure of collection (Article 4)
• Form of presentation of documents (Articles 5 - 8)
• Obligations and Responsibilities (Articles 9 - 15)
• Payment (Articles 16 - 19) Interest, fees and charges (Articles 20 - 21)
• Other provisions (articles 22 - 26)
Example:
• URC 522 Article 2
ARTICLE 2 DEFINITION OF COLLECTION
For the purposes of these Articles:
(a) "Collection" means the handling by banks of documents as defined in
sub-Article 2(b), in accordance with instructions received, in order to:
1 obtain payment and/or acceptance, or
2 deliver documents against payment and/or against acceptance, or
3 deliver documents on other terms and conditions.
(b) "Documents" means financial documents and/or commercial documents:
1 "Financial documents" means bills of exchange, promissory notes, cheques, or
other similar instruments used for obtaining the payment of money.
2 "Commercial documents" means invoices, transport documents, documents of
title or other similar documents, or any other documents whatsoever, not being
financial documents.
(c) "Clean collection" means collection of financial documents not accompanied
by commercial documents.
(d) "Documentary collection" means collection of:
1 Financial documents accompanied by commercial documents
2 Commercial documents not accompanied by financial documents.

• URC 522 – Article 3
ARTICLE 3 PARTIES TO A COLLECTION
(a) For the purposes of these Articles the "parties thereto" are:
1. The "principal" who is the party entrusting the handling of a collection to a
bank;

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2. The "remitting bank" which is the bank to which the principal has entrusted
the handling of a collection;
3. The "collecting bank" which is any bank, other than the remitting bank,
involved in processing the collection;
4. The "presenting bank" which is the collecting bank making presentation to
the drawee.
(b) The "drawee" is the one to whom presentation is to be made in accordance
with the collection instruction.

III.

Bank remittance
1. Definition:
- This is a method of transferring money by instructing a bank to directly transfer
funds from one bank account to another without the uses of checks
- The seller delivers goods or services to the buyer without receiving cash, a bill of
exchange or any other legally binding and enforceable undertaking at the time
delivery and the buyer is expected to pay according to the terms of the sale contract
and seller’s later invoice

2. Parties in bank remittance

- Buyer (remitter)
- Buyer’s bank (paying bank)
- Seller’s bank (remitting bank)
- Seller (beneficiary)

3. Procedure
1

Seller

Seller

Buyer

Invoice

payment

payment

4

2

3

Seller’s bank

Bank transfer

4. Types of bank transfer
• Mail transfer

10

Buyer’s bank


Transfer of funds between branches through the medium of post offices either for
credit of an account holder or for payment to a certain beneficiary.
Transaction is done by email
When you’re too busy, you may request the bank to remit the payment:
+ fill in the full name, address, telephone number of the beneficiary
+ the bank will write to its correspondent bank to make the payment
- Requirements of payment is implemented through a letter
- Low expense
- But take time
• Telegraphic transfer (TTR)
It is an electronic method of transferring funds; it is utilized primarily for
overseas wire transactions
Transfer of funds by telegraph, telex, cable, or SWIFT from a bank to its
branch or another bank authorizing the payment of funds to a specified
account
- Usually fairly expensive due to the fast nature of the transaction. Generally, the
Telegraphic Transfer is complete within two to four business days depending on
the origin and destination of the transfer, as well as any currency exchange
requirements
- Fastest mode of money transfer and is used for payments

-

It makes a couple of days to transfer
+ Based in oversea: within 5 days
+ Based on local: within same day

IV. Documentary credit
1. Definition:

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2.

3.

4.

5.

Documentary credit is the written promise of a bank undertake on behalf of a buyer,
to pay a seller the amount specified in the credit provided the seller complies with
the terms and conditions set forth in the credit. The terms and conditions of a
documentary credit revolve around two issues:
(1) The presentation of documents that evidence title to goods shipped by the seller,
(2) Payment
Features of Letter of credit (L/C)
• L/C is different from international sales of contract and it separates with sale
contract
• L/C is considered to be an economic contract between importing bank and
importer or between remitting bank and the buyer

• In documentary credit method, documents plays an important role in payment
activity
• The documentary credit method is the safest payment methods among parties in
international payment.
Parties:
1. Applicant
2. Issuing bank, Opening bank
3. Beneficiary
4. Advising bank
5. Negotiable bank
6. Confirming bank
7. Nominated bank
8. Paying bank
9. Accepting bank
10. Bank deferred payment
Function of L/C:
• Payment
• Credit
• Assurance of payment
Types of L/C:
a. Standard types of L/C:
- Revocable L/C: L/C that may be amended or cancelled any time by the buyer (the
account party) without the approval of the seller (the beneficiary)
- Irrevocable L/C: this L/C cannot be cancelled (or its terms amended) without the
seller’s(beneficiary’s) prior written approval and comes usually as a confirmed
irrevocable letter of credit. Also called irrevocable credit.
- Confirmed irrevocable L/C: L/C that adds the endorsement of a seller’s bank (the
accepting-bank) to that of the buyer’s bank (the issuing bank). It provides the highest
level of protection to the seller because not only the L/C cannot be canceled (or its
terms changed) unilaterally by the buyer (the account party), but also both banks

involved in the transaction guaranty its payment on its due (maturity) date.
- Irrevocable without recourse L/C: Without recourse term defines the situation in
which the paying bank will not be able to claim refunds from the beneficiary in case

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the letter of credit documents are not paid by the issuing bank. In general the
confirming bank pay the letter of credit amount to the beneficiaries without recourse
terms.
b. Special types of L/C
- Transferable L/C: A transferable letter of credit is a letter of credit that permits the
beneficiary of the letter to make some or all of the credit available to another party,
thereby creating a secondary beneficiary.
- Back to back L/C: consist of two letters of credit (LCs) used together to finance a
transaction. A back to back L/C is usually used in a transaction involving an
intermediary between the buyer and seller such as a broker, or when a seller must
purchase the goods it will sell from a supplier as part of the sale to his buyer
- Revolving L/C: A letter of credit established one time that enables the receiver to
access specific amounts of credit for scheduled shipments over a specified period of
time. Issued as a cumulative or non-cumulative L/C, the former allows for unused
credit amounts to rollover into subsequent periods while the latter maintains affixed
amount of credit available each period
- Standby L/C:
• A standby letter of credit (SLOC) is a guarantee of payment issued by a bank
on behalf of a client that is used as “payment of last resort”
• Standby letters of credit are created as a sign of good faith in business
transactions and are proof of a buyer’s credit quality and underwriting duties
to ensure the credit quality of the party seeking the letter of credit, then sends
notification to the bank of the party requesting the letter of credit (typically a

seller or creditor)
- Deferred payment L/C: A type of letter of credit that enables the buyer in a
transaction to pay the seller and receive the goods immediately, and to pay the bank
back for the sale amount at a later date. Also called ausance letter of credit.
- Red clause letter of credit: The red clause letter of credit is a specific type of letter of
credit in which a buyer extends an unsecured loan to a seller. Red clause letters of
credit permit documentary credit beneficiaries to receive funds for any merchandise
outlined in the letter of credit. These letters are commonly used by beneficiaries who
act as purchasing agents for buyers in another country.
- Green clause letter of credit: A condition in a guarantee document that allows a
purchaser to receive advances ahead of shipment against collateral property
represented by warehouse receipts. Use of a green clause letter of credit is often used
in the agricultural business where a company can fund the harvest of a new crop by
pledging available stock as collateral.

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6. Procedure:

7. Legal documents of LC
UCP: Uniform customs and practice for Documentary Credits. Historically, the
commercial parties, particularly banks, have developed the techniques and methods for
handling letters of credit in international trade finance
UCP is issued by ICC (International Chamber of Commercial ) in 1933 and updating it
throughout the years => The result is the most successful international attempt at
unifying rules ever, as the UCP has substantially universal effect.
The latest version of UCP called UCP 600, formally comes into effect on 1, July 2007

The Uniform Customs and Practice for Documentary Credits (UCP) is a set of

rules on the issuance and use of letters of credit. Bankers, lawyer, traders,
transporters, academics and all who deal with letter of credit transactions worldwide
will refer to UCP 600 on a daily basis.
8. Important features of UCP:

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All versions of UCP are implemented when used
UCP is not a compulsory legal documents.
In cases, commercial documents apply UCP, it becomes a compulsory legal
document.
9. Term of LC
(1) Swift output of Sender: Code of issuing bank ( mã số ngân hàng phát hành)
(2) Swift input of Receiver: Code of exporting bank ( mã của ngân hàng xuấ t khẩ u)
EX: Swift code of Vietcombank: BFTVVNVX
(3) Sequence of total: the number of original LC is issued to be one paper
(4) Form of documentary credit
EX: Revocable, Irrevocable
(5) Date of issue:
The date being duration period of LC
The date from which the issuing bank commits to pay commercial transaction if
the beneficiary (seller) presents suitable documents
Exporter must check importer’s contract implement.
(6) Documentary credit number
Each LC has a separated number. This number is up to the issuing bank’s
regulations. Here are some main elements as follows.
- Market code
- Code of issuing bank
- Code of issuing year

- Code and number of issued LC
EX: 020LC08VN000123
020: code of issuing bank
LC: letter of credit
VN: Beneficiary is VietNamese
123: number of LC is issued of the issuing bank in that year.
(7) Date and place of expiry
Time and date when the issuing bank will finish its payment obligation to the
beneficiary.
Date of expiry is latter than shipping date.
(8) Name and address of parties in LC: Importer, Exporter, Issuing Bank, Exporting
bank.
(9) Currency code and amount.
LC currency amount has been written by figure and word.
EX: $ 2000 = two thousand dollar
EX: “For a sum or sums not exceeding a total of …” or using tolerance “ For an
amount of… more or less x%)
UCP600: “about” means tolerance 10%
(10)
Date of shipment .
Date of shipment in LC duration period.
(11)
Issues of shipment.

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Incoterms. Delivery. Transhipment.
(12)
Date of shipment

Up to terms of international sale contract.
(13)
Description of goods and services
Write the same of goods terms in the sale contract.
(14)
Document Required
Documents which the beneficiary has to present at the bank to require payment
(15)
Additional Conditions
Credit subject to the UCP600, the number and the date of the credit must be
quoted on all document required. Each presentation must be noted on the
reserve of the original credit by the negotiating bank. All required documents
must be written in English
(16)
Regulations of charges
EX: All bank charge fee outside Vietnam including advising, negotiating,
reimbursement, and amendment charges for account of beneficiary
(17)
Confirmation instruction
If LC needs to be confirmed by another bank, the issuing bank must write the
name, address and code of that international bank in the LC
(18)
Instructions to paying accepting negotiating bank
(19)
Signature, stamp of the issuing bank

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