B.

Vocabulary
Match these terms with their definitions.

1. invoice a) document that shows details of goods being

2. clean collection (thu transported; it entitles the receiver to collect the
phiếu trơn) goods on arrival
3. documentary b) list of goods sold as a request for payment
collection c) bank that issues a letter of credit (i.e. the
importer’s bank)
4. bill of exchange
d) bank that receives payment of bills, etc. for their
5. bill of lading (vận
customer’s account (i.e. the exporter’s bank)
đơn) e) document allowing someone to claim ownership
6. document of title of goods
7. issuing bank f) payment by bill of exchange (hối phiếu) to
8. collecting bank which documents are not attached
(ngân hàng thu hộ) g) signed document that orders a person or
9. confirming bank organization to pay a fixed sum of money on
10. letter of credit demand or on a specified date
h) bank that confirms they will pay the exporter on
evidence of shipment of goods
i) method of financing overseas trade where
payment is made by a bank in return for
delivery of commercial documents, provided
that the terms and conditions of the contract are
met
j) payment by bill of exchange to which
commercial documents (and sometimes a
document of title) are attached

Write your answer here:

1b 2f 3j 4g 5a

6e 7c 8d 9h 10i

C. Reading
 Reading 1

Before you read

Discuss these questions.
1. What are some of the risks involved in trading internationally?
Some of the risks involved in trading internationally are non-payment, late payment,
late delivery, wrong documents
2. What payment methods do you know that are used when exporting or importing
goods?
Payment methods used when exporting and importing goods are open account,
documentary credit, documentary collection and advanced payment.
3. What is the role of the banks in international trade?
Banks can either be active or be passive role in international trade, they can issue, collect,
confirm, guarantee some form of documentary payment
Open Account
The goods, and relevant documents, are sent by the exporter directly to the overseas
buyer, who will have agreed to remit payment of the invoice back to the exporter upon
arrival of the documents or within a certain period after the invoice date. The exporter
loses all control of the goods, trusting that payment will be made by the importer in
accordance with the original sales contract.
Documentary Credit
Documentary Credit is often referred to as a Letter of Credit. This is an undertaking
issued by an overseas bank to a UK exporter through a bank in the UK, to pay for the
goods provided that the exporter complies fully with the conditions established by the
Documentary Credit.
Additional security can be obtained by obtaining the ‘confirmation’ of a UK bank 1 to
the transaction, thereby transferring the responsibility from the importer’s bank overseas
to a more familiar bank in the country of the exporter.
Very few risks arise for the exporter because the potential problem areas of the buyer
risk and country risk can be eliminated. However, the exporter must present the correct
documents and comply fully with the terms and conditions of the credit. Failure to do so
could result in the exporter losing the protection of the credit.
Bills for Collection
 Trade collections are initiated when an exporter draws a bill of exchange on an
overseas buyer. This is forwarded by the exporter’s bank in the importer’s country.
Such collections may be either ‘documentary’ or ‘clean’2. A documentary collection
is one in which the commercial documents and, if appropriate, the documents of
title to the goods are enclosed with the bill of exchange. These are sent by the
exporter’s bank to a bank in the importer’s country together with instructions to release
the documentation against either payment or acceptance of the bill.
The risks that the exporter has to face are that the importer fails to accept the bill of
exchange or dishonours an accepted bill3 upon maturity. This means that the exporter may
have to consider shipping the goods back to the UK, finding an alternative buyer or even
abandoning the consignment, all of which could be expensive.
In many areas of the world it is common practice to defer presentation 4, payment or
acceptance until arrival of the carrying vessel. Collection and remittance charges can also
be relatively high.
If the exporter retains control over the goods by remitting a full set of Bills of
Lading5 through the intermediary of the banking system, control of the goods will be
handed over to the importer only against payment or acceptance of the bill by the
importer. If the documents are released against the importer’s acceptance of the bill,
control of the goods is lost and the accepted bill of exchange may be dishonoured at
maturity.
Advance Payment
Exporters receive payment from an overseas buyer in full, or in part, before the
goods are dispatched. This means that the exporter has no risks associated with non-
payment.
1
This bank is then known as the confirming bank.
2
Clean means that no documents are involved.
3
The importer does not pay, although he had previously agreed to pay.
4
This means to delay passing the bill to the importer.
5
This means sending all the necessary shipping documents.
Reading comprehension tasks
Understanding main points
Read the above text about payment methods for exporters and write the four methods
in the correct positions according to their risks for the exporter.
 Least secure Payment method: 1. ……………. open account...……
2. ………………………………..…
Bill for collection
3. LC
…………………………….….…
Most secure Advanced payment
4. …………………………….….
………

Understanding details
Mark these statements T (true) or F (false) according to the information in the text.
Find the part of the text that gives the correct information.
Open Account
1. The importer pays for the goods after receiving the documents -> True
2. There is no contract involved -> False (There is sales contract involved)
3. The exporter must be able to trust the buyer -> True
Documentary Credit
4. If a letter of credit is issued, the importer’s bank agrees to pay for the goods
without conditions -> True
5. If a letter of credit is confirmed, the exporter’s bank takes responsibility for
payment -> False
Bills for Collection
6. Commercial documents and the document of title (CHỨNG TỪ QUYỀN SỞ
HỮU) are always enclosed with a bill of exchange -> False
7. Importers may not accept the bill of exchange until the goods arrive -> True
8. Exporters can keep control of goods by sending bills of lading through the banking
system -> True
9. Exporters reduce risk if documents are released against acceptance of the bill
rather than payment -> False (Exporters reduce risk if documents are released
against payment of the bill than acceptance) -> vì là acceptance thì risk hơn
Advance Payment
10. This means that the importer has to pay before any goods are dispatched (gửi đi) -
> True
Reading 2: How a letter of credit works
 1. Read about the first four steps in a transaction involving a letter of credit, and
number the steps 1 to 4, using the diagram below to help you.
a. The advising bank authenticates the letter of credit and sends the beneficiary (the
seller) the details. The seller examines the details of the letter of credit to make
sure that he or she can meet all the conditions. If necessary, he or she contacts the
buyer and asks for amendments to be made -> step 4
b. The applicant (the buyer) completes a contract with the seller -> step 1
c. The issuing bank (the buyer’s bank) approves the application and sends the letter
of credit details to the seller’s bank (the advising bank) -> step 3
d. The buyer fills in a letter of credit application form and sends it to his or her bank
for approval -> step 2

2. Now read about the next six steps, and number them 5 to 10 using the
diagram below.
e. If the documents are in order, the advising bank sends them to the issuing bank for
payment or acceptance. If the details are not correct, the advising bank tells the
seller and waits for corrected documents or further instructions -> step 7
f. The advising/confirming bank pays the seller and notifies him or her that the
payment has been made -> step 10
g. The issuing bank advises the advising (or confirming) bank that the payment has
been made -> step 9
h. The issuing bank (the buyer’s bank) examines the documents from the advising
bank. If they are in order, the bank releases the documents to the buyer, pays the
money promised or agrees to pay it in the future, and advises the buyer about the
payment. (If the details are not correct, the issuing bank contacts the buyer for
authorization to pay or accept the documents.) The buyer collects the goods
-> step 8
 i. The seller presents the documents to his or her bankers (the advising bank). The
advising bank examines these documents against the details of the letter of credit
and the International Chamber of Commerce rules -> step 6
k. When the seller (beneficiary) is satisfied with the conditions of the letter of credit,
he or she ships the goods -> step 5

D. Exercises

Complete the sentence

Use an appropriate form of the words in the box to complete the sentences which
describe the procedure for documentary collection.

draw accept dishonour release remit forward dispatch present

present

1. The first step the exporter takes is to ask his bank to draws a bill of exchange on
the overseas buyer.

2. The exporter’s bank forwards the bill of exchange, together with the commercial
documents, to the importer’s bank.

3. At the same time, the exporter dispatches the goods.

4. The exporter must take care to present the correct documents to the bank.
 5. When the importer accepts the bill of exchange, the bank will release the
documents of title to the goods.

6. If the importer dishonours the bill, the exporter may have to find an alternative
buyer or ship the goods back again.

7. In some parts of the world, banks may be slow to remit. payment to the exporter’s
bank.

E. Extension activities
If you work in a bank’s letter of credit section and each of the following statements is
made by a customer, explain the type of letter of credit you would recommend. Write
down the words or clause you would insert in a letter of credit to make your suggestion
effective.
1. “My purchasing manager is going to Japan to buy dinner sets from a number of
manufactures, each of whom will want a letter of credit. I want him to take one letter of
credit with him for this” -> Revolving LC
2. Our company’s overseas purchasing manager live in Brazil. I need to get money to
him so he can purchase coffee from inland growers and then ship it on a letter of credit
-> Back-to-Back LC
3. I have a contract to purchase sugar from Haiti over the next six months. I know my
credit line is only for $50,000, but how can I get a letter of credit for the entire shipment
of $200,000? -> Red clause LC
4. The buyer of my motorcycles needs six months before he can pay me. I can’t wait
that long for my money, but I want to make this sale -> Transferable LC
5. I just received this letter of credit from Jamaica. Is the bank good? How do I know
I’ll get paid? -> Confirmed LC
6. I am the agent for New York’s largest department store. It wants to buy furs from
Russia, but it doesn’t want the Russian to know it is buying, so I will make the purchase
in my name. The Russians want a letter of credit. The complete order is $1,000,000.
What do I do? -> Revocable LC