Chapter 3:

METHODS OF PAYMENT
 Objectives

1. Define what is meant by international payment;

2. Pragmatically approach international payment;
3. Analyze the procedure, benefits and risks of each
method
4. Take application of payment methods into consideration

2
 Contents

I. Remittance
II. Open account
III. Collection
IV. Letter of Credit

3
 Methods of international payment

Definition:
Methods of international payment are all conditions and
manner recommended for Commercial bank to transfer
proceeds between residents and non –residents of one
country.
❖ Residents
❖ Non- residents

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 Classification

In terms of attached In terms of bank’s role

docs

Non-documentary methods: Intermediary of payment:

- Open account • Remittance
• Open account
- Remittance
• Collection
- Clean collection
- Demand guarantee
Commitment to pay:
Documentary methods:
• Demand guarantee
• Documentary collection • Standby L/C
• Documentary L/C • Letter of credit
• Authority to Purchase • Authority to Purchase

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 Methods of international payment

Definition: are all conditions and manner recommended for

Commercial bank to transfer proceeds between residents
and non –residents of one country.
nên combine các phương thức khác như letter of guarantee (L/G),
stand-by letter of credit, performance bond (tìm hiểu thêm)

Figure 1: Payment Risk Ladder

Exporter: Least Secure → Less Secure → More Secure Most Secure
→

Importer: Most Secure ← More Secure ← Less ← Least Secure

Secure

Open Account Collection Documentary Advance

Clean Collection -> Credits Payment
DA -> DP

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 I. REMITTANCE/TRANSFER

Main contents:
❖Definition
❖Procedure of remittance
❖Types of remittance (Mail/Telex/Wire/Swift)
❖Some notices of remittance

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 1.1. Definition

A remittance is:

- a method of payment by which applicant requires his/her

bank to transfer an amount of money to the beneficiary
at a certain place.
- a method of payment thereby buyer requires his or her
bank to remit/transfer an amount of money to seller at
seller’s bank.

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 1.1. Definition

Parties of remittance:
- Applicant
- Beneficiary
- Remitting bank
- Intermediary bank
- Paying bank

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 1.2. Types of Remittance:

Two types of remittance:

❖ Mail transfer remittance: M/T
▪ Rarely used nowadays
▪ Low cost, Low speed
▪ Risky
❖ Telegraphic transfer Remittance: T/T (wire/Telex/Swift)
▪ Popular
▪ Costly, Speedy
▪ Safe

Buyer Payment order by Seller

Bank mail/Wire/Telex/Swift Bank
Nostro Account
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 1.3. Procedure of Transfer remittance:
a – Remittance before shipping goods

Seller’s Bank 2. Transfer Buyer’s Bank

remittance

3. To 1.
Credit Application
seller’s for
account remittance

4. Shipment and sending docs

Seller/Exporter Buyer/Importer
Contract
Risk: thuộc về người mua vì ng bán có khả năng ko giao hàng Buyer is expose to more risks --> use L/C standby (Page 16)

Seller is the applicant trong trường hợp trả lại hàng, hoàn tiền cho người mua - buyer as benificiary

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 1.3. Procedure of Transfer remittance:
b – Remittance after shipping goods
Ai thực hiện nghĩa vụ trước thì người đó có risk nhiều hơn

Seller’s Bank Buyer’s Bank

3. Transfer
remittance
2.
Application
4. To Credit
for
seller’s
remittance
account

1. Shipping goods, sending docs

Seller/Exporter Buyer/Importer
(0) Contract
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13
14
Within 01 week after receiving the seller’s notice of
shipment, buyer should remit 100% contract value by
TT to seller’s account at Bank X.

Payment by T/T within 7 days after receiving shipping

documents (original) to Kolon company, account No… at
Vietcombank, branch HCM.
Payment should be made upon buyer’s receiving following
shipping docs:
- 3/3 clean Bill of Lading, shipped on board, marked
Freight prepaid.
- Commercial invoice: 3 copies
- Packing list: 3 copies
- Certificate of origin issued by Korean Commercial
Chamber
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1.3. Procedure of Transfer remittance
c – Mixed Remittance: before and after shipping
goods
Term of payment:
• Make payment by T/T
• Within 01 week after signing contract, buyer should remit
in advance 20% contract value.
• 80% remaining value will be transferred to seller upon
receiving docs. Nếu là ngân hàng vào quy trình thanh toán chuyển tiền, trả trước hay trả sau mang lại rủi ro cho
ngân háng trong thanh toán chuyển tiền?

• Pay to account: Rủi ro vận hành: ko kiểm tra kĩ chứng từ, lỗi kĩ thuật
Rủi ro về quy định: ngân hàng yêu cầu phải kí hợp đồng mua ngoại tệ giao ngay và fwd contract chỉ
được mua trong vài ngày (short-term) --> để kiểm soát tỷ giá
• A/C name: Case: khách hàng có account có tiền ngoại tệ --> ko kí hợp đồng mua ngoại tệ
Case: khách hàng ko có accont có tiền ngoại tệ --> phải mua hợp đồng mua ngoại tệ

• A/C No. (USD): Vd: có ngoại tệ, phải bán lại cho ngân hàng và mua lại ngoại tệ với tỷ giá của ngân hàng

• Swift code: Rủi ro gian lận:

Ngân hàng có rủi ro nhiều hơn với trả trước: Tại sao??? (Thi)
• Bank name: - Lack of Shipment Evidence
- No Control Over Goods

• Bank address: - Fraud Risk

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 1.4. Applicable situations

- Recommended for trade in service

- Simple but rather risky because of extremeness
- Should combine with other method to prevent risks
- Have no international convention or customs on
remittance
- Used separately or as a part of the other methods of
payment

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 II. OPEN ACCOUNT

Main contents:
- Definition
- Procedures
- Classification
- Cases for application
- Some notices of open account method

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 2.1 Definition

- Is method of payment, by which the seller ships

the goods and sends invoice together with the
other documents to the buyer, who is invited to
pay the agreed amount on the appointed date
into the account indicated by the exporter.
- Open account: book account opened by seller,
not bank account Trả sau: ng bán cho ng mua một định kỳ để thanh toán --> rủi ro cao cho ng bán
so với T/T

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 2.2 Features

- the least secure method of trading for the

seller/exporter, but the most attractive to buyers.
- the Exporter sends the goods and commercial docs
to Buyer without any instant payment.
- no payment protection for the exporter at all.
- Without bank’s participation as one party to this
method.
- Simple procedure
- Higher price than instant payment
- Most popular in trading in Europe (60%)
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 2.3. Procedure2.ofOpen
OpenAccount
account

Mechanics: How does an Open Account transaction work?

OPEN ACCOUNT: The Exporter

Exporter ships goods
and documents directly
to the Importer and
GOODS PAYMENT
waits for the Importer to 1 2
send payment.

Importer
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 2.3. Procedure of Open account

Seller’s Bank 4. Transfer Buyer’s Bank

remittance
5. To Credit seller’s

3. Application
for collection

3.
Application
for
remittance
account

2.
Ship goods, send docs, open
Seller/Exporter book to record shipment Buyer/Importer
1. Contract
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 2.4. Classification

a. In terms of security of payment

- open account to be secured: can be subjected to
bank guarantee requested by buyer (L/G, standby L/C,
performance bond)
- open account to be naked: without any protection

b. In terms of receiving payment

- Open account by Collection
- Open account by Remittance

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 2.5. Applications

- Risky for exporters, safe for importer

- Limited to transactions involving small amounts
- or to situations where the exporter has no doubts about
the credit worthiness and/or the willingness of his buyer
to pay.
- It assumes that the parties are well known to
each other and this mode of payment is then very
efficient.
=> Trust each other
- Used for consignment, the parent company-subsidiary
company

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 III. COLLECTION

Main contents:
• Definition
• Applicable rules
• Parties to Collection procedure
• Contents of Collection instruction
• Classification and procedure of Collection
• Case study

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 3.1 Definition

The URC 522 are the Uniform Rules for Collections:

Sub- Article 2(a): Collection means the handling by banks
of documents as defined in Sub-Article 2(b) in accordance
with instructions received, in order to:
• Obtain payment and/or acceptance
• (or) Deliver documents against payment and/or against
acceptance
• (or) Deliver documents on other terms and conditions.
Khác với đòi nợ thuê trong thị trường nội địa, nhờ thu ngân hàng ko chịu trách nhiệm về kết quả có thu đc tiền đầy đủ từ ng mua hay
ko, chỉ cần làm đúng với instruction mà seller yêu cầu.

26
 3.1 Definition

Sub- Article 2(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

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 3.2 Applicable Rules

• The URC 522 are the Uniform Rules for Collections.

URC 522 came into effect on 01 January 1996.
• The ICC URC were first published by the ICC in 1956.
Revised versions were issued in 1967 and 1978.
• This present revision was adopted by the Council of the
ICC in June 1995, for issue as ICC Publication N°522.
• Please note that the title or classification on the heading
of each Article is for reference as to intent and purpose.
It is not to be construed as being other than solely for
benefit or guidance and there should be no legal
imputation.

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 3.3 Parties to a collection

1. Principal: party entrusting the handling of a collection

to a bank;
2. Remitting bank: the bank to which the principal has
entrusted the handling of a collection;
3. Collecting bank: which is any bank, other than the
remitting bank, involved in processing the collection.
4. Presenting bank: which is the collecting bank making
presentation to the drawee.
5. Drawee: is the one to whom presentation is to be made
in accordance with the collection instruction
Collection: ng mua là ng chấp nhận hối phiểu
L/C: ngân hàng sẽ chấp nhận hối phiếu

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 3.3 Parties to a collection

Bank’s obligations:
1. Banks are only permitted to act upon
the instructions given in such collection instruction, and
in accordance with these Rules.
2. Banks will not examine documents in order to obtain
instructions.
3. Unless otherwise authorised in the collection
instruction, banks will disregard any instructions from
any party/bank other than the party/bank from whom
they received the collection.
remitting bank chỉ làm theo instructions của principal
collecting bank chỉ làm theo instruction của remitting bank.
Ai trực tiếp yêu cầu thì làm theo ng đó.

Nếu principal ko chỉ định collecting bank thì remitting bank sẽ tự chọn ngân hàng collecting bank

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 3.3 Parties to a collection

Bank’s obligations:
• The remitting bank will utilise the bank nominated by the
principal as the collecting bank.
• In the absence of such nomination, the remitting bank will
utilise any bank of its own, or another bank's choice in the
country of payment or acceptance or in the country where
other terms and conditions have to be complied with.
• Documents and collection instruction may be sent directly
by the remitting bank to the collecting bank or through
another bank as intermediary.
• If the remitting bank does not nominate a specific
presenting bank, the collecting bank may utilise a
presenting bank of its choice.
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 3.4 Collection instructions

1. Details of the bank from which the collection was

received Vì ngân hàng ko quan tâm bộ chứng từ có được kí phát đúng hay ko, nên chứng từ có thể bị sai nhiều
Vì vậy nên ko có chỉ dẫn về due dilligence để kiểm tra lại

2. Details of the principal

3. Details of the drawee
4. Details of the presenting bank
5. Amount(s) and currency(ies) to be collected.
6. List of documents enclosed (and the numerical count)
7. Terms and conditions upon which payment and/or
acceptance is to be obtained.
8. Charges to be collected, indicating waived or not.
9. Interest to be collected, if applicable, indicating whether
it may be waived or not.
10. Method of payment and form of payment advice.
11. Instructions in case of non-payment, non-acceptance
and/or noncompliance with other instructions
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 3.5 Types of collection

Sub- Article 2(c):

"Clean collection" means collection of financial
documents not accompanied by commercial documents.
Sub- Article 2(d):
"Documentary collection" means collection of:
(1) Financial documents accompanied by commercial
documents;
(2) Commercial documents not accompanied by financial
documents.

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 Collection
Procedures of Clean Collection
34
(6) Remit money or
accepted draft
Remitting bank Collecting bank

(3) Issue and send

Collection order +
(7) Money (2) financial docs (5) Payment
(4) Present
or accepted Application or
docs
draft for Collection, acceptance
financial docs
(1) Send goods
accompanying
Exporter commercial docs Importer
(Seller) (Buyer)

(0) Underlying
transaction
34
 Collection

Procedures of Documentary Collection

35
(6) Money or accepted
draft
Remitting bank Collecting bank

(3) Collection order

+ docs (5)
(2) Application Exercise
(7) Money for Collection, (4) with the
or commercial Present collection
accepted and/or docs instruction
draft financial docs

Exporter (1) Send goods Importer

(Seller) (Importer)

--> vậy nên cần L/C (vì ng bán

sẽ được trả tiền mà phụ thuộc
(0) Underlying
vào ý muốn của buỷer transaction
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 Types of Documentary Collection

❖ D/P at sight - Documents against at sight payment

❖ D/P at X days after sight: Release documents against x
days after sight
❖ D/A - Documents against Acceptance
❖ D/OTC (or D/OT, D/TC) - Documents against/upon other
Terms and Conditions
Trong phương thức D/P thì buyer phải thực hiện việc thanh toán trước khi nhận được các chứng từ commercial paper để nhận
hàng nên sẽ ko kiểm trả được chất lượng của hàng hóa và số lượng có chính xác ko.

Rủi ro của ng bán: là người mua ko nhận hàng (ghi chú ở slide trên)

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 D/P vs D/P x days

❖D/P: In collection instruction is stated clause

“Release Documents against payment
❖D/P x days after sight of documents. To be
applicable in following cases:
▪ Commercial docs arrived before goods
▪ Importer need to arrange financial aids/ payment
▪ Goods specifications are so complicated and
numerous

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Documents on other terms and conditions

❖The other Terms and Conditions could be:

▪ Partial payment
▪ Documents against Promissory Notes
▪ Documents against Letters of undertaking to pay
▪ Documents against a signed trust receipt
▪ Documents against a Bank undertaking

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 IV. DOCUMENTARY CREDIT

Main contents:
1. Definition of Documentary Credit (DC)
2. Applicable rules
3. Parties to Documentary Credit
4. Procedure of Documentary Credit
5. Applicable situation of Documentary Credit method

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 1. Definition of Letter of Credit

❖Letter of credit – L/C or Documentary Credit – D/C

is a commitment of bank for exporter if he provides the
documentary fully according to terms and conditions of L/C

❖UCP 600 – ICC 2007:

Credit means any arrangement, however named or
described, that is irrevocable and thereby constitutes a
definite undertaking of the issuing bank to honour a
complying presentation.

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 4.1. Definition

Article 2, UCP 600, 2007, ICC

Credit means any arrangement, however named or
described, that is irrevocable and thereby constitutes a
definite undertaking of the issuing bank to honour a
complying presentation.
Honour means:
❖to pay at sight if the credit is available by sight payment
❖to incur a deferred payment undertaking and pay at
maturity if the credit is available by deferred payment.
❖To accept a bill of exchange (draft) drawn by the
beneficiary and pay at maturity if the credit is available by
acceptance. Vd: L/C yêu cầu 3 bản commercial invoice in 3 copies thì bao nhiêu bản gốc và bản sao? quy định 1 bản
chính và các cái còn lại là bản sao

41
 Letter of Credit

❖ Conditional, legal obligation of bank to pay

to beneficiary
❖ Bank places its internationally accepted
credit rating to customer’s credit (payment)
❖ Eliminates commercial risk

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 4.2.Applicable rules

THEUNIFORM CUSTOMS
WHAT?
AND PRACTICE FOR
DOCUMENTARY CERDITS

INTERNATIONAL
UCP WHO? CHAMBER OF
COMMERCE (ICC)

WHEN? 1933

43
GUIDELINES

44
UCP 600, 2007, ICC

45
 4.2. Applicable rules

1933 First UCP 82

1951 UCP No 131

1962 UCP 222

1974 UCP 290

1983 UCP 400

1993 UCP 500, 49 articles

2007 UCP 600 (39 articles)

46
 4.3. Parties to documentary credit
1. Applicant means the party on whose request the credit is
issued
2. Advising bank: that advises the credit at the request of the
issuing bank.
3. Beneficiary means the party in whose favour a credit is issued.
4. Issuing bank means the bank that issues a credit at the
request of an applicant or on its own behalf.
5. Confirming bank means the bank that adds its confirmation to
a credit upon the issuing bank' s authorization or request.
6. Nominated bank means the bank with which the credit is
available
7. Presenter means a beneficiary, bank or other party that makes
a presentation

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 4.4 Procedure of Documentary Credit
Issuing / Opening Bank (3)
Advising Bank
Letter of credit (sight/time)
(6)
Documents
(9)

UCP: 5 days ngày làm việc để kiểm tra và

trả lời có thanh toán hay ko nếu bộ chứng
Application

từ bất hợp lệ. Sau 5 ngày mà ko trả lời thì

ko có quyền từ chối thanh toán khi ko
(2) (7) (8)
hợp lệ trong L/C
(3) (5)

(4)

Goods
Beneficiary
Applicant / Buyer Seller
Importer
Contract Exporter
(1)
Nếu mà kí quỹ 100% thì ng mua ko cần mua insurance. Nếu <100%, NH yêu cầu phải mua insurance trư CIP, CIF

Nếu bộ chứng từ bất hợp lệ với L/C, NH sẽ hỏi buyer có muốn mua hàng nx hay ko. Nếu vẫn muốn thì sẽ kí giấy bỏ qua các bất hợp lệ
trong /C
48
 Availability

UCP 600 - Article 6

1. A credit must state the bank with which it is available or
whether it is available with any bank.
2. A credit available with a nominated bank is also
available with the issuing bank.
3. A credit must state whether it is available by sight
payment, deferred payment, acceptance or negotiation.
4. A credit must not be issued available by a draft drawn
on the applicant.

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 4.5. An introduction to letter of credit

Features of Letter of Credit

1. L/C is to be independent of underlying transaction or
contract;
2. Banks deal with documents and not with goods,
services or performance to which the documents may
relate;
3. L/C is to be required strict compliance of documents
with terms and conditions of L/C;
4. L/C is tool of payment and thereby to avoid the risks
in international trading; however it could be used for
suspension, postponement or refusal of payment and
even for fraud
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 4.6. Applicable situation
of Documentary Credit method

- In trading with new partner

- Big amount of contract value
- Required by legal regulations or customs in trade or
payment
- Required by credit insurer
- Required by foreign exchange regulation

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 tn?sid=993779376mid=AI06vs4AAFDfSg%2F0Qwycsl5WICUpartid=2f=550fid=Inbox

THE VOLUME OF L/C USE BY GEOGRAPHIC REGION

-EU: 9%
-Rest of Europe: 20%
-North America: 11%
-Latin America: 27%
-Middle East: 52%
-Asia Pacific: 43%
-Africa: 49%
-Asia: 46%
-Aust.& New Zealand:17%

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