Assignment remittance and its practical usage situation in viet nam

- Mail transfer: the bank send money by mailing to correspondent banks to make payment for the beneficiary.. 1: The process of Deferred remittance 1 Good & Doc.s 4 2 R

TRUONG DAI HOC TAI CHINH - MARKETING

KHOA THUONG MAI

ASSIGNMENT

REMITTANCE AND ITS PRACTICAL USAGE

SITUATION IN VIET NAM CLASS:

Muc luc LIST OF TABLE 4 IILSMN9)0i0900 2 e ỶỶ 4 LIST OF FIGURE, 20000000 4

I THE OVERVIEW OF REMITTANCE c2 Hà Hà này 1 In) e aaa 1 II) 1

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H — THE PROCESS OF REMITTANCE S2 HH He 1

VN ) (/ 0,2i ) 0) ẽn 2 2.2 Advanced remittance DFOC€SS L2 1n TH HH ng 1 0111111111112111 1111111111111 881kg 3

Ii STRENGTHS AND DRAWBACKS OF REMITTANCE eee 5

SL Stremaths - 5 3.2 Drawbacks con HH HH HT HT HH HH TT TH TH rệt 6

IV PRACTICAL USAGE SITUATION IN VIET NAM AND SOLUTION TO MAKE PULL USE OF REMIT'TANCE S121 1H Hàn eu 7 4.1 Practical usage in Viet Nam LH HH g ng H 1n10111011111 111111211 1111111 11 1g kg 7

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LIST OF REFERENCES (oii e 11

LIST OF TABLE

Table 4 1: Reality of mport remiftance activities (20177-2020) ch HH 7 Table 4 2: Reality of export remittance actIvities (20 17-2020) ch He 9

LIST OF PICTURE

Picture 2 1: The process of Deferred rem1ffAIC€ cọ nọ SH n2 1912111111111 111121111 111 rrg 2 Picture 2 2: The process of Advanced reImI†fance c2 11 21111111111111 11101111111 kg 4

LIST OF FIGURE

Figure 4 1: Reality of mmport remitfance activities (20 17-2020) na 8 Figure 4 2: Reality of export remittance activities (2017-2020) ccc ccteeeteeeeteteteeees 9

I THE OVERVIEW OF REMITTANCE

1.1 Definition

Remittance is a method in which a cusomer (payer) requires his/her bank to transfer a certain amount to another person (beneficiary) in a certain location by means of transfer chosen by him/her ( by .)

1.2, Form

There are 2 forms of remittance: Mail transfer (M/T) and Telegraphic transfer (T/T or TTr)

- Mail transfer: the bank send money by mailing to correspondent banks to make payment for the beneficiary

- Telegraphic transfer: send a payment order through SWIFT systems to make payment for beneficiary

In international settlement, Telegraphic Transfer Remittance is one of the most common paying method

1.3 Types of remittance

There are 2 types of remittance: Advanced remittance and Referred remittance

1.4 The participants

There are 4 participants:

- Payer/ Remitter (Importer) - Remitting bank

- Beneficiary (Exporter) - Paying bank/ Intermediary bank

Il THE PROCESS OF REMITTANCE

2.1 Deferred remittance process

Picture 2 1: The process of Deferred remittance

(1) Good & Doc.s

4

(2) Remittance (4) Debit

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The deferred remittance process will include 5 steps:

Step 1: The exporter supplies goods and all of the documents required to the importer after signing the contract

Step 2: The importer send a remittance order to his bank after checking all documents The contract typically specifies a deferred remittance: X days after receiving goods, the importer will make payment for the exporter The benefiary will write a request note for a money transfer to the bank The importer's bank will check the importer's paying capacity, especially their foreign currency account for sufficient balance

Step 3: If the remittance order is valid and the importer’s account has sufficient balance of foreign currency, the bank of importer will order the correspondent one to transfer money from Nostro account to the exporter If the bank of exporter is not a correspondent one of the bank of importer, the payer’s bank will order its correspondent bank to pay the beneficiary through the bank of payer

Step 4: After sending payment order to the bank of exporter, the importer’s bank send a debit note to the importer

Step 5: The bank of importer will credit the exporter account and send a credit note to the exporter

Benefits and Risks of deferred remittance process

Benefits

> Importer

- They can absolutely receive goods, even though the exporter can not supply goods for any reasons

- Don’t have to waste other cost to get a credit

> Exporter

- Get faster speed of payment received and they can demand a higher payment level to fill the deficit and cover the costs

Risks and responsibilities to the parties:

> Importer

- They have to make fully payment as per the contract

> Exporter

- The importer will make excuses for late payment and even non-payment That cause financial bugdet damage for exporter

- In case the importer can’t receive the goods, the exporter will waste extra cost to take the goods back to the warehouse or they have to sell goods to another importer with lower money

2.2 Advanced remittance process

The advance remittance process will include 5 steps:

Picture 2 2: The process of Advanced remittance

(5) Good & Doc.s

3

(1) Remittance (3) Debit

(4) Credit order

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Step 1: According to the payment deadline in the contract, the importer will write a request for money transfer to the bank serving him to carry out the procedures for transferring money

to the exporter The request for money transfer will be made according to the form given by the bank, including specific information

Step 2: The task of the bank serving the importer will check the solvency, specifically, whether the money transferor's foreign currency account has enough balance for payment Step 3: In case the importer’s account is eligible for payment, the bank will deduct the importer's account and transfer directly the money to the exporter's bank or transfer it to an intermediary bank After successfully transferring money, a debit note as well as a payment notice will be sent to the sender by the bank

Step 4: The bank serving the exporter will receive the money transfer order and credit the beneficiary's account and will notify the beneficiary

Step 5: After receiving the remittance notice, the exporter will deliver the goods as well as transfer the goods documents for the importer to receive the goods

Benefits and Risks of advance remittance process

Benefits:

® Importer

- The procedure is fast, not too complicated, the arising transactions are also easy

- TT payment cost is economical

e Exporter

- Fast money transfer time, the money will be transferred immediately or in a short period of time from the buyer to the seller

- Avoiding the risk of default from the importer, damage when the buyer pays late At the same time, the monetary status of the beneficiaries will be further enhanced

Risks and responsibilities to the parties:

® Importer

- After make the payment, there will be a case that the exporter do not delivery the goods

- In case of paying 100% of the order value in advance to the exporter, it means that the importer will not be able to rotate capital when having financial problems

e Exporter

- Although the importer has purchased the goods, sometimes the payment is delayed

- The seller is obligated to deliver the goods after the bank serving him has confirmed the money has been transferred and credited to the seller's account

II = STRENGTHS AND DRAWBACKS OF REMITTANCE

3.1 Strengths

For customers

- The procedure of TT payment is simple as well as the money transfer time is fast and convenient for both sender and receiver

- TT payment will not affect the L/C deposit for the importer as well as save costs compared

to the L/C payment method

- In case of using prepaid money transfer method, the exporter will limit the risk as well as damage on the payment of the importer

- In contrast, in case of using post-paid money transfer method, the beneficiary will be the importer because they receive the goods, carefully check the goods, and then make the payment

For the Bank:

The bank's responsibility is to pay TT, not bound by the payment time as well as the payment amount The bank will enjoy the fee (commission) when becoming an authorized payment intermediary

3.2 Drawbacks

The payment is completely dependent on the goodwill of the importer

In this situation, the exporter will completely suffer Therefore, TT payment method should be applied between two parties that have mutual trust and contract for a long time The exporter does not ship the goods

The importer pays the amount as agreed in the contract before receiving the goods

in case the exporter does not deliver the goods or delays in terms of time, the importer will bear all the disadvantages

The exporter did not receive the money or received it late

In case the exporter has shipped the goods but the buyer has financial problems or is not satisfied with the quality of the goods lead to be unable to pay, the seller will bear all risks in this method

IV PRACTICAL USAGE SITUATION IN VIET NAM AND SOLUTION TO MAKE FULL USE OF REMITTANCE

4.1 Practical usage in Viet Nam

As we mentioned in chapter 1, Remittance has many drawbacks for both partcicipants so in reality, Remittance is used to transfer the money from abroad to Viet Nam or make payment for the contract with small value In export and import activities, businesses that have a long-term business relationship choose this method

to pay for their contract Or in Viet Nam, almost the business have small or medium scale so beside L/C, Remittance is still the preferred payment method

In Viet Nam Enterprise prefer TT more than the other From the process we mentioned above, all of the process are performed through a bank, whether it is an exporter or importer In order to make comments about practical usage of this kind of settlement, our groups will base on database of a commercial bank in Viet Nam (Vietin bank),

According to Annual Finance Report of Vietin bank from 2017 to 2020 Our group has summarized current usage of this kind of international settlement

Table 4 1: Reality of import remittance activities (2017-2020)

2017 2018 2019 2020 Cases 19,231 19,900 20,535 18,989 Value (100USD) 4,232,400 4,350,600 4,853,232 4,190,244

Figure 4 1: Reality of import remittance activities (2017-2020)

(Thực trạng thanh toán quốc té tai Ngan hang TMCP Công thương Việt Nam, 2021) Based on the data in Table | and Figure 1, we can see that in the period 2017

to 2021, the TT payment method used at Viettin bank has many fluctuations It is easy

to see that in the period 2017 to 2019, the number of transactions performed as well as the transaction value increased steadily over the years Compared to 2017, the number

of transactions in 2019 increased by 1304 transactions (up 6.78%) In terms of value compared to 2017, the total transaction value in 2019 increased by 14.67% The figures show that within 2 years from 2017 to 2019, the number of payment transactions for imports has steadily increased, which may be the result of Vietnam's import promotion process when at the beginning of 2019, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) took effect in Vietnam However, in 2020, due to the impact of the epidemic, import and export activities were delayed, leading to a significant decrease in transaction volume as well as total transaction value by 8.14% and 15.82% respectively

Table 4 2: Reality of export remittance activities (2017-2020)

2017 2018 2019 2020 Cases 8,427 8,600 9,231 8,487 Value (100USD) 824,567 854,230 920,354 825,320

Figure 4 2: Reality of export remittance activities (2017-2020)

(Thực trạng thanh toán quốc té tai Ngan hang TMCP Công thương Việt Nam, 2021) The data in Table 2 and Figure 2 show the similarity in fluctuations in the number of transactions and the transaction value of the two export and import activities During the period 2017 to 2019, the number of transactions increased by 9.5%, the total transaction value increased by 11.62% The figures show that export growth is quite fast, especially in 2019 Joining the CPTPP, Vietnam has the opportunity to interact and trade with many new markets, but businesses need to be ready to cope with the world's high quality and competitive products In 2020, similar

to import activities, the number of transactions and the total transaction value both decreased by 8.77% and 11.51% respectively We should not worry too much about this because this is the general state of the world

It can be seen that the quantity and transaction value of imports is much higher than exports This can affect to the balance of payments

4,2 Solutions

4.2.1 Theoretical basis

The theoretical basis for risk management in TT (telecommunication technology) often draws upon the broader field of risk management and related areas such as information systems security Here are some theoretical foundations that underpin risk management in TT:

¢ Risk and Uncertainty: Risk management recognizes that TT systems are exposed to various uncertainties and potential hazards The concept of risk refers to the probability and impact of an event or action that can cause harm or loss Risk management aims to identify, assess, and mitigate these risks to minimize their impact

on the TT environment

e¢ Systems Theory: Risk management in TT is based on the concept of systems theory, which views TT systems as complex and interconnected systems This theory helps in understanding the implications of risks and their potential cascading effects within the system It emphasizes the need for a holistic approach to risk management,

considering the interdependencies and vulnerabilities of different components

¢ Risk Assessment Models: Various risk assessment models are used in TT to identify and evaluate risks objectively These models incorporate quantitative and qualitative assessments to determine the likelihood and impact of risks

* Cost-Benefit Analysis: Another theoretical foundation is the cost-benefit analysis, which aims to evaluate the potential costs of implementing risk mitigation measures against the potential benefits It helps decision-makers determine the optimal investment in risk management strategies and allocate resources effectively

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