Group assignment international trade transaction topic documentary credit payment

Enterprises need to pay attention and choose the right import-export contract payment method to help buyers and sellers transact quickly and safely Documentary credit payment method will

UNIVERSITY OF ECONOMICS — DA NANG UNIVERSITY

INTERNATIONAL TRADE TRANSACTION

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University of Economics

GROUP ASSIGNMENT INTERNATIONAL TRADE TRANSACTION

Topic DOCUMENTARY CREDIT PAYMENT Lecturer : Nguyen Thi Phuong Thao Class : 47K01.4

Group ;3 Members : Nguyen Mai Huong

Nguyen Luu Minh Anh Nguyen Hoang Bao Tran Tran Thị Phuong Tra Pham Thi Thuy Duong

Da Nang, April 17", 2023

TABLE OF CONTENTS

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I Overview of the research topic wad l9 a 2 1.1 Research purpOsS€§ 0 2012121112212 n ng ng Hà ky 2

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II Documentary Credit 2 IV 2 PMWÀ nh ẽ.ga 5 2

3 Parties and credit method oŸ docuIm€TS óc n3 vs vn rrrrereres 3

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2 Summary of UCP 600 regulations on documentary credit payments 5 2.1 Cases of payment by documentary credit method 0.000000 cee 5 2.2 How is UCP600 divided ee ceececeeeneeneeeeeeeeeneeeseteeneeneeeeeneeeeeeneees 5

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3 Uses and risks when using documentary credit payment method 8 3.1 Uses and ae 8 B.2 RISKS .-—œđ 9

4, Notes for Vietnamese DbuSÏn€SS€S co họ nọ TH KH 0800 10 CONCLUUSIONN Họ HH HH KH TT TH KH HH sếp 13 REEERENGC ES cọ HH HT TH Hà HH GHI 00 04 000 0004.040898 14

INTRODUCTION

Vietnam is increasingly developing in an industrialized and modernized society, and the import and export market in Vietnam is also becoming more and more popular and expanding There are more and more opportunities and options in terms of import and export methods, so businesses need to carefully choose the most appropriate and safest method for import and export orders Enterprises need to pay attention and choose the right import-export contract payment method to help buyers and sellers transact quickly and safely Documentary credit payment method will be introduced by Group 3 through UCP regulations on documentary credit payment and at the same time raise the notes for businesses in Vietnam when using this method in international goods sale and purchase

contracts

I Overview of the research topic

1 Overview

Documentary Credit is an instrument that is commonly used to facilitate payments

in business transactions between buyers and sellers, and can be used either locally

or across borders

In this report, we are going to make a clear knowledge about UCP 600 regulations

on documentary credit payments and notes for Vietnamese businesses when choosing to use the documentary credit payment method in international goods sale and purchase contracts

1.1 Research purposes

- Reviewing the knowledge learned from "International trade transactions”

- Research on UCP 600

- Notes for Vietnamese businesses when choosing to use the documentary credit payment method in international goods sale and purchase contracts

1.2 Research subjects

Documentary of credit

1.3 Research scope

International Trade Transactions based on UCP 600

II Documentary Credit

1 Definition'

Documentary Credit is an instrument that is commonly used to facilitate payments

in business transactions between buyers and sellers, and can be used either locally

or across borders Documentary Credit, which are governed by the Uniform Customs and Practice (UCP) and formulated by the International Chamber of Commerce’s (ICC) Commission on Banking and Practice, are a mechanism in which the bank acts as the paymaster on behalf of the purchaser by executing payment to the seller; conditional on compliance of the seller’s documents to the Documentary Credit terms [1]

2 Characteristic

- The Documentary Credit acts as a guarantee to the seller that they will receive payment for their goods or services, provided they comply with the terms and conditions outlined in the credit These terms may include requirements for the

! Article 5, UCP 600

shipment of goods, documentation related to the transaction, and compliance with applicable laws and regulations

- The use of Documentary Credit provides assurance to both the buyer and the seller that the transaction will be completed in a timely and secure manner The buyer is assured that the seller will not receive payment until the required documents are presented, while the seller is assured that they will receive payment if they comply with the terms and conditions of the credit

- At present, documentary credit is the most commonly applied payment method

in international commercial payments, unified practice on documentary credits”

of the International Chamber of Commerce (ICC) This is an arbitrary and consensual international custom, and since its first publication (1933), the code has undergone many revisions The 2007 revision with publication number 600 (UCP 600) is the most recent revision and is in effect

3 Parties and credit method of documents

There are four main actors involved in documentary credit:

- Applicant: It is the person who imports the goods: The person who imports the goods or the person who imports the goods entrusts another person

- Issuing bank: Is the bank representing the importer, it grants credit to the importer

- Beneficiary of the letter of credit: The exporter: The exporter or any person to whom the beneficiary is designated

- Advising bank: The bank in the beneficiary country

There are also some other subjects such as:

- Confirming bank: is the bank that, at the request of the issuing bank, jointly undertakes to make payment with the issuing bank in case the exporter does not trust the issuing bank, they want to have If there is a stronger guarantee of the L/C, they may require that the letter of credit be confirmed by another bank

- Nominated bank: is the confirming bank or any other bank authorized by the bank so that, upon receipt of the presented documents in accordance with the provisions of the L/C, it will pay and accept the exchange promissory note, payment negotiation After that, these banks will stand to demand money from the issuing bank

- The paying bank: the bank opening the letter of credit or another bank nominated by the opening bank to pay or discount the bill of exchange to the

exporter

- The Negotiating Bank: is the bank that negotiates for the documents and is usually also the bank that advises the L/C In case the L/C provides for free

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negotiation, any bank can be a negotiable bank However, there are also cases where the L/C requires negotiation at a certain bank [2]

III UCP 600

1 Definition

The Uniform Customs and Practice for Documentary Credits (UCP) is a set of regulations governing the issuance and use of Letters of Credit (or L/C) UCP 1s used by banks and other commercial parties in over 175 countries

UCP 600 is the international standard document on the implementation and enforcement of documentary credits Below is a summary of the key UCP 600 provisions relating to documentary credit payments:

- Credit message: The L/C must be opened and administered under the terms and conditions outlined in the credit message document, including the documentation requirements to be presented

- Documents: The seller can only claim payment when they provide all the documents that meet the requirements in the L/C The documents must be prepared by the provisions of the L/C and must be guaranteed legality and accuracy

- Payment time: The payment time will be specified in the L/C, however, this time should not exceed 21 days since the bank confirms and accepts the complete documents

- Fees: The buyer is responsible for paying the fees associated with opening the L/C, including fees associated with checking documents and confirming

payment

One of the key benefits of using UCP 600 is that it helps to reduce the risks associated with international trade transactions For example, it ensures that the seller receives payment only if they meet the specific conditions set out in the letter

of credit This helps to protect both the buyer and the seller from fraud or non- payment Additionally, UCP 600 helps to facilitate global commerce by providing a common set of rules that can be used by banks and businesses around the world

In a nutshell, UCP 600 sets out very specific rules for making documentary credit payments Compliance with these regulations will help ensure the legality and accuracy of the export transaction and protect the interests of all parties involved

2 Summary of UCP 600 regulations on documentary credit payments 2.1 Cases of payment by documentary credit method

Payment by L/C can be applied in international sales relationships The form of payment by L/C does not specify specific cases However, the following conditions must be met

- The parties have agreed in the contract on the method of payment for making the L/C

- Sufficient capital to ensure payment by L/C (this will be checked by the issuing bank of the importer)

- Having full civil legal capacity and civil act capacity as prescribed by law

- Guaranteed obligation is a legal financial obligation

- Being assessed by the credit institution or foreign bank's branch to be able to refund the amount that the credit institution or foreign bank branch has to pay on behalf of when performing the guarantee obligation [3]

2.2 How is UCP600 divided

Articles 1 — 5 — General Provisions and Definitions

Article | Application of UCP

Article 2 Definitions

Article 3 Interpretations

Article 4 Credits v Contracts

Article 5 Documents v Goods, Services or Performance

Articles 6 — 13 — Liabilities and Responsibilities

Article 6 Availability, Expiry Date and Place for Presentation

Article 7 Issuing Bank Undertaking

Article 8 Confirming Bank Undertaking

Article 9 Advising of Credits and Amendments

Article 10 Amendments

Article 11 Teletransmitted and Pre-Advised Credits and Amendments Article 12 Nomination

Article 13 Bank-to-Bank Reimbursement Arrangements

Articles 14— Examination of Documents

Article 14 Standard for Examination of Documents

Article 15 — 17 — Examination of Documents

Article 15 Complying Presentation

Article 16 Discrepant Documents, Waiver and Notice

Article 17 Original Documents and Copies

Articles 18 — 28 — Documents

Article 18 Commercial Invoice

Article 19 Transport Document Covering at Least Two Different Modes of

Transport

Article 20 Bill of Lading

Article 21 Non-Negotiable Sea Waybill

Article 22 Charter Party Bill of Lading

Article 23 Air Transport Document

Article 24 Road, Rail or Inland Waterway Transport Documents

Article 25 Courier Receipt, Post Receipt or Certificate of Posting

Article 26 "On Deck", "Shipper’s Load and Count", "Said by Shipper to Contain” and Charges Additional to Freight

Article 27 Clean Transport Document

Article 28 Insurance Document and Coverage

Articles 29 — 33 — Miscellaneous Provisions

Article 29 Extension of Expiry Date or Last Day for Presentation

Article 30 Tolerance in Credit Amount, Quantity and Unit Prices

Article 31 Partial Drawings or Shipments

Article 32 Installment Drawings or Shipments

Article 33 Hours of Presentation

Articles 34 — 37 — Disclaimers

Article 34 Disclaimer on Effectiveness of Documents

Article 35 Disclaimer on Transmission and Translation

Article 36 Force Majeure

Article 37 Disclaimer for Acts of an Instructed Party

Articles 38 — 39 — Transferable Credit & Assignment

Article 38 Transferable Credits

e Article 39 Assignment of Proceeds [4]

2.3Summary UCP 600

Here are a few of the key elements which make up the UCP 600

1 Definition of key terms which are prevalent in international trade (e.g honoring [of payments], applicants, banking days, presentation)

How international trade documents (Letters of Credit) can be signed and acknowledged by all parties

The difference between documents, goods and services (and which parties deal with these)

4 Which parts of a Letter of Credit are negotiable and non-negotiable

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How credit works, and how payment is made Payment time: The payment time will be specified in the L/C, however this time should not exceed 21 days since the bank confirms and accepts the complete documents

Documents: The seller can only claim payment when he provides all the documents that meet the requirements in the L/C The documents must be prepared in accordance with the provisions of the L/C and must be guaranteed

to be legal and accurate

Fees: The buyer is responsible for paying the fees associated with opening the L/C, including fees associated with checking documents and confirming

payment

How banks can communicate the confirmation of goods (teletransmission) Transportation of the goods, modes of transport, and who bears responsibility

10 How to deal with discrepancies, waivers and giving notice

11 The provision of original documents or electronic copies

12 Bills of Lading

13 Insurance and covering the cost of goods

14 Loss of shipping documents in transit [4]

Regulations on payment vouchers: Payment documents are an important basis for the bank to pay the exporter, so the L/C usually must clearly define the following issues:

v Types of documents to be presented: Depending on the specific provisions

of the L/C, the set of payment documents can be simple or complex The most common types of documents include: Bills, Commercial Invoices, Transport Documents, Insurance Documents, Certificates of Origin, Quantity and Quality Inspection Deeds

v¥ Number of vouchers of each type: Each carded voucher must present one

or more copies depending on the nature and characteristics of each type of

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