BANKING ACADEMY FACULTY OF INTERNATIONAL BUSINESS --- ? --- GRADUATION THESIS CHOOSING INTERNATIONAL PAYMENT METHODS FOR IMPORT-EXPORT ENTERPRISES IN VIETNAM... BANKING ACADEMY FACULTY O
The urgency of the topic
In the context of international economic integration, foreign trade plays a key role and directly affects each country's economic growth rate Many studies have clarified the correlation between import and export activities and economic growth such as Thornton (1996), Feder (1982) Unlike domestic trade, international trade is the activity of exchange of goods on the market between countries Therefore, it is not only an individual activity but also an interconnection of the entire foreign trade mechanism, involving a lot of complex intertwined partners This activity mainly serves import and export traders to meet the payment needs of import and export goods and services Foreign trade activities contain more risks, especially risks in international payments stemming from the relationship between the participating parties When exchanging economies, the need for payment will arise between entities in different countries that create international payment
The decision to use international payment method plays a critical position in international payments that affects the rights and relationships of the parties The exporter wants to be paid on time and the importer wants to receive the goods in full Therefore, choosing the right international payment method is one of the activities that import-export enterprises are always interested in In particular, with the accession to the WTO and the signing of FTAs, it has opened up opportunities for Vietnamese import-export enterprises to enter new markets However, this also makes it difficult for Vietnamese businesses when they need a deep understanding of partners or markets, leading to the use of unreasonable payment methods For the above reasons, the topic "Choosing international payment methods for import- export enterprises in Vietnam" was chosen to research and analyze this issue From there, propose solutions and recommendations to facilitate import-export enterprises to have a basis for applying international payment methods effectively.
Literature review
Foreign studies
Many articles have described about international payment methods; however, the observational research and analysis of the choice of payment method are quite modest
According to Petersen (2009), the aspect of an exporter's relationship with his customers, whether a recent or long-term relationship with a customer, must be evaluated This factor is also considered by Agbonika (2015), Becker (2014) and Candemir et al (2011) When advising exporters about the appropriate payment method to use, Agbonika (2015) points out that exporters may choose to use advanced payment or L/C when the importer is a new customer with low reliability Advanced payment is the least risky option for exporters because they will be paid in full before exporting the product Similarly, in an article by Becker (2014), when referring to the relationship and level of trust between importers and exporters, the author suggested that if the trust level is low and the partner is a new enterprise, the enterprise should use advanced payment or L/C On the contrary, collection and open account should be used for high reliability
In addition, the authors have emphasized another essential aspect: the characteristics of goods In Becker's article (2014), after evaluating and analyzing, he said that for custom-made items that are specialized goods, businesses should consider carefully when choosing payment methods For example, suppose this is one of the unique items, not for everyone In that case, it is difficult for businesses to find replacement partners when the importer refuses to receive the goods in case of using collection On the other hand, when analyzing the payment methods that can be applied to importers, Laurel Delaney (2019) points out that for this factor, enterprises should consider more about the ability to consume products in the exporting country, whether customer demand is great or not As such, exporters may be willing to be more flexible with payment terms In particular, the exporter may allow the importer to partially pay, or extend the payment period in case the potential partner needs time to recover capital when processing a large shipment Besides, a new aspect outlined is the value of the transaction Petersen (2009) suggests that this is an independent factor that influences selection of an enterprise Specially, for medium to high-value transactions, for example, the author recommends that importers and exporters need to use highly secure international payment methods, typically L/C In fact, high-value shipments always pose financial risks for businesses Therefore, if L/C is chosen, a third party, the issuing bank, will participate to protect the interests of the parties in the transaction
Furthermore, when referring to the volatility of political and economic situation, Becker (2014) recommends using advanced payment and L/C In cross- border transactions, it is crucial to understand the risks that companies may face, especially cash flow and interest In Becker's article (2014), exporters are not exposed to the risk of price and cash flow changes when using collection and open account However, when evaluating this factor, Petersen (2009) has shown that it still has a low level of impact In general, most of the factors outlined in the above articles represent the authors' views on international trade.
Domestic studies
At present, there are many different research articles on the factors affecting the choice of international payment methods in Vietnam Qualitative analysis is Vietnam's most widely used research technique for this research topic It is an analytical method that has gained popularity in many studies and focuses on theoretical analysis based on the experience and qualifications of the researcher And in the majority of research papers in Vietnam on this topic, the authors make decisions based on the theory, personal understanding and experience of their predecessors to identify the factors that influence the decision to choose the appropriate payment method
Chau (2018) has shown that transaction costs also affect the choice of international payment methods Customers always tend to choose the payment methods with the lowest cost Among the three payment methods that Vietnamese commercial banks often apply, remittance has the lowest fee However, this payment method is not always possible Clients must always consider between the transaction fees and the risks they may face In addition, the bank bases on the assessment of the reputation as well as financial ability of customers to decide on the appropriate payment method Specifically, the author hypothesizes that when banks appreciate the financial ability and reputation of importers, banks can apply L/C payment methods and conversely Because when applying this method, it means that the bank has committed to paying on behalf of the importer to the exporter as well as being responsible for checking documents and documents for the importer before payment
Hung (2022) used a two-stage analysis model AHP-G and COPRAS-G to understand the important factors affecting the choice of international payment methods for small and medium-sized enterprises (SMEs) importing and exporting from new countries and ranking them according to their relevance In the research of a group of students from FPT University, the group of students Binh, Lien, Linh, Thao, Trang (2021) also built a research model of regression analysis and had similar results.
Research objectives
In theory aspect, the topic studies the theoretical basis of international payment and international payment methods in import and export activities
In practical aspect, the topic points out the importance of choosing international payment methods, mentions the situation of using these methods and show the limitation of import-export enterprises when applying international payment method From there, propose solutions to solve the remaining limitations in choosing international payment methods for Vietnamese enterprises.
Subject and scope
Research subject: the selection of international payment methods by import- export enterprises
Research scope: in Vietnam, the research period is mainly from 2020 to now.
Research methodology
Research methods used in this essay include analysis, statistics, comparison, evaluation, etc.
Thesis structure
The graduation thesis is divided into 3 chapters:
Chapter 1: Literature view of international payment methods
Chapter 2: Choosing international payment methods for import-export enterprises in Vietnam
Chapter 3: Solutions to improve limitations in choosing international payment methods for import-export enterprises in Vietnam.
OVERVIEW OF INTERNATIONAL PAYMENT METHODS
OVERVIEW OF INTERNATIONAL PAYMENTS
1.1.1 The definition of international payments
International payment is "the fulfilment of payment obligations and monetary benefits arising on the basis of economic and non-economic activities between organizations and individuals of one country and organizations and individuals of another, or between a country and international organizations, through relations between banks of the countries involving" (Nguyen Van Tien, 2021) International payment activities are formed on the basis of foreign trade activities; therefore, it is possible to classify international payments in two areas: international payments in foreign trade (trade payments) and non-foreign trade international payments (non- trade payments) In the context of world economic integration today, economic and financial relations are also growing strongly and creating international monetary revenues and expenditures between partners in different countries They contribute to the financial situation of countries, whether in a state of surplus or deficit In bilateral relations between partners in many different countries, due to differences in language and geographical distance, payments cannot be made directly with each other but through intermediaries such as international commercial banks with a vast network of operations around the world
International payments have been around for a long time but they really flourished around the end of the 20th century when the volume of international purchases, investments and money transfers exploded, causing the volume of payment transactions through banks to also increase Bank payments increase the use of many countries' currencies to pay each other International payments have become a key part of the economies of countries today
From the above definition, we can see some outstanding features of international payments
Firstly, in terms of subjects, international payment activities involve entities in two or more countries In addition, most international payments are made through the banking system In practice, exporters and importers often pay through the banking system without always being able to make payments directly to each other Therefore, in international payments, there will be at least two participating banks, the bank serving the exporter and the bank serving the importer Bank payments ensure payments to be performed safely, quickly and efficiently
Secondly, in terms of currency in international payments, most cash is not used directly but instead by means of payment such as bills of exchange, promissory notes and checks It can be the currency of the buyer's or seller's country or the common currency Therefore, international payment activities are influenced by the national exchange rate and foreign exchange reserves
Thirdly, in terms of language, English is commonly used in international payments
Fourthly, in terms of the legal system, entities participating in international payment activities are not only governed by national laws but also must comply with international legal documents and international practices (URC, UCP ) issued by the International Chamber of Commerce This helps ensure fairness and equality for entities when participating in international trade and payment activities However, in some cases, the legal systems of different countries lead to mutual opposition When settling a dispute, it is customary to choose international law or national law of a third country or the law of the exporting or importing country as agreed upon by the parties through arbitration or court
1.1.3 The role of international payments
A country that wants to develop needs to promote comparative advantages, combining domestic strength and the international environment International trade activities are therefore promoted and the role of international payments is also enhanced and affirmed
International payment is an essential link in the process of buying and selling goods and services between individuals and organizations from different countries The faster, safer international payment activities are, the smoother and more efficient the relationships of goods-currency circulation between buyers and sellers are settled
If international payment activities are not focused on, foreign economic activities will face many difficulties in existing and developing And conversely, when they are well implemented, the prestige of each country in the international market will be enhanced, increasing economic cooperation between countries, making the transaction process fast, easy, and convenient and significantly reducing costs for participants In addition, international payment activities increase the rate of non-cash payments in the economy, contributing to improving the balance of payments, promoting the import and export of goods and services, at the same time, attracting investment capital for domestic economic development and vigorously promoting foreign economic activities
For import-export enterprises, international payment activities are carried out to ensure the demand for payment for goods and services of import and export activities In foreign economic activities, due to the geographical location of customers, the understanding of financial and payment ability of buyers is limited, and at the same time, in the conditions of frequently fluctuating exchange rates, payment ability is impaired If international payment activities are done well, it will help import-export traders limit risks during contract performance, minimize risks in signing import and export contracts and build trust for customers in trade transactions with foreign enterprises Exporters and importers will control their interests and prevent risks from the other side Therefore, international payment activities will facilitate transactions and ensure the interests of both parties provided that the appropriate payment method is chosen
International payment activities help banks meet the diverse needs of customers for related financial services On that basis, it helps the bank increase sales, improve its reputation, and build customer trust In addition, the bank has expanded its operation scale, which is an advantage that creates the bank's competitiveness in the market mechanism International banking activities are not only a mere activity but also an additional support activity for other business activities of the bank When implementing international payment activities well, import and export credit activities are expanded, leading to the development of foreign currency trading activities, bank guarantees in foreign trade, trade finance and other international banking activities
Figure 1.1 International activities of commercial banks
International banking activities increase liquidity for banks When performing international banking operations, banks can obtain temporarily idle foreign currency capital of enterprises having international relations with banks in the form of deposits pending payment
International payment also facilitates the modernization of banking technology Banks will apply advanced technology to conduct international banking
1.1 Advanced Payment 1.2 Open account 1.3 Remittance 1.4 Collection 1.5 Documentary Credit
4 Bank’guarantee in international trade
5 International Credit activities quickly, efficiently and accurately to limit risks, contributing to the development of the market and banking network
International banking activities also contribute to expanding the bank's external relations, enhancing competitiveness and the bank's reputation internationally, thereby attracting funding from foreign banks and capital sources in the international financial market to meet the bank's capital needs
1.1.4 Legal basis for regulating international payments
In order to regulate domestic relations, each country must build its own legal system suitable to its political, social, customary and development levels Therefore, laws between countries are often different However, when participating in international trade activities, countries are equal to each other, so one country's laws cannot be imposed on another Therefore, an international unified legal system was built to solve the problem of legal conflicts between countries in international relations This legal system is used to regulate international activities, including international payments
In fact, national and international sources of law are so diverse, no one can read or study all sources of law Therefore, when carrying out an activity, it is necessary to follow and comply with the source of laws governing that activity International payment is an internationally specific activity, so it also has its own system of legal documents (sources of law) to regulate The current legal document system has mainly been legislated, but besides that, the system of arbitrary legal documents coexists The fundamental difference between a law and an arbitrary legal document is that the law is absolutely binding and non-exclusive, whereas an arbitrary legal document only has legal force (becomes law) when the parties involved refer to it Due to their arbitrary nature, arbitrary legal documents are legally under the law This means that any arbitrary legal document must not contradict the sources of law, otherwise, it will become invalid Therefore, international payment activities also comply with this rule We can arrange the system of legal documents regulating international payment activities in descending legal order as follows:
- International law sources and conventions
To see the order of legal validity, Article 6 of the Law on Negotiable Instruments of Vietnam stipulates (this is also a general rule for countries):
“1 In case an international treaty to which the Socialist Republic of Vietnam is a contracting party contains provisions that are different from those of this Law, the provisions of such international treaty shall apply
OVERVIEW OF THE MAIN INTERNATIONAL PAYMENT METHODS
International payments are both an essential condition for trade transactions and a conflict between exporters and importers In international trade, exporters prefer to receive payment as quickly as possible while importers prefer to pay as late as possible Therefore, international payment methods must also be diversified to harmonize interests between the two parties In particular, four popular international payment methods can be mentioned: collection, open account, advanced payment and documentary credit (L/C)
1.2.1 Definition and process of international payment methods a Advanced Payment
Advanced payment is "a payment method in which the buyer accepts the seller's price of the goods by a certain (irrevocable) order while transferring partial or full payment to the seller, meaning that the payment occurs before the goods are transferred to the buyer
- As soon as the contract is signed or paid with the order
- After a certain period of time from the effective date of the contract
- Prepaid upon delivery at a particular time (after receiving the money at a particular time, then delivering)
- Ensure the importer grants credit to the exporter
- Ensure the performance of contracts by importers b Open account
Open account is a payment method in which the exporter after the end of delivery credits the importer's account to a monitoring book and this debt is paid periodically as agreed
- The bank only transfers and receives funds purely and does not make any commitments to both buyers and sellers
- Applies when both parties trust each other
- Open only single-marginal accounts, not double-marginal accounts If the importer opens an account for recording, this account is only for monitoring, with no settlement effect
- Mainly used in barter purchases or for regular, periodic shipments during certain periods
- Prices in the bookkeeping method are usually higher than those sold at the merchandise due to interest rates and credit risk c Collection
Collection is a method of payment in which the seller entrusts the bank serving him to present a set of documents through an agent to the buyer for payment, acceptance of drafts or other terms and conditions
Based on the nature of the documents requested by the buyer, they can be classified into 2 types: clean collection and documentary documents Clean collection is a payment method that documents collected only include financial documents, while commercial documents are sent directly to the importer In contrast, documents collected in documentary collection include commercial documents and financial documents; or just commercial documents
Figure 1.2 The process of clean collection
(1) Two parties sign a sale contract, applying clean collection method
(2) Principal sends goods and commercial documents directly to the drawee
(3) The principal sends a request form for collection with financial documents to the Remitting bank to collect money from the importer
(4) Remitting bank makes and sends an order for collection and financial documents to the Collecting bank
(5) The collecting bank notifies the Collection Order to drawee to:
- Sign and accept bills of exchange; or
- Accept other terms and conditions
(6) Drawee pays immediately or accepts the payment
(7) Collecting bank transfers money by collection or time draft accepted to the Remitting bank
(8) Remitting bank transfers money by collection or time draft accepted to the principal
(1) Two parties sign a sale contract, applying documentary collection method
(2) The exporter sends goods to the importer
(3) The exporter sends a request form for collection with financial documents (if any) and commercial document to the Remitting bank to collect money from the importer
(4) Remitting bank makes and sends an order for collection and documents to the Collecting bank
(5) The collecting bank notifies the Collection Order and presents it to the importer
(6) The importer accepts Collection order by:
- Signing and accepting bills of exchange; or
- Issuing of promissory notes or debt receipts
(7) The collecting bank gives commercial documents to the importer
(8) Collecting bank transfers money by collection or time draft accepted or promissory notes or debt receipts to the Remitting bank
(9) Remitting bank transfers money by collection or time draft accepted or promissory notes or debt receipts to the exporter d Documentary Credit
Documentary credit is an agreement usually expressed in the form of a letter or telegram, called a Letter of Credit (L/C), expressing a firm and irrevocable commitment of Issuing bank to pay when presenting appropriately
- L/C is an economic contract between Issuing bank and the exporter
- L/C is independent of the sale contract between the buyer and seller
- L/C only deals with documents and pays based on documents
- L/C requires strict compliance with the set of documents
- L/C is a payment tool limiting risk and can also be a tool for payment refusal and fraud
Case 1: L/C is valid for payment in the importing country
Figure 1.4 L/C payment process in importing countries
(1) Two parties sign sale contracts with the terms of payment by L/C method
(2) Based on the terms and conditions of the sale contract, the importer shall make an application to the bank serving him, requesting the bank to issue an L/C to the exporter
(3) According to the L/C opening application, if agreed, Issuing bank establishes LC and notifies the LC to the exporter through his correspondent bank or branch in the exporting country
(4) Upon receipt of the L/C, the advising bank shall inspect, if the L/C is genuine, notify the L/C to the exporter, if the authenticity of the L/C cannot be determined, refuse to notify and notify Issuing bank
(5) The exporter shall inspect the L/C, if in accordance with the signed contract, proceed with the delivery, if it is not suitable, propose to amend and supplement the L/C to conform to the sale contract
(6) và (6’) After delivery, the exporter makes a set of documents and presents it to Issuing bank for payment
(7) Issuing bank after checking documents, if presented appropriately, proceed with payment; If it is found inappropriate, refuse payment and return the complete set of documents to the exporter
(8) The importer refunds the money to Issuing bank
(9) Issuing bank gives the set of documents to the importer
Case 2: L/C is valid for payment in the exporting country
Figure 1.5 L/C payment process in the exporting country
(1) Two parties sign sale contracts with the terms of payment by L/C method
(2) Based on the terms and conditions of the sale contract, the importer shall make an application to the bank serving him, requesting the bank to issue an L/C to the exporter
(3) According to the L/C opening application, if agreed, Issuing bank establishes LC and notifies the L/C to the exporter through his correspondent bank or branch in the exporting country
(4) Upon receipt of the LC, the advising bank shall inspect, if the LC is genuine, notify the LC to the exporter, if the authenticity of the LC cannot be determined, refuse to notify and notify Issuing bank
(5) The exporter shall inspect the LC, if in accordance with the signed contract, proceed with the delivery, if it is not suitable, propose to amend and supplement the
LC to conform to the sale contract
(6) After delivery, the exporter makes a set of documents and presents them to the nominated bank for payment
(7) After checking the documents, if presented appropriately, the nominated bank proceeds with payment; If it is found inappropriate, refuse payment and return the complete set of documents to the exporter
(8) Nominated bank sends the set of documents to Issuing bank for a refund
(9) Issuing bank checks the set of documents, if it finds it suitable with L/C, proceeds to pay to the Nominated bank, if it is not appropriate, refuses to pay and returns the set of documents intact to the nominated bank
(10) The importer inspects the set of documents, if he finds it suitable for the L/C, pays or accepts the draft, if he finds it unsuitable, he has the right to refuse to pay
(11) Issuing bank hands over the set of documents to the importer after receiving the money or accepting payment
1.2.2 Risk level of international payment methods
Each international payment method brings different benefits and risks for both exporters and importers
Figure 1.6 Risk level by international payment methods
With regard to the open account, the level of risk is considered to be the lowest for the importer, it can even be said that it is not at all detrimental when the importer pays as he wishes, perhaps when the goods have been received or even when the goods are carried away for consumption The exporter must depend entirely on the importer, which will sometimes be refused payment Therefore, exporters must be profoundly aware of this during the payment process
In contrast to open account, advanced payment carries the lowest risk for the exporter By being paid in advance, the exporter avoids the risk of default on the part of the importer However, after receiving the money, the exporter may not deliver or underdeliver, be unable to deliver, or even go bankrupt At that time, the disadvantage will belong to the importer
ROLE OF CHOOSING INTERNATIONAL PAYMENT METHODS
When buyers and sellers do not have face-to-face meetings due to geographical distance, concerns about possible risks to goods and solvency are always focused on international trade transactions
Firstly, choosing a suitable international payment method helps import-export enterprises reduce risks in international trade
Any international payment method always carries a certain level of risk To succeed in the global market and compete with other competitors, exporters must provide their customers with attractive terms of sale supported by the proper payment methods Because getting paid in full and on time is the exporter's ultimate goal, a suitable payment method must be carefully selected to minimize payment risks while also meeting the buyer's needs – receiving orders in acceptable conditions and on time One of the most visible risks is credit risk – which is the risk of insolvency of one of the parties involved in the payment
Credit risk occurs when enterprises have to operate in a fiercely competitive environment, subject to the significant influence of the laws of supply and demand and the law of competition, causing businesses to face difficulties, business losses and even bankruptcy Or when the parties do not understand credit information, financial situation, solvency and reputation of partners, credit risk is inevitable
Secondly, choosing an effective international payment method helps businesses minimize financial losses
If the process of the contract is backlogged at the payment step, it may lead to late payment, delayed delivery , causing long transit time, especially when importing and exporting specific goods, such as items with large price fluctuations in the market Failure to pay on time as agreed between the parties will result in financial losses as well as disruption of goods and business of both parties
Thirdly, the choice of international payment methods directly affects the interests of exporters and importers
Each payment method has its own advantages and disadvantages, so importers and exporters when choosing a payment method must rely on agreements and negotiations between the two parties as well as to comply with customs and laws in international trade Payment methods that are convenient for importers carry more risks for exporters and conversely Therefore, exporters and importers always consider being able to balance common interests.
FACTORS AFFECTING THE CHOICE OF INTERNATIONAL PAYMENT
1.4.1 Relationship between exporter and importer
The relationship between exporter and importer has a particular influence on the reliability level of each party and thereby directly affects the decision to choose an international payment method The relationship between exporter and importer is determined based on the duration and frequency of cooperation The reliability will be high if the two sides have had a long-term cooperation relationship or the two sides have not made serious errors in payment or delivery of goods in the previous cooperation period Customers with high credibility in business can also provide their employees with a certain level of trust when working with new customers In the sale relationship, remittance is often chosen for customers who have a close relationship and trust each other to ensure payment to avoid cases where the buyer misappropriates the seller's capital during the payment period and the buyer appropriates the seller's capital Therefore, it is essential to carefully review the payment options available in order to minimize payment risks on the part of the bank For collection, the bank also only participates as an intermediary to collect money, is not bound to be responsible for checking documents as well as whether the importer fulfils or not This payment method is also entirely based on mutual trust between exporters and importers, although safer than remittance, the risk for the exporter is still considerable Therefore, when the level of trust between exporters and importers is not high, it is recommended to use L/C Accordingly, the bank commits to pay the exporter on behalf of the importer, and the bank is also responsible for checking the set of documents forwarded by the exporter to decide on payment to the exporter
In the practice of international commercial business, it is necessary to evaluate the counterparty's credit in advance so that it can choose the appropriate payment method according to the partner's credit rating If the customer's credit rating is very high or frequent with the exchange, it can also directly use D/A or advanced payment
Credit rating is the prediction of the ability to repay debts, assess credit risks, and make forecasts about the likelihood of default of borrowers through a pre-rated system There are three forms of corporate credit rating:
Figure 1.7 Corporate credit rating system of Standard & Poor's, Moody's and Fitch
P-1 (Prime-1): The issuer has the best ability to repay short-term debt
P-2 (Prime-2): The issuer has a high ability to repay short-term debts
P-3 (Prime-3): The issuer has the ability to repay short-term debt
NP (Not Prime): The issuer is not classified in any of the above three categories
Aaa: Best quality and lowest risk loans
Aa: The loan is of high quality and shallow credit risk
A: Above-average quality loans and low credit risk
Baa: The loan is of average quality, average credit risk, and has some speculative elements
Ba: The loan has a speculative element and significant credit risk
B: Loans with high speculative elements and high credit risk
Caa: The loan is of poor quality and the credit risk is very high
Ca: The loan is highly speculative and in the near future is not able to pay the principal and interest
C: The loan is of the lowest quality which is typical for default risk
1.4.2 Characteristics of international payment methods
When choosing the proper payment method for businesses, the characteristics of each method are factors that businesses cannot ignore Since each method has its own advantages and disadvantages, features for each party (importer and exporter) However, general issues such as costs when choosing this method, the level of risks faced, interests of transaction participants or the speed of payment processing…
Table 1.1 Summary of popular international payment methods
After receiving partial or full payment
After signing a contract or receiving a pro forma invoice
Immediately after signing sale contract
After the buyer receives goods
No Depends entirely on the importer
- Pay immediately after receiving the draft
- After accepting bills of exchange
- There may be risks when the collection order comes before the goods
- May not receive payment when importer goes bankrupt
- The importer receives the goods but refuses to pay/accept payment
- Pay immediately after receiving the draft
- Receiving documents, accepting bills of exchange
The exporter makes a set of fake documents
The importer refuses to pay
L/C After the L/C is opened and notified
Present the set of documents
Guaranteed delivery but dependent on the
In addition, the criteria of simplicity / complexity in the operation process of the methods also have a certain influence on the choice decision of the enterprise For
LC method, due to the relatively complex nature of the process and understanding/grasping relevant international practices UCP 600, (ISBP 745) is also a complex problem for businesses, leading to fear of use
Depending on the type of import and export goods, enterprises will choose different payment methods to suit their characteristics Businesses can consider simple payment methods for goods that are easy to exchange on the market For example, for second-hand goods, it is recommended to apply the method of remittance or collection because with this type of goods, the valuation of the residual value of the goods is complicated, it is necessary to give priority to the buyer the right to consider the goods before deciding to pay Or for goods whose prices are fluctuating sharply in the market, usually at a discount or in case the goods tend not to suit consumer demand, the exporter should apply L/C because in this case if applied by collection or remittance, the exporter may face risks when buyer refuses to pay or receive goods For items with a high level of complexity (such as machinery, production lines), it is sometimes necessary to use binding methods or a combination of different methods Moreover, the seasonality of the product should also be considered Specifically, if the delayed transaction time may affect the quality of goods, the importer will consider choosing a method with a guaranteed delivery time or if the product has a sharp price change in the market, the parties will decide to choose a complex and highly secure method In addition, the parties also need to understand the value of the shipment, if the shipment has high value, it is also necessary to use payment methods with high safety, low risk and conversely
When transacting in international trade, any import-exporter takes care of the political and economic situation of the partner country If partner market is a country with a lot of political instability or a country that is experiencing many adjustments in management mechanisms, the risk of facing political or regulatory risks will be higher Risks due to management mechanisms are often encountered when a country's legal environment and economy are unstable and often adjusted Or when a country changes regulations and policies on management, foreign exchange reserves, taxes, import and export, it will directly affect international payment activities for related parties
Each country's trade policy will create favorable conditions for domestic enterprises to penetrate and expand overseas markets and fully exploit the comparative advantages of the domestic economy Moreover, import and export activities create a large value of goods and materials for each country Based on tax policies, tax revenues from these import and export activities also increase over time which plays a vital role for the state budget
In fact, these changes often make it impossible for banks and stakeholders to fulfil their commitments, causing the payment process to stall, even cancel An example of management mechanism risk, such as the risk caused by changes in a country's monetary policy, is a change in interest rates, exchange rates When interest rates and exchange rates change, the financial capacity of one business will increase and the other will go down Economic risks often change the value of each country's currency and are the leading cause of changes in exchange rates between currencies When the risk of facing these risks is great, parties should apply highly secure payment methods such as payment by L/C instead of remittance and collection
In international payment, in addition to being a payment intermediary, the bank's expertise and experience also play an essential role in providing technical and financial advice, serving options for choosing international payment methods to ensure the safety and interests of both exporters and importers The suggestion during trade execution will have a significant influence on the trader's judgment On the other hand, although the import-export trader decides the choice of payment method, it is not always accepted by the bank because the customer does not meet some regulations of the bank For example, regarding credit requirements, when your business wants to open L/C but currently the enterprise's credit requirements cannot be met, it cannot open L/C, forced to switch to another payment method
Besides, in the 4.0 era with the explosion of technology, resources and materials are always available to help companies learn and compare different payment methods So, it is completely normal for them to make their own judgment to decide which payment method to use Not only that, but many import-export companies tend to opt for payment methods based on observation, in the same way that other businesses have used before While it doesn't really fit some of the unique characteristics of each trade, it is still given a lot of consideration by traders before making a decision.
SUMMARY
International payment activities are an essential link in the development of foreign trade The main international payment methods commonly used can be mentioned as: open account, advanced payment, collection and letter of credit Each payment method has different characteristics, containing different benefits and risks for exporters and importers Therefore, import-export traders need to be aware of these methods and choose to suit their business purposes In the process of choosing an international payment method, importers and exporters must also consider factors such as: the relationship between importers and exporters, the characteristics of goods, the characteristics of international payment methods, the situation of partner markets and the opinions of external parties All of these factors will provide buyers and sellers with data so that they can decide on the choice to use international payment methods.
THE CURRENT SITUATION OF CHOOSING INTERNATIONAL
OVERVIEW OF IMPORT AND EXPORT ACTIVITIES IN VIETNAM
According to statistics of the General Department of Vietnam Customs, in
2022, the total value of import and export of goods of Vietnam in 2022 is estimated at 730,2 billion USD, up 9,1% compared to 2021
In 2022, the export value reached approximately 371,3 billion USD, up 10.5% compared to 2021 with 336,31 billion USD and up 31.4% compared to 2020
Chart 2.1 Vietnam's export value in 2020, year 2021 and year 2022
Source: General Department of Customs
Vietnam's main export markets are the United States with an export value of 109,39 billion USD, followed by China with an export value of 57,70 billion USD in
2022, the Japanese market with 24,29 billion USD
Table 2.1 Export value of some main markets of Vietnam
*Some major export groups of goods
Phones and components: In 2022, this item reached 57,99 billion USD in export value In 2021, the export value was 57,73 billion USD Exports to China's market reached 15,18 billion USD, the United States with 9,69 billion USD and the
Computers, electronic products & components: export value in 2022 amounted to 55,54 billion USD, compared to 50,8 billion USD in 2021, up 14% compared to 2020
Other machinery, equipment, tools and spare parts: This group of goods reached 45,75 billion USD in 2022; 38,33 billion in 2021 and 27,19 billion in 2020
Textiles and garments: The export value increased slightly from 29,81 billion
USD in 2020 to 32,75 billion USD in 2021 and continued to increase to 37,57 billion USD in 2022
Footwear of all kinds: For the whole year 2022, the export value was estimated at 23,9 billion USD, up 34,6% compared to 2021
Chart 2.2: Export value of the five largest commodity groups in 2022
Source: General Department of Customs
The import value in 2022 is estimated at 358,9 billion USD, up 7,8% compared to 2021, while in 2020 the import value is recorded at about 262,69 billion USD
Chart 2.3 Vietnam's import value in 2020, 2021 and 2022
Source: General Department of Customs
The main import markets of Vietnam in 2022 are China with import value of 117,95 billion USD, followed by South Korea with import value of 62,09 billion USD and 23,37 billion USD for the Japanese
Table 2.2: Import value of some main markets of Vietnam
*Some major import groups of goods
Chart 2.4 Import value of the five largest commodity groups in year 2022
Source: General Department of Customs
Computers, electronic products and components: import value in year 2022 reached 81,88 billion USD, up 8,4% compared to 2021 The main markets for exporting this group of goods can be mentioned as China, Korea, Taiwan
Other machinery, equipment, tools and spare parts: This group of goods reached 45,19 billion USD of import value in 2022, down 2,4% compared to the previous year In 2022, China continues to be the largest export market with export value of 24,29 billion
Phones and components: The import value of this commodity group was estimated at 21,13 billion USD, down 1,6% over the previous year In 2022, the largest market supplying these commodity groups to Vietnam is South Korea with exporting value of 11,49 billion USD, followed by China with approximately 8,06 billion USD and Taiwan with 414 million USD
The goods trade surplus in 2020 was 19,94 billion USD, down to 4,08 billion USD in 2021 but up to 12,4 billion in 2022
Chart 2.5 Vietnam's trade balance in 2022
Source: General Department of Customs
The trade balance of goods of foreign direct investment (FDI) enterprises in
2022 reached a surplus of 40,42 billion USD Currently, as of December 2022, the number of enterprises engaged in import and export of goods is 96,1 thousand The revenue of the FDI enterprise sector tends to increase higher than the revenue of the domestically invested enterprise sector Specifically, FDI enterprise sector in 2022 reached 506,83 billion USD of total import and export value, up 9.3% compared to
2021 The export value of goods of FDI enterprises reached 273,63 billion USD, up 11,6% compared to 2021 and accounting for 73,7% of the total export value The import value of FDI enterprises in 2022 reached 233,2 billion USD, up 6,7% compared to 2021, accounting for 65% of the country's total import value.
CHOOSING INTERNATIONAL PAYMENT METHODS FOR IMPORT-
IMPORT-EXPORT ENTERPRISES IN VIETNAM
2.2.1 Choosing international payment methods of import-export enterprises in Vietnam
At present, in 2020, Vietnam has 30 strategic and comprehensive strategic partners, diplomatic relations with 189/193 countries, trade relations with 160 countries and 70 territories In addition, along with 17 Free Trade Agreements (FTAs), Vietnam has created open conditions for Vietnam to complete the market economy development institution, while opening up opportunities for deep, comprehensive and effective global integration, promoting international trade relations
According to Cafef, GDP from forecasts by international organizations is estimated at 398 billion USD followed by UOB Research In particular, the growth rate of import and export in GDP by the method of use reached respectively 9,10% and 4,41%, surpassing asset accumulation and final consumption This shows that import and export activities bring quite high value, accounting for a large proportion of the GDP structure Since then, international payment methods have been increasingly used in trade between Vietnam and other countries
Figure 2.1 GDP by method of use in the first six months of 2022
Source: Tạp chí Thị trường tài chính-tiền tệ
In recent years, there has been a remarkable change in the structure of international payment methods at commercial banks in Vietnam
Figure 2.2 Proportion of payment methods in export payments at some commercial banks in Vietnam
Source: Tran Nguyen Hop Chau (2018)
The image above shows that remittance tends to increase from 45% in 2013 to 65% in 2017 On the other hand, the proportion of L/C payments tends to decrease from 26% in 2013 to 16% in 2017 Compared to other payment methods, remittance costs less with a quick payment process However, less cost also means less safe because payment by this method is entirely based on the wishes of the importer
In import payment, the proportion of payment by L/C tends to decrease while this method is more dominant in the past Specifically, the proportion of remittance accounts for from 37% in 2013 to 37% to 50% in 2017 On the other hand, the proportion of L/C tends to decrease from 40% in 2013 to 24% in 2017 Thereby, we can see an increase in the reputation of Vietnamese enterprises for foreign customers
Figure 2.3 Proportion of payment methods in import payments at some commercial banks in Vietnam
Source: Tran Nguyen Hop Chau (2018)
In some import-export enterprises, the situation of using international payment methods is similar to that of banks The survey conducted by the author in April 2023 shows that the number of businesses using L/C payment methods accounts for 30,8%, remittance also accounts for 30,8%, advanced methods account for 31,1%
Chart 2.6 Proportion of payment methods in some import-export enterprises
However, risks are always implicit in any international payment methods Especially in the past few years, with the outbreak of the Covid 19 pandemic, fraud in international payments has been increasing with sophisticated tricks, causing domestic authorities and foreign partners to give alarm signals Especially for many Vietnamese exporters who do not understand the concepts and legal regulations on international trade transactions
2.2.2 Factors affecting the choice of international payment methods of import- export enterprises in Vietnam
2.2.2.1 Relationship between exporter and importer
The relationship between buyers and sellers has always been a key factor in international trade transactions According to the survey, 77% of enterprises agree that enterprises prefer to choose payment method that contains the least risk for first- time transactions because the risk in this case is considerable as we do not understand the market as well as this business partner
For example, Africa is a promising market but has huge risks in payments with many fraudulent businesses named such as S.A.R.L Zima Food Company, S.A.R.L GMC, EURL GHIDA UNIFOR IMPORT-EXPORT, etc Vietnamese trade agencies abroad have repeatedly warned and asked Vietnamese enterprises to limit commercial transactions when information about customers is still unclear in case of being deceived, not paying even though they have received goods In recent years, fraud has occurred more in major markets such as Canada, the US Becoming a partner of these potential markets helps Vietnamese enterprises expand import and export activities and improve their reputation However, in fact, some enterprises, especially small and medium-sized enterprises, often have to use the advanced payment method when importing goods from these countries because they have a larger position in trading Many businesses even use D/A methods to be able to sell to these huge markets And especially, in early March 2022, KN Universe Plastic Company (trading name is Khalid) was issued an urgent warning by the Vietnam Trade Office in Morocco, offering Vietnamese enterprises absolutely not to deal with businesses with history of fraud Initially, this company will sign contract in small quantities and pay on time to build trust, then 2 to 3 times they will offer to sign larger transactions and then turn around, not paying but also stealing goods and cuting off communication This shows that, despite having dealt many times with partners, Vietnamese enterprises should stay vigilant in case of payment refusal
Each payment method has its own characteristics, different transaction times and costs Based on the bank's transaction time needs, businesses can consider simple forms such as remittance instead of using L/C which will take time The table below is the transaction processing time for L/C method at BIDV
Figure 2.4 Transaction processing time of L/C method at BIDV
The survey also shows that 85% of businesses agreed that transaction costs are also a factor that Vietnamese businesses are interested in when transacting in international trade Businesses tend to prioritize choosing lower-cost international payment methods such as open account or advanced payment Of course, each different payment method will have different costs You can see the transaction costs for each payment method at SHB Bank in the table below
Table 2.3 Compare the costs of remittance, export collection and import letter credits by some activities
Issuance of wire transfers 0,2% 10 USD
Amend remittance order 10 USD /time + SBV fee (if any)
Cancel remittance 5 USD /time + SBV fee (if any)
Receiving and processing collection 15 USD
10 USD /time + SBV fee (if any)
Cancel by collection USD 10/time + SBV fee (if any)
Issuance L/C 0,03%/ month * LC value 50 USD
Amend to increase money + other (i)
As L/C issuance fee (calculated on value added) 30 USD
Amend to extend + other (ii)
As LC issuance fee (calculated on extension period) 30 USD
Amend to extend + Amend to increase money + other
Cancel LC 20 USD + SBV fee (if any)
Document processing fee 60 USD/60 EUR/ 6000 JPY/ set
Source: Regulations on the fee schedule of Products and Services for business of
From the table above, we can see that costs for L/C methods are higher than collection and remittance For example, in remittance, the minimum cost of issuance is 10 USD, while in L/C, the minimum L/C issuance cost is 50 USD, five times more than in remittance This shows that the cost of opening L/C is expensive and very complex, while remittance fees are much less expensive and very simple In general, depending on the nature of the transaction, businesses will decide which payment methods to use to meet the requirements of their customers
The survey found that 92% of businesses agree that transaction volume also influences the choice of international payment method The larger the transaction volume is, the more secure method needs to be used In addition, enterprises will apply different payment methods depending on the type of imported and exported goods For new products and goods exporting for the first time or looking for new markets, convenient methods for importers such as open accounts or documentary collection will be used For products and goods that are perishable foods such as seafood and fruits when signing contracts, exporters should agree with partners to use L/C methods to minimize risks in the process of freight forwarding, documents and payment In addition, for goods with highly fluctuating prices in the market, exporters should use the L/C method to avoid being refused payment by buyers
In fact, in the past, when exporting beef, there were some Vietnamese enterprises that used simple payment methods such as open account or document collection to export goods to Algerian ports However, at that time, due to lower commodity prices compared to the time of export, partners found other suppliers at lower prices, causing some Algerian customers often not to receive goods, refuse to pay or force sellers in Vietnam to reduce product prices Vietnamese exporters have difficulty in shouldering additional transportation costs, customs duties Therefore, Vietnamese businesses should choose other methods such as advanced payment to ensure cash delivery or L/C to limit the risk of payment or rejection
According to the General Statistics Office, in 2022, GDP is estimated to increase by 8,02% compared to 2021 with a GDP scale at current prices of about 95,6 million VND/person In 2022, Vietnam's economy continues to grow while the world economy shows signs of recession In addition, Vietnam is among the safest countries in the world according to the Global Peace Index (GPI) report by the Institute for Economics and Peace (IEP) This shows that Vietnam's politics is quite stable, faciliating for Vietnam's import and export activities to develop day by day with long strides along with the high trust of foreign partners Therefore, Vietnam's import and export activities have constantly grown in both scale and value of trade transactions Foreign partners have a certain confidence in the business environment of domestic import-export enterprises Some payment methods that foreign partners can still trust to use such as remittance and documentary collection Even in the case where L/C is used, most are standard L/C, which do not need confirmation because they are confident in our solvency and do not worry about the risks of Vietnamese issuing banks
However, when participating in cooperation with many countries, risks may inevitably occur The survey indicates that 92% of businesses agree that they will suffer from reduced solvency if they have transactions with a country suffering from an economic crisis For example, in October 2019, the cross-border military operation with Syria (Peace Spring) was launched by Turkish President Erdogan despite the objections of countries around the world, causing political tensions between Turkey and the United States, the EU and the Arab community Besides, this action has seriously impacted import and export transactions of Vietnamese enterprises Accordingly, the Ministry of Industry and Trade has advised Vietnamese enterprises to be careful when transacting internationally with Turkey, especially not to apply the remittance but to pay 100% before delivery
2.2.2.5 Opinions of external parties a, Government
LIMITATIONS IN CHOOSING INTERNATIONAL PAYMENT METHODS
METHODS FOR IMPORT-EXPORT ENTERPRISES IN VIETNAM
Firstly, enterprises often cope with scammers by partners without prestige
According to the Ministry of Industry and Trade, many fraudulent tactics have become more sophisticated with a variety of forms such as: refusing payment even after receiving goods, making fake documents, setting up fake email accounts and stealing account information, when the buyer sends money to the fake account, it will immediately withdraw and disappear
Most typically, in early March 2022, the biggest scam in Vietnam's cashew industry took place In this case, some Vietnamese cashew enterprises had transactions with Italian customers through one intermediary company to export cashew nuts to Italy with D/P payment method As soon as the enterprise sends the first batch of containers along with the set of documents, they receive notification that the buyer is not a customer of the buyer's bank and they return the set of documents without mentioning the form of returning documents clearly
As a result, the original set of documents is lost and the business is at great risk of losses because anyone who owns the original set of documents can present and retrieve the goods However, with the coordination and support of the Vietnam Cashew Association, the Embassy and related agencies, the damage has been reduced compared to what was expected This is a valuable lesson for Vietnamese businesses when participating in international trade transactions
Secondly, there are still some limitations to understanding the terms of the transaction contract
According to VIAC's statistics, in commercial disputes, more than 50% of cases are related to sale contracts, most of them are legal conflicts about contracts or time zone differences making it difficult for Vietnamese enterprises to implement agreements on payment deadlines math when negotiating contracts or language differences that make the meaning of terms skewed In addition, some businesses still lack understanding of international law, causing certain difficulties in case a dispute occurs between the parties
Thirdly, the connection between Vietnam Trade Office, associations and businesses is still not close
Enterprises lack market information while Trade Centers also lack necessary information about businesses to communicate with foreign partners Activities such as seminars, introduction of foreign markets and working contacts have yet to achieve high efficiency Some trade offices’s implementation and coordination process is still passive and not maintained regularly, leading to many cases in that information has not been captured and resolved in time
Firstly, information about foreign markets remains modest
Up to now, Vietnam has 17 free trade agreements, which means that Vietnam's import and export market is gradually expanding However, not all markets are found out by Vietnamese businesses For example, in Africa, Vietnam's network of diplomatic and trade missions is still quite modest Currently, there are 55 African countries but only 8 embassies and 5 trade offices Therefore, market information and trade promotion activities are still limited which make it challenging to support businesses Besides, Vietnamese enterprises with Vietnam Trade Office in host countries still do not have close links
Secondly, the Russia-Ukraine conflict has disrupted the payment process
Vietnamese businesses are facing difficulties when some Russian banks are banned from international transactions, SWIFT payment channels are disconnected Vietnamese banks also dare not accept export documents to Russia, causing orders to be delayed In addition, Ruble fluctuates too high, which negatively affects the cash flow of payments to exporters
First, experience dealing with international trade fraud is still lacking
With geographical distance plus the Covid-19 epidemic in recent times, businesses have problems in dealing with partners but create conditions for scammers In addition, different business cultures and dispute resolution procedures make it difficult for companies to use trade dispute resolution
Secondly, the qualifications and skills of employees are still limited
Many enterprises have few employees and staff specializing in import and export, especially for small and medium-sized enterprises with limited financial resources and little experience that makes Vietnamese enterprises face many difficulties and challenges in choosing a reasonable payment method.
SUMMARY
As trade activities grow, the market also expands, making international payment methods intensely used In particular, using remittance tends to increase while the L/C decreases Each payment method has different characteristics and costs, but in general, the higher the cost, the more safety it is Despite facing many difficulties in information, experience, professional expertise and the impact of external factors, import and export activities still achieved positive figures.
SOLUTIONS TO IMPROVE LIMITATIONS IN CHOOSING
SOLUTIONS
3.1.1 Check and verify partner information
Looking for partners through trusted channels
It is necessary to actively participate in international trade fairs, exhibitions, business forums For researching partners via the Internet, businesses should use the official websites of associations and industries of countries such as https://www.dnb.com (the website providing business information) In addition, businesses also need to contact partners directly by phone or fax, especially when the payment account is not the same as the account stated in the contract
Checking and verifying partner information thoroughly
To verify the financial capacity as well as the reputation of the partner before signing large contracts, enterprises should ask the partner to provide basic document information such as business license, ID of the business owner This verification can be done by the Vietnam Federation of Commerce and Industry, Vietnam National Credit Information Center (CIC), or through the channels of the Association in host countries, Oversea diplomatic missions due to the advantage of the knowledge of geography and relationships In the case of transactions through brokers, businesses should actively request a direct connection with buyers without relying entirely on brokers In particular, it is necessary to be careful when encountering orders with prices that are too high or too low compared to the general market
According to the Online Economic Diplomacy Forum, the verification method of foreign enterprises of the Board of Directors is carried out as follows:
+ Chamber of Commerce and Industry
+ From relevant Government authorities: Ministry of Foreign Affairs, Ministry of Investment Management, bankruptcy agency, tax authority, relevant localities
+ Direct verification (field): Meet at the company office, visit the production and business place and learn about business activities and the possibility of cooperation
+ Buy information through companies doing business in this field: For developed countries, it is recommended to use the form of buying information through consulting companies because this is the fastest, most complete and least expensive way (In Singapore, buying this information is very cheap, very fast and reliable)
+ Collecting information through stock investors (brokerage, stock consulting)
+ Meet businesses operating in the same field (competitors) or partners who have done business with the company (especially in large projects)
+ Through the network of relationships in the business world, banks
+ If possible, find out through relations in the diplomatic delegation.”
Finally, after summarizing the information received, the Board of Directors will make a preliminary assessment of the partner enterprise, in case more specific investigation is needed, the Board of Directors will consider the decision and announce the results
3.1.2 Study and understand transaction contracts
When conducting international commercial transactions, it is necessary to clearly understand each party's international principles and practices, rights and responsibilities to unify on terms on payment methods or conditions to ensure a balance of interests of the two parties For example, when using D/P, the deposit rate is necessary to ensure the safety of orders (preferably 50% or more) D/A payment method or money transfer by Western Union is recommended not to use because it will pose high risks and not ensure safety Besides, irrevocable L/C is often chosen for use at reliable international banks, and businesses should ask partners to limit the use of deferred payment In particular, Vietnamese enterprises need to propose that Vietnamese banks confirm the authenticity of L/C before receiving documents which helps to ensure safety and minimize risks
3.1.3 Coordinate with Vietnam Trade Office and related agencies
In order to maintain regular information about the market and partners, as well as updates on lawsuits and legal support, enterprises need to strengthen their connection with Vietnam's Board of Directors In particular, the role of the Board of Directors and Trade Offices of Vietnam becomes more and more important in fraud cases and trade conflicts because at that time, political-diplomatic advocacy, especially high-level advocacy is vital In addition, this agency will promote ministries, branches and local management agencies to quickly support the handling and coordination of settlement and ensure the legitimacy of enterprises Currently, 61 Trade offices and their branches are effectively promoting their role We can clearly see that role in handling the recent cashew nut export container case to Italy
Another critical factor in helping limit the damage to businesses is to keep in touch with associations and businesses ahead of time because it is one of the best channels to help businesses The association will be a place for businesses to learn what to do, what to avoid, who to be careful about when signing the contract and how to control risks.
RECOMMENDATIONS
* Ministry of Industry and Trade
- Coordinate with the Vietnam Federation of Commerce and Industry to promote warnings quickly and thoroughly about frauds and forms of fraud for localities, associations and enterprises
- Collaborate with organizations and agencies, business associations to organize training sessions on knowledge of international trade and finance, guiding international transaction skills to improve the capacity of local and businesses
- Set up professional information pages to give warnings and updates about cases, tricks or fraudulent behavior
- Strengthen information and warn ministries, functional branches, associations and domestic enterprises about fraudulent objects and new forms of fraud
- Establish relationships with the Government, agencies and law offices in the host country to assist in handling of commercial disputes
- Promote the expansion of information and consulting networks for Vietnamese enterprises
- Actively support legal issues for domestic enterprises in commercial disputes and frauds
- Coordinate with economic security regulators in foreign countries to warn about fraudulent businesses
- Build a list of reputable export enterprises by specific industries so that the Trade Office can promote trade and help businesses more effectively
- Promote banks that have operated or are interested in key markets to participate in trade promotion seminars/activities with these markets
- Instruct commercial banks to step up warnings and consultations for enterprises if detecting high risks of risks and fraud
- Promote connection and build agency relations with commercial banks in foreign markets
- Actively participate in trade promotion activities to connect with domestic enterprises
- Establish appropriate banking programs and products and services to meet the needs of import-export enterprises
Currently, some banks have also developed programs and credit packages to support exports before delivery to enterprises This is a working capital support program for exporting enterprises to implement plans for the production and trading of export goods, with the primary source of repayment for the loan from revenue of export activities of enterprises
For example, Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) won the title of "Best Trade Finance Bank in Vietnam 2022" and
"Best Supply Chain Finance Bank in Vietnam 2022" by International Finance Magazine (IFM) Accordingly, BIDV's incentive program "Trade Booming" was launched to bring financial solutions and convenient banking products and services, helping to optimize costs and support businesses to recover and develop after the pandemic, specifically:
"- When registering for new International Remittance and Trade Finance services on BIDV iBank during the preferential period (apply to: International money transfer; L/C issuance; L/C Amendment ; Issuance of Letter of Guarantee/Signing of
Bill of Lading/Letter of Authorization for Receipt/ Release the set of documents; export collection; Amend export collection and Support services for completing export documents), enterprises will receive a 50% discount on service fees (including maximum and minimum fees)
- Exchange rate incentives with at least 30 points when making foreign currency transactions at BIDV
- Provide trade finance products with flexible collateral policies, preferential and competitive fees for serving working capital financing needs for businesses such as: UPAS LC, UPAS collection, Domestic LC Financing and Forfaiting In particular, UPAS VND is a combination of UPAS products and exchange rate insurance, bringing dual benefits to businesses: both taking advantage of the financing mechanism of UPAS products and obtaining foreign exchange rate risk insurance
- International payment services with a variety of payment methods such as: Letter of credit, document collection and remittance- with simple procedures, fast processing time, and additional support services such as support to complete export documents, advising on payment terms of foreign trade contracts, L/C clauses
- Providing foreign currency transactions and derivative products with competitive foreign exchange rate policies such as: spot foreign currency transactions, foreign currency futures, foreign currency options and financial derivative products (SWAP, CCS, IRS )
- Capital support products for import-export enterprises with flexible credit conditions, meeting the needs of enterprises: mortgage of debt collection rights from export contracts, export LC, mortgages of receivables, sets of export documents , helping enterprises increase access to bank credit capital, especially small and medium-sized enterprises with limited financial potential "
With a wide range of services, BIDV ensures that payment is made fully, promptly and quickly minimizing risks in international transactions
In addition to BIDV's program, IFC's Global Supply Chain Trade Finance Program supports short-term financing for exporters by discounting invoices when approved by buyers Therefore, exporters will maintain liquidity in case the partner requests to extend the payment term With IFC's support, many customers have been extended payment schedules by banks, as well as supporting businesses affected by the pandemic, alleviating liquidity difficulties
These are tools to help businesses limit payment risks With insurance services, in case businesses are not paid for goods by partners, they will still be paid by insurance companies As for factoring services, the exporter's risk when the importer offers deferred payment will be transferred to the factor
- Create a habit of using the legal services of banks or legal experts to support businesses to learn and evaluate information about partners In addition, it is vital to promote connection with commercial banks while searching and learning about suitable credit product packages supporting import and export activities
- Strictly stipulate the terms before signing the contract, especially the provisions on the dispute and complaint settlement agency so that the enterprise will not be at a disadvantage when a dispute arises At the same time, it is proposed to stipulate penalties when either party fails to fulfil its obligations or requires both parties to deposit to ensure the performance of the contract
- Improve professional qualifications, fostering foreign languages and legal knowledge for staff in foreign trade transactions; focus on understanding legal regulations related to import and export activities to establish appropriate policies Furthermore, enterprises should encourage their employees to stay informed and learn more about the terms and requirements of each payment method to ensure their best interests.
SUMMARY
Difficulties are inevitable for import-export enterprises when choosing international payment methods Enterprises are being actively supported by the Government, the Bank and related agencies However, after all, enterprises should improve their knowledge and professional qualifications to understand the situation of partners and markets Besides, businesses also need to consider using the advice of the Bank or insurance/factoring tools to limit business losses if fraud occurs
International trade transactions are always complicated, requiring businesses to always be careful and professional in the process of international transactions in general and in international payments in particular Understanding international payment methods facilitates import-export enterprises to have transactions quickly However, in addition to mastering business processes, businesses also need to know how to apply them flexibly in cases In particular, the Bank is the bridge for companies entering the international trade market In general, with the advice of the Bank, only the import-export enterprises can decide the most suitable payment method themselves The thesis finds out the situation of choosing international payment methods, some difficulties and limitations, then offers solutions and recommendations for import-export enterprises
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