Thuyết trình môn thanh toán quốc tế assignment methods of payment

NATIONAL ECONOMICS UNIVERSITY INTERNATIONAL PAYMENT ASSIGNMENT TOPIC: METHODS OF PAYMENT Group : Đặng Khánh An Đỗ Đức Anh Ngyễn Hữu Bảo Nguyễn Thu Hà Trần Cẩm Tú Hà Tú Linh Trần Thị Thu Hằng Hà Nội 2017 Contents I Open account Definition Features of open account method or characteristics of an open account 3 Procedure of open account payment 4 Advantages of method of open account payment Risk Applying case Note II Collection of payment Definition Features Parties Types of collection of payment 4.1 Clean Collection: 4.2 Documentary Collection Legal Documents • Uniform Rule for Collection 522 III Bank remittance 10 Definition : 10 Parties in bank remittance 10 Types of bank transfer 10 IV Documentary credit 11 Definition: 11 Features of Letter of credit (L/C) 12 Parties: 12 Function of L/C: 12 Types of L/C: 12 a Standard types of L/C: 12 b Special types of L/C 13 Procedure: 14 Legal documents of LC 14 Important features of UCP: 14 Term of LC 15 I Open account Definition Open account method means that the seller delivers goods or services to the buyer without receiving cash, a bill of exchange or any other legally binding enforceable undertaking at the time of delivery, and the buyer is expected to pay according to the terms of the sales contract and the seller’s latter invoice Features of open account method or characteristics of an open account • Applicability: Recommended for use in secure trading relationships or markets or in competitive markets to win customers with the use of one or more appropriate trade finance techniques • Time: as agreed between a buyer and seller, net 15, 30, 60 day terms, etc., from date of invoice or bill of lading date • Risk: Exporter faces significant risk as the buyer could default on payment obligation after shipment of the goods ( highest risk ) • Trust: the exporter and importer trust one another implicitly, and they have traded together for a number of years • Pros (advantage) - Boost competitiveness in the global market - Establish and maintain a successful trade relationship • Cons (disadvantage) - Exposed significantly to the risk of nonpayment - Additional costs associated with risk mitigation measures 3 Procedure of open account payment 1) 2) 3) 4) 5) First, the Seller (exporter) and the Buyer (importer) make a contract Then the goods will be shipped to the buyer from the seller After that the buyer go to the importing bank to set up wire transfer The amount from importer’s bank will be wired to exporter’s bank Then the exporting bank will transfer credits into the seller’s account Advantages of method of open account payment • • • - Exporter Easiest payment method, low expense, friendly payment method Reduce document expense Reduce prices Increase exporter’s completion in international market Importer Pay the goods after receiving all of the cargo To be the credited by the exporter in specific duration time Both parties Reduce bank expense (because bank does not participate in open account method) There are only two parties to be exporter and importer Risk Risks to •Buyer defaults on payment obligation •Delays in availability of foreign exchange and transferring of funds from buyer’s country occur •Payment is blocked due to political events in buyer’s country Seller Risks Buyer to •Seller does not ship per the order (product, quantity, quality, and/or shipping method) •Seller does not ship when requested, either early or late Applying case - Exporter and importer trust each other Use in regular transactions Use in pay transport expenses, commission expenses, guarantee expenses - Must regular specific kinds of currency Define specific currency value to be paid in shipping date Which kinds of currency transfer will be used in payment date – Mail transfer or TTR transfer Note II Collection of payment Definition Collection of is process, in which after deliver the goods, the seller instructs his bank to forward documents related to the export of goods to the buyer’s bank with a request to present these documents to the buyer for payment, indicating when and on what conditions these documents can be released to the buyer Features - Collection order between exporter and exporting bank is not a contract In collection of payment, banks are only intermediary in payment method Collection of payment is only implemented after the seller delivers goods basing on issuing documents Parties We have parties join in this method: - Principal (Seller, Exporter, Drawer) - Drawee (Importer, Buyer) - Remitting Bank (Principal’s Bank, seller’s bank, exporter’s bank) - Collecting Bank and/or Presenting Bank (Buyer’s Bank, Importer’s Bank) Types of collection of payment 4.1 Clean Collection: • Definition: Clean Collection are collections of financial documents (promissory notes, Checks, payment slips, etc…) without attacted commercial documents (invoices, shipping documents and insurance documents) • Procedure • • • Advantages Simple Beneficial to the importer Receiving cargo and paying the cargo are separate • • • • • Disadvantage Export may not be paid for shipping the cargo Payment time is slow because of some reasons as follow: Up to good will of the importers/buyers Up to transferring document process Do not take all advantages of bank • Applying cases Paying services expenses of importing and exporting activities Importer and exporter trust each other/one another Parent company and branches (MNCs, MNEs)  Accepted and application of the case: The method of obtaining a slippery slip does not apply much in trade payments, as it does not guarantee the seller's rights as the buyer's receipt is completely separate from the payment stage, the buyer may receive No payment or late payment For buyers applying this method is also disadvantageous because if the draft comes sooner than the voucher, the buyer must pay immediately while not knowing whether the seller's goods are in compliance with the contract or not 4.2 Documentary Collection • Definition: Documentary Collections are collections of financial documents, which may have attached commercial documents, or collections of commercial documents without financial documents • Procedure • • • • Advantages Overcome disadvantages of clean collection Payment and Shipment are connected together Collecting bank will control commercial documents instead of sending directly to importer when deliver the cargo For the seller to use this method is not expensive, and the seller is helped by the bank to control and control the transport document until guaranteed payment The benefit to the buyer is that there is no obligation to pay if the documents have not been inspected in some cases, • • • • • Disadvantages The importer can refuse to receive the cargo Payment time is slow For exporters at risk as importers not accept the goods sent by not receiving the documents The importer's credit risk, political risk in the importing country and the risk of the goods may be kept by the customs Paying too late, from delivery to receipt may take several months to a year including goods • Type of Documentary Collection: In this method, we divide into kinds include: D/P; D/A and D/OT or D/TC Documents against payment (D/P) In D/P terms, the collecting bank releases the documents to the buyer only upon full and immediate cash payment D/P terms most closely resemble a traditional cash on delivery transaction Documents against Acceptance (D/A) In D/A terms, the collecting bank is permitted to release the documents to buyer against acceptance (signing) of a bill of exchange or signing of a time draft at the bank promising to pay at a later date (usually 30,60, or 90 days) Acceptance Documents against Payment) (D/TC) An acceptance documents against payment has features from both D/P and D/A: - The collecting bank presents a bill of exchange to the buyer for acceptance - The accepted bill of exchange remains at the collecting bank together with the documents up to maturity - The buyer pays the bill of exchange at maturity - The collecting bank releases the documents to the buyer who takes possession of the shipment - The collecting bank sends the funds to the remitting bank, which then in turn sends them to the seller • Role of bank in documentary collection Banks act upon specific instruction givens by the principal (seller) in the collection order - Banks are required to act in good faith and exercise reasonable care to verify that the documents submitted appear to be as listed in the collection order - Banks are not liable nor can they be held accountable for the acts of third parties - Banks also assume no responsibility regarding the quantity or quality of goods shipped - Without explicit instructions, the collecting bank takes no steps to store or insure the goods - If a collection remain unpaid or a bill of exchange is not accepted and the collecting bank received no new instructions within 90 days it may return the documents to the bank from which it received the collection order Legal Documents • • • • Uniform Rule for Collection 522 Rules of collection National law International law • Uniform Rule for Collection 522 Definition The ICC Uniform Rules for Collections are a practical set of rules to aid bankers, buyers, and sellers in the collections process This is a legal document that, when using the collection method, needs to be investigated Content • The URC underline the need for the principal and/or the remitting bank to attach a separate document—the collection instruction—to every collection subject to the Rules; makes it very clear that banks will not examine documents; addresses problems banks experience in respect of documents against acceptance and documents against payment; clearly indicates that banks have no obligation to store and insure goods when instructed • This document consists of 26 articles, sections, of which: • General provisions and provisions (Articles 1-3) • Form and structure of collection (Article 4) • Form of presentation of documents (Articles - 8) • Obligations and Responsibilities (Articles - 15) • Payment (Articles 16 - 19) Interest, fees and charges (Articles 20 - 21) • Other provisions (articles 22 - 26) Example: • URC 522 Article ARTICLE DEFINITION OF COLLECTION For the purposes of these Articles: (a) "Collection" means the handling by banks of documents as defined in sub-Article 2(b), in accordance with instructions received, in order to: obtain payment and/or acceptance, or deliver documents against payment and/or against acceptance, or deliver documents on other terms and conditions (b) "Documents" means financial documents and/or commercial documents: "Financial documents" means bills of exchange, promissory notes, cheques, or other similar instruments used for obtaining the payment of money "Commercial documents" means invoices, transport documents, documents of title or other similar documents, or any other documents whatsoever, not being financial documents (c) "Clean collection" means collection of financial documents not accompanied by commercial documents (d) "Documentary collection" means collection of: Financial documents accompanied by commercial documents Commercial documents not accompanied by financial documents • URC 522 – Article ARTICLE PARTIES TO A COLLECTION (a) For the purposes of these Articles the "parties thereto" are: The "principal" who is the party entrusting the handling of a collection to a bank; The "remitting bank" which is the bank to which the principal has entrusted the handling of a collection; The "collecting bank" which is any bank, other than the remitting bank, involved in processing the collection; The "presenting bank" which is the collecting bank making presentation to the drawee (b) The "drawee" is the one to whom presentation is to be made in accordance with the collection instruction III Bank remittance Definition: - This is a method of transferring money by instructing a bank to directly transfer funds from one bank account to another without the uses of checks - The seller delivers goods or services to the buyer without receiving cash, a bill of exchange or any other legally binding and enforceable undertaking at the time delivery and the buyer is expected to pay according to the terms of the sale contract and seller’s later invoice Parties in bank remittance - Buyer (remitter) - Buyer’s bank (paying bank) - Seller’s bank (remitting bank) - Seller (beneficiary) Procedure Seller Seller Buyer Invoice payment payment Seller’s bank Bank transfer Types of bank transfer • Mail transfer 10 Buyer’s bank Transfer of funds between branches through the medium of post offices either for credit of an account holder or for payment to a certain beneficiary Transaction is done by email When you’re too busy, you may request the bank to remit the payment: + fill in the full name, address, telephone number of the beneficiary + the bank will write to its correspondent bank to make the payment - Requirements of payment is implemented through a letter - Low expense - But take time • Telegraphic transfer (TTR) It is an electronic method of transferring funds; it is utilized primarily for overseas wire transactions Transfer of funds by telegraph, telex, cable, or SWIFT from a bank to its branch or another bank authorizing the payment of funds to a specified account - Usually fairly expensive due to the fast nature of the transaction Generally, the Telegraphic Transfer is complete within two to four business days depending on the origin and destination of the transfer, as well as any currency exchange requirements - Fastest mode of money transfer and is used for payments - It makes a couple of days to transfer + Based in oversea: within days + Based on local: within same day IV Documentary credit Definition: 11 Documentary credit is the written promise of a bank undertake on behalf of a buyer, to pay a seller the amount specified in the credit provided the seller complies with the terms and conditions set forth in the credit The terms and conditions of a documentary credit revolve around two issues: (1) The presentation of documents that evidence title to goods shipped by the seller, (2) Payment Features of Letter of credit (L/C) • L/C is different from international sales of contract and it separates with sale contract • L/C is considered to be an economic contract between importing bank and importer or between remitting bank and the buyer • In documentary credit method, documents plays an important role in payment activity • The documentary credit method is the safest payment methods among parties in international payment Parties: Applicant Issuing bank, Opening bank Beneficiary Advising bank Negotiable bank Confirming bank Nominated bank Paying bank Accepting bank 10 Bank deferred payment Function of L/C: • Payment • Credit • Assurance of payment Types of L/C: a Standard types of L/C: - Revocable L/C: L/C that may be amended or cancelled any time by the buyer (the account party) without the approval of the seller (the beneficiary) - Irrevocable L/C: this L/C cannot be cancelled (or its terms amended) without the seller’s(beneficiary’s) prior written approval and comes usually as a confirmed irrevocable letter of credit Also called irrevocable credit - Confirmed irrevocable L/C: L/C that adds the endorsement of a seller’s bank (the accepting-bank) to that of the buyer’s bank (the issuing bank) It provides the highest level of protection to the seller because not only the L/C cannot be canceled (or its terms changed) unilaterally by the buyer (the account party), but also both banks involved in the transaction guaranty its payment on its due (maturity) date - Irrevocable without recourse L/C: Without recourse term defines the situation in which the paying bank will not be able to claim refunds from the beneficiary in case 12 the letter of credit documents are not paid by the issuing bank In general the confirming bank pay the letter of credit amount to the beneficiaries without recourse terms b Special types of L/C - Transferable L/C: A transferable letter of credit is a letter of credit that permits the beneficiary of the letter to make some or all of the credit available to another party, thereby creating a secondary beneficiary - Back to back L/C: consist of two letters of credit (LCs) used together to finance a transaction A back to back L/C is usually used in a transaction involving an intermediary between the buyer and seller such as a broker, or when a seller must purchase the goods it will sell from a supplier as part of the sale to his buyer - Revolving L/C: A letter of credit established one time that enables the receiver to access specific amounts of credit for scheduled shipments over a specified period of time Issued as a cumulative or non-cumulative L/C, the former allows for unused credit amounts to rollover into subsequent periods while the latter maintains affixed amount of credit available each period - Standby L/C: • A standby letter of credit (SLOC) is a guarantee of payment issued by a bank on behalf of a client that is used as “payment of last resort” • Standby letters of credit are created as a sign of good faith in business transactions and are proof of a buyer’s credit quality and underwriting duties to ensure the credit quality of the party seeking the letter of credit, then sends notification to the bank of the party requesting the letter of credit (typically a seller or creditor) - Deferred payment L/C: A type of letter of credit that enables the buyer in a transaction to pay the seller and receive the goods immediately, and to pay the bank back for the sale amount at a later date Also called ausance letter of credit - Red clause letter of credit: The red clause letter of credit is a specific type of letter of credit in which a buyer extends an unsecured loan to a seller Red clause letters of credit permit documentary credit beneficiaries to receive funds for any merchandise outlined in the letter of credit These letters are commonly used by beneficiaries who act as purchasing agents for buyers in another country - Green clause letter of credit: A condition in a guarantee document that allows a purchaser to receive advances ahead of shipment against collateral property represented by warehouse receipts Use of a green clause letter of credit is often used in the agricultural business where a company can fund the harvest of a new crop by pledging available stock as collateral 13 Procedure: Legal documents of LC UCP: Uniform customs and practice for Documentary Credits Historically, the commercial parties, particularly banks, have developed the techniques and methods for handling letters of credit in international trade finance UCP is issued by ICC (International Chamber of Commercial ) in 1933 and updating it throughout the years => The result is the most successful international attempt at unifying rules ever, as the UCP has substantially universal effect The latest version of UCP called UCP 600, formally comes into effect on 1, July 2007 The Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules on the issuance and use of letters of credit Bankers, lawyer, traders, transporters, academics and all who deal with letter of credit transactions worldwide will refer to UCP 600 on a daily basis Important features of UCP: 14 All versions of UCP are implemented when used UCP is not a compulsory legal documents In cases, commercial documents apply UCP, it becomes a compulsory legal document Term of LC (1) Swift output of Sender: Code of issuing bank ( mã số ngân hàng phát hành) (2) Swift input of Receiver: Code of exporting bank ( mã của ngân hàng xuấ t khẩ u) EX: Swift code of Vietcombank: BFTVVNVX (3) Sequence of total: the number of original LC is issued to be one paper (4) Form of documentary credit EX: Revocable, Irrevocable (5) Date of issue: The date being duration period of LC The date from which the issuing bank commits to pay commercial transaction if the beneficiary (seller) presents suitable documents Exporter must check importer’s contract implement (6) Documentary credit number Each LC has a separated number This number is up to the issuing bank’s regulations Here are some main elements as follows - Market code - Code of issuing bank - Code of issuing year - Code and number of issued LC EX: 020LC08VN000123 020: code of issuing bank LC: letter of credit VN: Beneficiary is VietNamese 123: number of LC is issued of the issuing bank in that year (7) Date and place of expiry Time and date when the issuing bank will finish its payment obligation to the beneficiary Date of expiry is latter than shipping date (8) Name and address of parties in LC: Importer, Exporter, Issuing Bank, Exporting bank (9) Currency code and amount LC currency amount has been written by figure and word EX: $ 2000 = two thousand dollar EX: “For a sum or sums not exceeding a total of …” or using tolerance “ For an amount of… more or less x%) UCP600: “about” means tolerance 10% (10) Date of shipment Date of shipment in LC duration period (11) Issues of shipment 15 Incoterms Delivery Transhipment (12) Date of shipment Up to terms of international sale contract (13) Description of goods and services Write the same of goods terms in the sale contract (14) Document Required Documents which the beneficiary has to present at the bank to require payment (15) Additional Conditions Credit subject to the UCP600, the number and the date of the credit must be quoted on all document required Each presentation must be noted on the reserve of the original credit by the negotiating bank All required documents must be written in English (16) Regulations of charges EX: All bank charge fee outside Vietnam including advising, negotiating, reimbursement, and amendment charges for account of beneficiary (17) Confirmation instruction If LC needs to be confirmed by another bank, the issuing bank must write the name, address and code of that international bank in the LC (18) Instructions to paying accepting negotiating bank (19) Signature, stamp of the issuing bank 16 ... standby letter of credit (SLOC) is a guarantee of payment issued by a bank on behalf of a client that is used as payment of last resort” • Standby letters of credit are created as a sign of good faith... Invoice payment payment Seller’s bank Bank transfer Types of bank transfer • Mail transfer 10 Buyer’s bank Transfer of funds between branches through the medium of post offices either for credit of. .. bank Paying bank Accepting bank 10 Bank deferred payment Function of L/C: • Payment • Credit • Assurance of payment Types of L/C: a Standard types of L/C: - Revocable L/C: L/C that may be amended