NEGOTIATING PRICE AND PAYMENT

How can the exporter avoid the “price trap” occured in many negotiations when the buyer demands concessions about delivery time, method of payment,etc?

Chapter 1: Negotiating Delivery

1. The five steps in Negotiating Delivery.

To deal with problems arising if there is a delay or if delivery is not as planned the Buyerand the Seller should negotiate delivery systematically That means making sure all foreseeableproblems are discussed and approaches to solving such problems are agreed An overview ofthe five negotiating steps is suggested to simplify discussion of the ideas and to avoidproblems: Timing, Location, Transport, Risk Title and Insurance, Terms of Trade

2. Timing: When must Delivery take place?

- Good negotiators should mention a delivery date in negotiating the timing of an export dealand then other issues relating to coming into force, delay and compensation for delay Delaymight be classified into two categories, excusable and non-excusable Excusable one involves a

‘grace period’ and is mostly subject to a force majeure provision Any losses to the buyercaused by non-excusable delay must be compensated The amount of compensation is usuallyset in advance and called ‘liquidated damages’

- Use a straightforward calendar date to name the delivery date: 15th September 2010, forexample The parties often plan for the contract to come into existence in two steps: thesignature date and the date of coming into force The date of coming into force is not usually acalendar date, but the date on which the last precondition is met Common preconditions are:+ Receipt of import and/ or export approval

+ Receipt of foreign exchange approval from a central bank

+ Issuance of a letter of credit or bank guarantee

+ Making of a down-payment by the buyer

+ Issuance of an insurance policy

+ Issuance of a certificate of origin

+ Delivery by the buyer of plans, drawings or other documentation

- Negotiators may agree on a cut-off date: if the contract has not come into

force within a certain time, then it becomes null and void

Coming Into Force

This agreement shall come into force after execution by both parties on the date of the last

necessary approval by the competent authorities in the country of the Seller and the Buyer

If the contract has not come into force within ninety days of execution, it shall become null and void

Điều khoản hiệu lực

Thỏa thuận này sẽ có hiệu lực sau khi được thực hiện bởi cả hai bên vào ngày phê duyệt cần thiết cuối cùng của cơ quan có thẩm quyền tại nước người bán và người mua

Nếu hợp đồng không có hiệu lực trong vòng chín mươi ngày kể từ ngày thực hiện, nó sẽ trở nên vôhiệu.

- The delivery date is normally fixed for a certain number of days after the contract has come into force

The date of delivery shall be twenty-eight days after the date of coming to force of the contract.Ngày giao hàng sẽ là 28 ngày sau ngày hợp đồng có hiệu lực

- Time is of the essence of the contract If the time is not kept, the buyer has the right to return the goods and refuse payment

Time is and shall be of the essence of the contract

Thời gian là và sẽ là vấn đề cốt lõi của hợp đồng

- Excused Delay and Grace Period:

For each week of late delivery the Seller shall pay the Buyer 0.1 % of the contract price

Đối với mỗi tuần giao hàng chậm chễ người bán sẽ phải trả người mua 0.1 % trị giá hợp đồng

A grace period is the time exceeding the deadline for an obligation during which a late penalty thatwould have been imposed is waived

If delivery is not effected within one month of the agreed delivery date, then the Seller shall pay the Buyer 0.1 % of the contract price

Nếu giao hàng không được thực hiện trong vòng 1 tháng kể từ ngày giao hàng đã được thỏa thuận thì người bán sẽ phải trả cho người mua 0.1% trị giá hợp đồng

Sometimes the exporter can’t deliver the goods on time because of natural disasters called ‘acts ofGod’, which is unavoidable It is the force majeure, which is negotiable The parties can decidewhat excuses and what does not excuse the performance in the contract

If either party is prevented from, or delayed in, performing any duty under this Contract by anevent beyond his reasonable control, then this event shall be deemed force majeure, and this partyshall not be considered in default and no remedy, be it under this Contract or otherwise, shall beavailable to the other party Force majeure events includes, but are not limited to: war (whether war

is declared or not), riots, insurrections, acts of sabotage, or similar occurrences, or Governmentregulations, delay due to Government action or inaction, fire, explosion, or other unavoidableaccident, flood, storm, earthquake, or other abnormal natural event

Nếu một trong hai bên bị ngăn cản, hoặc chậm trễ trong thực hiện bất kỳ nghĩa vụ theo Hợp đồngnày vì một sự kiện ngoài tầm kiểm soát hợp lý của mình, thì sự kiện này được coi là bất khảkháng, và mặc định là bên này sẽ không được xem xét và không có biện pháp khắc phục, có thể làtheo Hợp đồng này hoặc cách khác, sẽ có sẵn cho các bên khác Sự kiện bất khả kháng bao gồm,nhưng không giới hạn: chiến tranh (cho dù là tuyên bố chiến tranh hay không), bạo loạn, nổi dậy,hành vi phá hoại, hoặc các sự cố tương tự, hoặc quy định của Chính phủ, chậm trễ do hành độnghay không hành động của Chính phủ, cháy, nổ, hoặc khác không thể tránh khỏi: tai nạn, lũ lụt, bão,động đất, hoặc sự kiện tự nhiên bất thường khác

Force majeure events do not include monsoon rains

Sự kiện bất khả kháng không bao gồm mưa gió mùa

If a force majeure condition continues for long time, contracts may regulate the force majeureperiod, in particular the right of one or both parties to terminate the contract

If either party is prevented from or delayed in, performing any duty under this Contract, then thisparty shall immediately notify the other party of the event, of the duty affected, and of the expectedduration of the event

If any force majeure event prevents or delays performance of any duty under this Contract for morethan sixty days, then either party may on due notification to the other party terminate this Contract.Nếu một trong hai bên bị ngăn cản hay chậm trễ trong thực hiện bất kỳ nghĩa vụ theo Hợp đồngnày, thì bên này sẽ ngay lập tức thông báo cho bên kia về sự kiện, các nghĩa vụ bị ảnh hưởng, vàthời gian kéo dài dự kiến của sự kiện

Nếu bất kỳ sự kiện bất khả kháng nào ngăn cản hoặc trì hoãn việc thực hiện các nghĩa vụ nào theoHợp đồng này trong hơn sáu mươi ngày, thì một trong hai bên sau khi thông báo cho bên khác cóthể chấm dứt Hợp đồng này

Three outcomes of force majeure: resumption of delivery, termination of the Contract, unclear anddangerous situation.

- Unexcused delay and Buyer’s Remedies: when delivery cannot take place as planned, this causessome loss or damage to the Buyer There are two remedies: a decree of specific performance ordersthe exporter to deliver or an award of damages makes the exporter pay compensation to the Buyer

In addition, the court may allow the Buyer to cancel the Contract

- Liquidated Damages: is a lump sum to be paid per day, week or month of late delivery forcompensation Payment of liquidated damages avoids expensive discussion Even if the Buyer’slosses are lower or higher than anticipated, nothing changes The exporter pays the agreed sum,and the matter is settled Liquidated damages are enforceable everywhere but subject to increase ordecrease in some legal systems

- Penalties: is the amount to be paid for late delivery It is used as a threat of punishment to achieveacceptable performance and is not enforceable in English law or other common law systems

- Quasi-indemnity: is to relieve the exporter of liability for delay in delivery It is enforceableeverywhere but open to challenge as ‘unconsionable’

Liquidated Damages

If the Seller fails to supply any of the Goods within the time period specified in the Contract, theBuyer shall notify the Seller that a breach of contract has occurred and shall deduct from theContract price per week of delay, as liquidated damages, a sum equivalent to one half percent ofthe delivered price of the delayed Goods until actual delivery up to a maximum deduction of 10%

of the delivered price of the delayed Goods

Thanh khoản thiệt hại

Nếu người bán không cung cấp bất kỳ hàng hóa trong khoảng thời gian quy định trong hợp đồng,người mua phải thông báo cho người bán là một sự vi phạm hợp đồng đã xảy ra và sẽ khấu trừ giáhợp đồng trên mỗi tuần trì hoãn, làm thiệt hại thanh khoản, một khoản tiền tương đương với mộtnửa một phần trăm giá được giao của hàng hóa bị chậm chễ cho đến khi hàng thực tế lên đến mộtmức khấu trừ tối đa là 10% giá được giao của hàng hóa bị chậm chễ

3 Place of delivery: is the point at which the exporter passes responsibility for the Goods to the

Buyer Delivery can take place at a number of places between manufacturer’s factory and theBuyer’s warehouse A contract for the sale of Goods abroad (transportation by ship) is normallyconsidered as an FOB (Free on board) contract: delivery takes place when the Goods cross the rail

of the ship nominated by the Buyer Another is CIF, the exporter pays the full costs plus the freightcharges plus insurance up to the named place of destination, usually a port

Delivery of the Goods shall be made FOB (Mombasa)

Giao hàng sẽ được thực hiện theo giá FOB Mombasa

Delivery of the Goods shall be made CIF Durban

Giao hàng sẽ được thực hiện theo giá CIF Durban

Delivery of the Goods shall be made (Incoterm) The schedule date of Delivery shall be (date of delivery) Risk and title to the Goods shall pass from the Seller to the Buyer on Delivery

The place of Delivery under this Contract is (port of shipment)

Giao hàng được thực hiện (Incoterm) Ngày giao hàng theo lịch trình sẽ là (ngày giao hàng) Rủi ro

và quyền sở hữu các hàng hóa được chuyển từ người bán đến

người mua khi giao hàng

Địa điểm giao hàng theo Hợp đồng này được (cảng giao hàng)

If the vessel named by the Buyer fails to arrive on or before the agreed delivery date, then the sellermay at his discretion deliver the Goods to a bonded warehouse in the port of Mombasa, and shall

be deemed to have fulfilled his delivery obligations under this Contract

Nếu tàu được chỉ định bởi người mua không đến vào hoặc trước ngày giao hàng được thỏa thuận,thì bên bán theo sự suy xét của mình có thể giao hàng hàng hóa đến kho ngoại quan tại cảngMombasa, và được coi là đã hoàn thành nghĩa vụ giao hàng của mình theo hợp đồng này

4 Transport.

- Negotiators should mention the type of packaging and the shipping marks in the Contract

Goods are to be packed in new, strong, wooden cases suitable for long-distance ocean transport and are to be well protected against dampness, shock, rust or rough handling The Seller shall be liable for any damage to or loss of the Goods attributable to improper or defective packaging.Hàng hóa sẽ được đóng gói trong thùng gỗ chắc và mới thích hợp cho vận tải biển đường dài và phải được bảo vệ chống lại độ ẩm, va đập, gỉ hoặc xử lý thô Người bán phải chịu trách nhiệm cho bất kỳ hư hỏng, mất mát của các hàng hóa do bao bì không đúng hoặc bị lỗi

On the surface of each package delivered under this Contract shall be marked: the package number,the measurements of the package, gross weight, net weight, the lifting position, the letter of credit number, the words RIGHT SIDE UP, HANDLE WITH CARE, KEEP DRY, and the mark:

DNP/36/Q

Trên bề mặt của mỗi kiện hang được giao theo Hợp đồng này sẽ được đánh dấu: số gói, các kích thước của gói, trọng lượng, trọng lượng tịnh, vị trí móc cẩu, số thư tín dụng, các từ xếp theo chiều này, xếp dỡ nhẹ tay, giữ hang khô, và đánh dấu: DNP/36/Q

- On delivery, the exporter receives from the carrier the most important of all the shippingdocuments, the bill of lading (consignment note) Each mode of transport has a characteristicshipping of document: the marine bill of lading, the airway bill, the rail consignment note, theroad consignment note Combined transport uses a combined transport bill of lading

- The Marine bill of lading is the special document used for shipment by sea It can be madenegotiable, which means it can be bought or sold The word ‘Order’ makes the bill of ladingnegotiable That means the shipper must endorse the bill by signing it on the back To beacceptable as a shipping document under a letter of credit, it must bear the notation that thegoods have been shipped on board a named vessel

- Payment under a letter of credit depends largely on the correctness of the shippingdocuments To be acceptable under a letter of credit, all shipping documents must be ‘clean’,free notes about defects It is the carrier who notes any defects in packaging, weight, or generalappearance of the goods on accepting them from the Exporter

5 Risk, Title and Insurance

Risk passes on delivery Two risks are involved in the sale of goods: the risk of the goodsinjuring a third party and the risk of loss or damage These risks are covered by insurance Ininternational trade, ownership (title) is of doubtful value and passes from exporter to buyer.Title to the goods passes with risk

Quyền sở hữu hàng hóa gắn liền với rủi ro

- Since merchandise is at risk at all times during its journey, it is advisable to insure the goods It iseasier for the exporter to arrange insurance Minimum coverage is Cargo clause C In CIF and CIPcontracts, the exporter normally assigns the insurance agreement to the buyer Exporters have anagreement with an insurance company covering the shipments over a period of time Each iscovered by a certificate of insurance, which states in outline the cover offered and gives the details

of the individual shipment There is a so-called letter of insurance This is a letter from the exporter

to the buyer stating that the goods are insured and it has no legal force but as evidence in a law suitagainst the exporter

- In some situation the exporter negotiates special insurance policies: floating policy and openpolicy Both offer the exporter insurance cover on all shipment over a period of time Open cover

is not a policy, the insurer will write a policy if required The normal insurance document under anopen cover is the Certificate of Insurance, which is, in principle, the equivalent of a policy

- If the exporter insures the Goods and states on the insurance document (valued policy), he hassome decisive advantages: the pre—stated figure can include not only the cost of the goods butalso the profit the exporter hoped to make on them If the value is not stated (unvalued policy),then the value can be established after a loss, the exporter must prove his figures precisely

- A marine insurance policy has three variant clauses: Cargo Clause A, B and C Clause A coversanything not excluded, Clause B and C exclude anything not expressly covered Even an ‘all risks’policy (Clause A) excludes many risks

- Goods must be correctly and fully describe on the insurance document or cover may bewithdrawn and a ‘held cover’ clause offers some protection against innocent misdescription: undergiven conditions the goods are held to be covered The main principle of insurance is ‘utmost goodfaith’

6 Terms of Trade

- The ICC publication, Incoterms 1990, gives full and clear information about the rights andduties of buyer and exporter in Incoterm contract The 13 terms are classified in 4 groups: E-terms, F-terms, C-terms, and D-terms The E-terms deals with deliveries at the exporter’sfactory The F-terms all concern delivery within the exporter’s country The C-terms involvedelivery in the exporter’s country, with extra costs for exporter after delivery D-terms takecare of delivery outside the exporter’s country

The equipment listed in Annex 1 shall be delivered FOB (Beira) (Incoterms 1990)

Các thiết bị liệt kê trong Phụ lục 1 được giao theo điều kiện FOB (Beira) (Incoterms 1990)

For the equipment listed in Annex 1 the price is for delivery free on board carrying vesseldesignated by the Buyer at the port of Beira including the cost of packing, as well as expensesincurred before loading the equipment on board the carrying vessel

Đối với các thiết bị được liệt kê trong Phụ lục 1 giá là giá giao hàng miễn phí trên boong tàu chởtheo chỉ định của người mua tại cảng Beira bao gồm chi phí đóng gói, cũng như các chi phí phát

sinh trước khi tải các trang thiết bị lên boong tàu chở.

The contract should always specify that terms such as FOB, CIF and so on are Incoterms underthe rules set out in Incoterms 1990 The contract should regulate what happens if Incoterms

1990 and the terms of the contract conflict Normally, the contract prevails Incoterms applyonly to international trade, for trade within a country, Incoterms are not appropriate

Incoterms 1990 as used in this contract means the publication Incoterms 1990, being theinternational rules for the interpretation of their terms published by the International Chamber ofCommerce When a term from ‘Incoterms 1990’ is used in this Contract, the rules and definitionsapplicable to that term in Incoterms 1990 shall be deemed to have been incorporated in theContract except insofar as they may conflict with any other provision of the Contract, in whichcase the Contract provisions shall prevail

Incoterms 1990 như được sử dụng trong hợp đồng này là ấn bản Incoterms năm 1990, là các quytắc quốc tế cho việc diễn giải các điều khoản của chúng do Phòng Thương mại quốc tế xuấtbản Khi một điều khoản từ "Incoterms 1990" được sử dụng trong Hợp đồng này, các quy tắc vàđịnh nghĩa áp dụng cho thuật ngữ đó trong Incoterms 1990 sẽ được coi là đã được kết hợp tronghợp đồng ngoại trừ trường hợp chúng có thể xung đột với bất kỳ điều khoản khác của Hợp đồng,trong trường hợp đó quy định của hợp đồng sẽ được áp dụng

CHAPTER 2: NEGOTIATING PRICE AND PAYMENT

1 EXPORT PRICING STRATEGIES

in the contract price In fact, the most common term negotiated with the two sides is on price

Scenario: Verbena Electric hopes to export its best-selling product, small domestic electric

fans, from Verbena to Esperanza Royalstone, the manager of Verbena Electric, beginsdiscussions with the purchasing manager of Esperanza Electrical Importing, Alice Smart.Negotiations begins Royalstone offers a unit price of $22 based on some main followingassumptions:

- The size of the order is 3000 items

- Delivery is FOB

- The warranty period on the fans is three months from the date of delivery

Order Size: 3000 units is one container load, the unit price will increase on a smaller order An

order of 1000 fans, for example, would cost $25 each – not $22

Incoterm: the cost of insurance and freight between Port Verbena and Esperanza City is $520

on an order of 3000 items

Warranty Period: Royalstone knows that a three-month warranty on an FOB delivery produces

very few claims for defects If Smart asks for a six-month warranty, it will add 30 cents per fan

to Royalstone’s costs

This example shows that the negotiating decisions bear directly on the price of the product.And a good manager knows that almost every decision made during a negotiation incluencesprice

2 THE FIVE STPES IN NEGOTIATING PAYMENT

In negotiating payment, the exporter should follow these five steps:

Step 1: Mode of Payment

This determines how payment will be made There are four common mode of payment:

• payment on open account with no security: this type is seriously risky to the exporter

• payment on open account secured by export credit insurance: the exporter pays money to

an insurance company to buy an export credit insurance

• payment on open account secured by a paymenr guarantee: the buyer pays money to a bank

to receive a bank guarantee

• payment by letter of credit.: the buyer must position the money with a bank in the coutry ofthe exporter and the exporter can collect that money when the goods are delivered

Step 2: Timing

This step determines the date of payment The importer often wants to delay the time of paymentbut the exporter suffers from delay because late payment is subject to payment of interest so mostssellers offer discount for early payment This helps the buyer save on the invoce price and theseller qickly collect his money

The date of payment may be regulated date or a chain of dates It is also calendar dates or intervaltimes

Step 3: Place of payment

This step determines where the money must be before payment is to be completed

Step 4: Delay - what delay in payment is excusable?

Delay in payment may be excused during a grace period (not common) or a force majeure event(more common) But most exporters do not want to excuse these delays and any payment madeafter the agreed date of payment is in delay

Step 5: Results of delay

When delay in payment happens the exporter is usually compensated for losses due to latepayment The exporter may ask for a payment guarantee which makes sure payment be made ontime

The best solution to get risk of delay is to create a payment article in the sale contract which makeslate payment is impossible

Payment shall be deemed to have been made Việc thanh toán được cho là đã hoàn thành

only when the contract sum is paid into the

Seller’s bank account and is at the Seller’s

full disposal

chỉ khi số tiền hợp đồng đã được chuyểnđến tài khoản ngân hàng của người Bán và

do người Bán toàn quyền định đoạt

If payment of any sum payable is delayed,

the Buyer shall be entitled to receive interest

on the amount unpaid during the period of

delay The interest shall be at an annual rate

three percentage points above the discount

rate of the central bank in the

Seller’country

Thanh toán chậmNếu chậm thanh toán bất cứ khoản tiền nàotheo hợp đồng, bên Mua sẽ phải chịu tráchnhiệm với khoản tiền lãi tính trên khoản tiềnchưa thanh toán trong suốt khoảng thời giantrì hoãn đó Lãi suất sẽ được tính cao hơn 3

% so với lãi suất chiết khấu do Ngân hàngTrung ương nước người bán quy định

3 THIRD-PARTY SECURITY FOR PAYMENT

In the international trade, the exporter may face a lot of risks and one of the significant ones isnon-payment There are two main way that the exporter can use to reduce this risk One isexport credit insurance and the other is bank guarantee

• Export credit insurance

Export credit insurance allows exporter to recover the major part of the contract price if thebuyer fails to pay after six months To buy such insurance, the exporter must explain the detail

of the busineess to an insurance company and receive a quotation If the insurer refuses to pay,its may mean that there are some problems in the exporter or importer The exporter has to payexport insurance premiums which depends on many factors, such as: the type of goodsexported, the creditworthiness of the buyer, the political stability of the importer country.Although this way is attractive, it has some limitations: the exporter has to wait for a long time

to be compensated and the compensation is unlikely to cover 100% of the invoce price

• Payment guarantee

In this method, the buyer may ask for a bank guarantee which means that the bank will pay thecontract price if the buyer fails to do so.

Guarantees are comonly used in four business situations, as the following:

Risk 1: Non-payment =>Payment guarantee

A payment guarantee makes sure that the exporter will receive payment It commits the bankwhich issuses the payment guarantee to pay if the buyer defaults The payment guarantee isussually for 100% of the contract price

Risk 2: Revocation => Tender guarantee

This type of guarantee is used in case that the exporter who bids on a contract to supply goods

or materials to a goverment department or agency is withdrawn A normal figure for tenderguarantee is usuallly between 1.5% to 5% of the contract price

Risk 3: Non-performance=>Performance guarantee

Performance guarantee makes sure that if the exporter works badly or not at all, the guarantorwill pay, within stated limits, the costs of the exporter’s failure to perform A figure forperformance guarantee is between 5% to 10% of the contract price

Risk 4: Losing Prepayment=>Prepayment guarantee

This guarantee promises the buyer that the bank will return advance payments if the exporterfails to deliver The guarantee is often for 100% of the prepayment

4 THE LETTER OF CREDIT

Letters of credit are issued in many forms for many purposes Some letters of credit offer firstclass security for the exporters, some are little better than a personal check

The most ideal type of letter of credit from the exporter’s point of view is irrevocable,comfirmed, at sight letter of credit.

The Uniform Customs and Practice for Documentary Credits (UCP) by the InternationalChamber of Commerce is the most universal set of practices rulling over payment by letter ofcredit Besides, parties to a contract can also use the rules of the United States

Letter of credit: The Ground Rules

Documents are exchanged for money.

Firstly, the letter of credit is issued by an issuing bank at the request of the buyer Theissuing bank, then, istructs the advising bank to advise the exporter that the letter ofcredit has been opened Normally, the issuing bank is in the buyer’s country and theadvising bank is in the country of the exporter

Next, the exporter ships the goods, passes them to the carrier and receives shippingdocuments from the carrier

Then, presents these documents to the bank as evidence that the goods have beenshipped The bank checks the correctness of the documents and sets the paymentprocedure in motion

Two principles that make a letter of credit watertight:

Principle 1: Autonomy

The letter of credit is an agreement by a bank to pay money against documents; It is a separateagreement from the sale contract and is unconnected with it This means the bank is obliged to paywhatever the disputes between the buyer and the exporter are

Princile 2: Strict compliance

The bank will pay only if the shipping documents are exactly in line with the buyer’s instructions.

In case of discrepancies in one or some aspects of the documents presented, the bank will refuse topay

In this situation, to proceed payment, the exporter can:

- Provide missing payper or correct errors

- Ask the buyer to instruct the bank to change the terms of the letter of credit

- Ask the bank to process the letter of credit with the discrepancies but to pay only when and ifthe issuing bank permits payment

If the letter of credit is near its expiry date and there may be no time for the exporter to provide themissing pieces, he (or the advising bank) must contact the buyer asking the buyer to instruct theissuing bank to extend the date of credit

→The exporter should provide scrupulous care in providing the documentation called for by the letter of credit.

Page 87: The Buyer, on receipt of the

Confirmation of Order from the Seller, shall at

least 20 days prior to the date of delivery open

a confirmed, irrevocable letter of credit This

credit shall be subject to Uniform Customs and

Practice for Documentary Credits, 1993

Revision, ICC Publication No 500 20% of the

credit shall be available against the Seller’s

draft accompanied by invoice; the remaining

80% shall be available against the Seller’s

draft accompanied by the shipping documents

Người mua, khi nhận được Chấp nhận Đơnhàng từ phía người bán, phải mở một thư tíndụng đã xác nhân, không thể hủy ngang muộnnhất là 20 ngày trước ngày giao hàng Thư tíndụng này được điều chỉnh bởi Các Qui tắc vàThực hành thống nhất về Tín dụng Chứng từ

Số 500 của ICC, bản sửa đổi năm 1993 20%giá trị thư tín dụng này phải được thanh toánkhi người bán xuất trình hối phiếu và hóa đơn;80% còn lại phải được thanh toán khi ngườibán xuất trình hối phiếu và các chứng từ vậntải

Page 90: Credits, by their nature, are separate

transactions from the sales or other contracts

on which they may be based and banks are in

no way concerned with or bound by such

Về bản chất, tín dụng là một giao dịch riêngbiệt với các hợp đồng mua bán hoặc các hợpđồng khác mà các hợp đồng này có thể là cơ

sở của tín dụng Các ngân hàng không liên

contracts, even if any reference whatsoever to

such contracts is included in the credit…In

credit operation all parties concerned deal in

documents and not in goods, services and/or

other performances to which the documents

may relate

quan tới hoặc bị ràng buộc bởi các hợp đồngnhư thế, thậm chí ngay cả cả trong tín dụng cóbất cứ sự dẫn chiếu nào đến các hợp đồng nhưthế….Trong thanh toán bằng tín dụng, các bênchỉ chấp nhận chứng từ chứ không phải làhàng hóa, dịch vụ hay bất kì nghiệp vụ nàokhác có liên quan đến các chứng từ này

Page 90: A letter of credit is like a bill of

exchange given for the price of goods It ranks

as cash and must be honored No set off or

counterclaim is allowed to detract from it

Một thư tín dụng cũng giống như một tờ hốiphiếu được kí phát để trả tiền hàng Nó cũng làtiền và phải được thanh toán Nó không thể bịlàm giảm giá trị bởi bất kì yêu cầu trả tiền hayviệc phản đối trả tiền của bất kì bên nào

Letter of Credit: Revocable and Irrevocable

A revocable letter of credit can be canceled at any time by the buyer or by the issuing bank.Few exporters will accept such an arrangement, so the plain expression “letter of credit”generally means the irrevocable kind UCP600 says that the letter of credit will be taken asirrevocable if nothing is mentioned in the credit

Letter of credit: Confirmed and Unconfirmed

A confirmed Letter of Credit is understood as the letter of credit to which a confirmation is added

by a nominated confirming bank Confirming bank means the bank that is asked to confirm thecredit by an issuing bank By adding its confirmation to an L/C, it has an absolute obligation to paythe exporter according to the terms of credit The payment are made without recourse, whichmeans that if the issuing bank finds a problem with the documents and refuses to send funds tocover the payment, the confirming bank has no way of recovering the money it has paid to theexporter It is different from an advising bank which always makes payment with recourse if it

agrees to pay the value of the credit over the counter This helps the advising bank get its moneyback from the exporter if the problems occur

Sometimes, problems can arise when very small banks or banks in countries with severe foreigncurrency shortages try to instruct a bank in exporter’s country to confirm a letter of credit Theissuing banks may delay in sending funds to cover the payment

The sign of a confirmed letter of credit is usually the cross in the “confirmation box”

The At-sight Letter of Credit and the Alternatives

Settlement by sight Payment

Under this method of payment, if the documents the exporter presents are in order, the paying bankimmediately pays the full face value of the letter of credit

Settlement by Deferred Payment

In settlement by deferred payment, the letter of credit is not payable until a number of days afterdelivery The seller presents the documents to the paying bank, and the paying bank agrees to paythe seller the face value of the credit when it matures If the exporter needs ready money, he canexchange the letter of credit for cash (at a discount) with any agreeable bank

Settlement by Acceptance

The seller presents to the accepting bank the documents and a bill of exchange (time draft) drawnusually on the buyer, and the bank will accept the bill of exchange and agree to pay it at full facevalue when falls due This is obviously a danger for the seller

A bill of exchange that is accepted can be sold at a discount to an agreeable bank if the seller needsmoney immediately

Settlement by Negotiation

Negotiation means the selling of a financial instrument to a bank for (usually) less than its facevalue In this method of settlement, the seller presents to the negotiating bank the documents and abill of exchange drawn usually on the buyer, and the negotiating bank negotiates the bill

The Letter of Credit and its Associated Documentation

I The letter of credit contains a list of the documents which must be presented and is also the basisfor bank checking that the documents are in perfect order and correct or not

II Associated Documentation

1 Commercial invoice must be made out to the applicant for the L/C about the description and the amount of the goods, and specific demands

2 Transport documentation is the document issued by the carrier to the exporter, and includesfive types: sea transport, air transport, rail transport, road transport and combined

transport The type required is stated in the L/C

Special problems related to transport document.

There are some problems arising in specific circumstances when transport document is used as follows:

Shipment by sea: The carrier could issued a marine bill of lading, or a sea waybill to the exporter

And in some case some types of sea transport are not allowable without the agreement by the paties and being worded in the L/C when the parties use this method of transportation, a sea waybill can be the alternative of a marine bill of lading

Shipment by air: The carrier could issued an Air waybill, which must be issued in 3 originals and 9

copies That the L/C calls for “a full set of original air waybill” is a mistake because it is an

impossible demand Also, a correctly completed waybill can not show the date of the flight

Shipment by rail: The carrier could issued a Rail consignment note L/C, in this method of

transportation, must not demand the original of a rail consignment note, otherwise it can delay the payment

3 The Insurance Document: is usually required when the shipment is made on CIF or CIP terms If the L/C does not stated otherwise, insurance coverage must be for 110% of the CIF or CIP value of the goods

4 Other Documents includes Certificate of Origin, Certificate of Inspection and Special Requirements

Certificate of Origin(C/O) is required for import to the buyer’s country under a preferential tariff

or other agreement

Certificate of Inspection can make importing easier The parties should make a note in their

contract if this document is required The parties must clear that details in inspection certificate must correspond exactly with the details in the transport document and the commercial invoice.Special Requirements should be agreed exactly about what and who should issue and shown clearly in the L/C When wording in the L/C, the parties should not use unspecific words such as

“appropriate”, it could make difficulty in satisfying the bank for the payment

Negotiating the Terms of a Letter of Credit

- Agreement: the exporter and the buyer discuss and list all required documentation The two

parties may have to talk to their Chambers of Commerce, to their bank or to the carrier to establish the complete list

- Incorporation: the list is incorporated into the contract.

- Specification: the buyer applies for the letter of credit specifying the agreed documentation ICC

form can be used to apply for a letter of credit The exporter and the buyer can complete this application form during their negotiations and append a copy of the form to their contract, then passsing it to the bank This is to make sure that the credit once issued should be exactly as agreed

by the parties with no nasty surprise for the exporter

- Verification: the exporters checks the credit as soon as he receives the advice of the L/C being

opened to make sure it complies with the agreement negotiated with the buyer Immediate

discussion with the advising/confirming bank is essential since amendments are always time consuming, which can lead to the delay in payment

- Compliance: the exporter rigorously checks documentation and submits it to the bank Remember

that timely payment depends on the compliance by the exporter with the terms of credit

Documentary Credit Application Form

Segment 1: Applicant: full name, address, account number with issuing bank of the buyer.

Segment 2: Issuing bank: name (can be left blank)

Segment 3: Application date: the date on which the application form is submitted to the bank (can

be left blank)

Segment 4: Date and place of expiry:

+ The last date for presentation of documents to the bank

+ The place of expiry: often “at the counter of the confirming bank”

Segment 5: Beneficiary: full name, address (the exporter in most cases)

Segment 6: Method of issue:

+Issue by mail: slower

+Issue by teletransmission (normally telex)

+ Issue by mail and brief advice by teletransmission

Segment 7: Transfer of the Credit

- In case the exporter wants to hide the actual supplier

- In principle, a L/C is not transferable unless it is permitted

Segment 8: Confirmation: Exporters prefer confirmation.

Segment 9: Amount

+the amount of the credit is expressed both in figures and in words

+The currency of the credit: using the ISO currency code Eg: USD, DEM, GBP

+ “About”, “Approximately”: the actual payment can be +/- 10% the stated amount

+Mixed payment: must state what percentage of the invoice price is covered by the credit

Segment 10: Partial Shipment

In principle, partial shipments are allowed unless the “not allowed” box is crossed

Distinguish carefully between “partial shipments” and “shipment in installments”

Segment 11: Transshipment

Transshipment means moving the goods from one conveyance to another Normally transshipment

is allowed except for goods travel by sea under a sea waybill or marine B/L or some other specialreasons for prohibition

Segment 12: Availability

“Credit available with…” – this is sometimes followed by the name of the advising bank chosen

by the exporter or left blank, and the issuing bank is free to decide a bank will act for it in theexporter’s country

The various types of payment are “by sight payment”, “by acceptance”,etc

Segment 13: Insurance covered by the Buyer

The box is normally checked when the delivery term is FOB, CFR

Segment 14: Transport Information

Shipment from (precise places – habors, airports…)

To (precise places – habors, airports…)

CHAPTER 3 Negotiating Inspection and Defects Liability

- The Problem:

When things go wrong with the exported products, repair and replacement can be ruinouslyexpensive There are some special steps that the exporters can take to minimize the risk of thegoods being rejected or of heavy defects liability claims

+ Specification.

Negotiation of specifications can be a difficult process

A well-designed set a specifications offers vital protection the both sides The importer is

protected against inferior products- it can reject any equipment that fails to meet specification.Moreover, the seller is protected also-through more subtly If the products are fully specified andthe consignment meets the specifications, the buyer will be unable to find any excused for rejection

or for exaggerated defects liability

+ Pre-delivery Inspection

Many importers require inspection of their goods in the manufacture’s factory beforedelivery With sophisticated items or capital equipment, the buyer may also want to inspect thegoods at pre-agreed times during manufacture

Some countries, Indonesia for example, require that all imported goods are inspected by aninspections service immediately before shipment This inspection prevents exporter and buyeragreeing an unrealistically low invoice price in order to avoid customs duties in the buyer’scountry This also prevents shipments of patently defective goods

The next step, assuming FOB delivery, is examination of the goods by the carrier Thecarrier does not unpack the goods or check their quality, although leaks and obvious damage – aswell as incorrect shipping marks, defective packaging or discrepancies in weight and size – arenoted on the shipping documents

+ Inspection and Acceptance

The principle is clear- the buyer has the right to inspect the goods when they arrive and to

reject them if they are incorrect At this point, exact specification is of great value to exporter if

the goods conform to specifications, the buyer is obligated to accept them.

+ Defects Liability Period

Once the goods are accepted by the buyers as apparently correct, they must jump to thefinal hurdle – the defect liability period The manufacturer accepts liability for defects the come tolight after acceptance: if anything is wrong with any item, they will repair or replace it Such

defects are called “latent defects”.

The defects liability period is negotiable, this is likely to be several months from the date of delivery or the date of arrival

Protection against dishonest claims or excessive demands should be written into thecontract

To sum up, in negotiating the terms of the contract, we can look at the process in steps

 Step 1 Inspection : When are the goods inspected? And when can the buyer to reject them?

 Step 2 Terms : Warranty or guarantee?

 Step 3 Definitions : What is, and what is not, a defect?

 Step 4 Timing : How long is the defects liability period? When does it begin? What aboutother timings?

 Step 5 Corrective action : What must the seller do to cure defects?

2 INSPECTION, ACCEPTANCE AND REJECTION

n a contract, both the parties, the buyer and the exporter run risks Obviously, the goodsdelivered are not always perfect Thus, the buyer stands the risk of receiving inferior goodswhen inspecting the goods on arrival The exporter may have a disaster when the buyerdecides to cancel the contract if the deviation amounts to a fundamental breach of contract Thedefects liability provision gives double protection This warranty protects the buyer from receivinginferior goods and the exporter from losing the contract right away Delivery can be rejected fromtwo kinds of defects: the patent one ( which can be found when being inspected), the latent one(which only comes to light during usage)

I

Under most laws, a buyer can make certain assumptions about goods even if the exportergives no express warranty These assumptions are legally called implied warranties, which come inthree types:

+ Implied warranty of Conformity with Contract:

Most laws provide a way to grade non-conformity: while major discrepancies allow thebuyer the right to reject the goods and cancel the contract, minor discrepancies do not The ViennaSales Convention (Article 49) says:

“The buyer may declare the contract advoided (=canceled)… if the failure by the seller to perform any of his obligations under the contract…amounts to a fundamental breach of contract.”

+ Implied warranty of Merchantable Quality:

Goods can well conform with the contract but they can be of serious inferior quality whichmake them inappropriate for sale Most laws have a provision on this “warranty ofmerchantability” which allows the buyer to reiect goods and cancel the contract

+ Implied warranty of Fitness for Intended Purpose:

Goods can conform with the contract, be merchantable but useless to the buyer In the casewhen the exporter knew the buyer’s intented purpose and the buyer trusted the seller with thecorrect goods then the buyer has the legal right to reject unusual items

+ Rejection: Total or Partial:

The buyer can reject the consignment wholly or partially National laws take one of threechoices While English law requires rejection of all contract goods, German law and Vienna SalesConvention (Article 51) both allow total and partial rejection When goods are rejected, the buyermost notify the seller within a reasonable period Then, on assuming that the rejection is justified,the exporter has the additional cost to dispose the unwanted goods

+ The Exporter’s Right to cure:

Does the exporter have the right to cure? Or it is simply a duty requested by the buyer? TheVienna Sales Convention says the following:

“…the seller may, even after the date for delivery, remedy at his own expense any failure

to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer.”

If the seller wants the right to cure, the contract should contain the necessary provision

3 WARRANTY AND GUARANTEE: TERMINOLOGY