Chapter 4 - Payment Instruments

CONTENT
1. Bill of exchange/ Draft

CHAPTER 4 2. Cheque 
3. Promissory note
INTERNATIONAL PAYMENT
4. Payment card
INSTRUMENTS
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AIMS OF THE CHAPTER METHODS OF PAYMENT IN

INTERNATIONAL TRADE
1. To understand the basics about instruments

and their practical use.
Bill of Exchange
2. To establish and check instruments.
Commodity
Exporter Importer
Cheque, promissory note

Payment card
3 4
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INTERPRETATION OF TERMS BILL OF EXCHANGE/DRAFT

Acceptance: means an acceptance completed by delivery or
notification. Definition:
Bearer: means the person in possession of a bill or note which A bill of exchange is an unconditional order in writing,
is payable to bearer. addressed by one person to another, signed by
Bill: means bill of exchange, and note means promissory note the person giving it, requiring the person to whom
Holder: means the payee or indorsee of a bill or note who is it is addressed to pay on demand or at a fixed or
in possession of it, or the bearer thereof determinable future time a sum certain in money
Indorsement: means an indorsement completed by delivery to or to the order of a specified person, or to
Issue: means the first delivery of a bill or note, complete in bearer. (BEA 1882)
form to a person who takes it as a holder
5 6
1
BILL OF EXCHANGE/DRAFT
In conclusion:
A bill of exchange is a means of demanding payment

used in international trade.
Kwai Wing LUK (2011), “International trade finance” – A practice guide,

City University of Hong Kong Press
7 8
BILL OF EXCHANGE Draft’s features

B/E sample in Collection method
BILL OF EXCHANGE 
No.: 134/EX………………. Ha Noi, 20 July 2009
For:…USD 100,000.00  Abstraction
Unconditional (order of payment)
At sight of this first Bill of Exchange (second of the same tenor and
date being unpaid) pay to the order of Saigon Bank for Industry and Circulative
Trade the sum of US dollars one hundred thousand.
To: The Delta Co. Ltd Tocontap company

HongKong Ha Noi
(signed)
9 10
LEGAL BASIS LEGAL BASIS
• Regional and International Laws: • National law

+Convention Providing a Uniform Law For Bills of + Bill of Exchange Act of 1882 (BEA) of
Exchange and Promissory Notes (Geneva 1930) Great Britain
(ULB-1930)
+ United Nations Convention on International Bill of + Uniform Commercial Codes of 1962 (UCC)
Exchange and Promissory Notes adopted by the of the USA
General Assembly on 9 December 1988
11 12
2
LEGAL BASIS LEGAL BASIS
• Vietnamese Laws Anglo-American Legal system Geneva Legal system

+ Ordinance on Commercial bills No. 17/1999/PL- UK, US, Australia, Canada, -Geneva system’s members:
UBTVQH10, effective from 1st July 2000 India, HongKong, Malaysia, Austria, Belgium, Denmark,
Singapore, Philippine, Ireland Finland, France, Germany, Greece,
Hungary, Italia, Luxembourg,
+ Law on negotiable instruments, effective from Monaco, the Netherlands, Norway,
1st July 2006 Poland, Russia, Sweden,
Switzerland, Brazil, Japan…
13 14
PRINCIPLES OF LEGAL CONFLICT PARTICIPANTS

RESOLUTION
- Capacity of parties: Law of each party

- Legal form of the draft: Law of the place of issue
- Obligations of the acceptor of the bill: Law of the place of - Drawer
payment. - Drawee
- Validity of the 3rd party’s signature: Law of the place where - Beneficiary
the draft is signed
- Form and time-limit for protest: Law of the place where - Endorser/ Assignor
protest is forced to set up. - Holder/ Bearer
- Where the draft is lost: Law of the place of payment.
15 16
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PARTICIPANTS PARTICIPANTS
Drawer Drawee
Objects: Exporter, service supplier Objects: Importer (Collection method of payment),
Benefits: L/C issuing/confirming bank (Documentary Credit method); or
- Draw the draft to demand payment from Drawee or any person Guarantor.
designated by him. Benefits:
- Be the first beneficiary of the draft - Honor or dishonor to pay the draft
- Be able to negotiate or mortgage the draft in the bank.
- Check the continuity and validity of indorsement line
- Transfer the title to the draft to the other
Responsibilities: - Keep or cancel the draft after payment
- Draw the draft in accordance with Laws and real transaction. Responsibilities:
- In case that the draft is rejected by the drawee: be obliged to pay the - Make immediate payment for the draft right after the draft is
sum of money inscribed on the draft for the beneficiary. presented.
17
- Accept payment for the time draft presented. 18
3
PARTICIPANTS PARTICIPANTS
Beneficiary Beneficiary (cont.)

Objects: Exporter, seller or any person designated by him Benefits:
- Receive payment of the draft.
- Drawer - Transfer the benefit of the draft to the other
- A named person in the draft - Be able to negotiate or mortgage the draft in the bank
- Holder: no-name draft Responsibilites:
- Present the draft on time, and at the correct payment
According to the Ordinance on Foreign Exchange of Viet Nam, address.
beneficiaries of the draft are credit institutions and other - Inform timely for payer in case of losing the draft in order
institutions licensed to provide foreign exchange services to prevent wrong payment.
19 20
Regulations on drawing
PARTICIPANTS
Bill of Exchange
Drawing basis
• Commercial purchase agreement
 Define:
Endorser or Assignor
+ Sight draft or time draft
+ Payer
Holder or Bearer
+ Payee
+ Beneficiary
• Commercial Invoice  the sum of the draft
• Letter of Credit  create appropriate contents
21 22
Regulations on drawing Regulations on drawing

Bill of Exchange Bill of Exchange
Form Content
- Must be a deed, document A draft must fully have the following contents (Article 16 of
- Draft’s pattern: free. Law on negotiable instruments, Article 1 of ULB 1930,
- Draft’s language: in writing, printing or typing by one Article 3 of BEA 1882)
certain language. (1) Title (7) Time of payment
According to Article 7, Ordinance on negotiable instruments 1999
(2) Reference number (8) Beneficiaries
“Negotiable instruments must be made on the pre-printed forms
issued by the Vietnam State Bank. They must be made in (3) Sum payable (9) Drawee
Vietnamese. Where a foreign factor is involved, the negotiable
instruments must be made in Vietnamese and English.” (4) Place of drawing (10) Drawer
- Number of copies : ≥ 2 copies (Artcile 64 ULB 1930) (5) Date of drawing (11) Place of payment
+ Each are numbered and all have the same legal value (6) Claiming order 4
23 24
Draft sample
Draft sample in Collection method
in Documentary Credit method
BILL OF EXCHANGE 
No.: 134/EX   Ha Noi, 20th July 2009  BILL OF EXCHANGE 
No.: 134/EX   Ha Noi, 20th July 2009 
For: 100,000.00 USD 
For: 100,000.00 USD 
 At ……. sight of this first Bill of Exchange (second of the At …… sight of this first Bill of Exchange (second of the same
same tenor and date being unpaid) pay to the order of Saigon tenor and date being unpaid) pay to  the order of Saigon Bank for
Bank for Industry and Trade  the sum of one hundred Industry and Trade  the sum of one hundred thousand US dollars.
thousand US dollars. 
Drawn under: Delta Bank, Hong Kong by L/C No: 071SGB0709 dated
9th July 2009
To: Victoria Co. Ltd  Tocontap company  To: The Delta Bank  Tocontap company 
HongKong Ha Noi  HongKong Ha Noi 
11 (signed) 11 (signed)
25 26 
How to draw How to draw

Drafts/ Bills of Exchange Drafts/Bills of Exchange
(3) Sum payable:
- A determinate sum of money
(1)Title:
- Specific, clear, recognizable
- Bill of Exchange
- Be expressed in words and also in figures  No
- Exchange for discrepancy between the two.
- Draft …  When there is a discrepancy between the two, the
(2) Reference number: Do not require sum denoted by the words is the amount payable
 Where the sum is expressed more than once in words
or more than once in figures, and there is a discrepancy, the
smaller sum is the sum payable.
27 28

Drafts/ Bills of Exchange Drafts/ Bills of Exchange
(5) The date of drawing: a basis to:
(4) The place of drawing
- claim the drawee
- the basis to determine the law source governing the - determine the time of payment of the draft
Draft - determine the identity of documents.
A draft which does not mention the place of its issue is
If the draft is undated:
deemed to have been drawn in the place mentioned + ULB and Law on negotiable instruments of VN: invalid
beside the name of the drawer + BEA: valid (insert therein the true date of issue)
29 30
5
(7) The time of payment (cont.)
(6) Claiming order:
- Draft at sight (cont.)
- Unconditional order
+ Presentation period:
- Specify time of payment and beneficiary.
 ULB: 1 year (from the date of drawing) (Article 34)
(7) The time of payment :
 Law on negotiable instruments of VN : 90 days (from
- Draft at sight:
+ Write “At sight of this … Bill of Exchange …, pay to …. the the date of drawing) (Article 43)
sum of …”.  BEA: a reasonable time (Article 40)
31 32

(7) The time of payment (cont.) (7) The time of payment (cont.)
- Time draft
- Time draft (cont.)
+ Payable at a fixed period after sight:
+ Payable at a fixed date after signed :
“At X days after sight of this ….(first or second) of Bill of
“At X days after signed of this…….(first or second) of Bill of
Exchange, pay to …. the sum of …”
Exchange, pay to………….the sum of……”.
+ Payable at a fixed date in the future:  If the time of payment is wanting:
“On……….(date) of this………….(first or second) of Bill of + ULB and Law on negotiable instruments of VN: invalid
Exchange, pay to…………the sum of……….”. + BEA: valid (insert therein the true date of issue) 
33 34

(8) Beneficiaries: (9) Drawee:

- The drawer or the other designated by the drawer. - Be responsible for paying the money amount inscribed
- Full name and address of the beneficiary is fully and on the draft.
clearly given - According to
+ ULB: full name of the drawee must be specified
+ Law on negotiable instruments of VN: Full name and
address of the drawee must be specified.
35 36
6
(10) Drawer (11) Place of payment:
- Draw the draft and payment order.
- Signature: mandatory
- Where the beneficiary of draft present for claiming
 ULB and BEA: hand-written, without stamp money
 Law on negotiable instruments: hand-written, affixed with a  Specify the place of payment
stamp (if drawer is an organization) (Article 4)
- Law on negotiable instruments :  Where no place of payment is specified, but the address
 ULB and BEA: not specified of the drawee or acceptor is given in the bill, and the bill
 Law on negotiable instruments: specify name and address is there presented.
(Art.16)
37 38
Mechanics of Drafts Mechanics of Drafts

Mechanics of a sight Draft
BILL OF EXCHANGE Mechanics of sight Draft
No.: 134/EX Ha Noi, 20th July 2009
For: 100,000.00 USD (3)
Bank of Bank of
At sight of this first Bill of Exchange (second of the same Drawer Drawee
tenor and date being unpaid) pay to the order of (4)
Company A the sum of one hundred thousand US
dollars. (3) (4)
(3) (4)
To: Company B Company A (1)

Drawer Drawee
HongKong Ha Noi
(2)
(signed)
39 40

Mechanics of time draft
Mechanics of sight Draft BILL OF EXCHANGE
No.: 134/EX Ha Noi, 20th July 2009
(1) basic transaction For: 100,000.00 USD
(2) Perform basic transaction: Drawer/ Exporter At 90 days after sight of this first Bill of Exchange (second of
the same tenor and date being unpaid) pay to the order of
delivers goods.
Company A the sum of one hundred thousand US dollars.
(3) Drawer draws sight drafts to claim Drawee
through the banks To: Company B Company A
HongKong Ha Noi
(4) Drawee makes payment right after the draft is (signed)
presented.
41 42
7
Mechanics of time Draft
Mechanics of time Draft (1) Basic transaction
(3-5) (2) Perform basic transaction
Bank of Bank of
Drawer (4-6) Drawee (3) Require the drawee to accept payment.
(4) Return the accepted draft to the drawer.
(3-5) (4-6) (4-6)
(3-5) (5) Forward the mature draft to the Banks to collect
(1) money.
Drawer Drawee
(2) (6) Pay when the mature draft is presented.
43 44
Operations related to Drafts Operations related to Drafts

1. Acceptance
Article 4 – Law on negotiable instruments, Acceptance" means
the commitment of a drawee to pay part or the whole of the
1.Acceptance sum of money inscribed on the negotiable instrument when it
matures through signing for acceptance the negotiable
2. Endorsement  instrument as prescribed in this Ordinance.
Article 28 - ULB, by accepting, the drawee undertakes to pay
the bill of exchange at its maturity
3. Guarantee 
Article 17 BEA, The acceptance of a bill is the signification by
the drawee of his assent to the order of the drawer.
4. Protest 
Acceptance = payment commitment
45 46

1. Acceptance
 Reasons for acceptance:
Not obliged to accept the draft, but accept: 1. Acceptance
- to circulate easily, and
- in some cases: Accept on the
+ Specify acceptance on the draft. front of the draft
+ the draft has payment period from the date of  Forms of acceptance:
acceptance. Accept by a
+ the draft is payable at a fixed time after presentation. separate
+ the place of payment is different from the drawee’s document.
address. 47 48
8
No.30/1/92 BILL OF EXCHANGE
1. Acceptance For USD 5,000.00 Singapore,20th February 2014
 Form of acceptance: Ninety (90) days after sight of this FIRST exchange
 Accept on the front of the draft (SECOND of the same tenor and date being unpaid).
Pay to the order of the chartered bank, London the sum
of five thousand United States dollars only.
- Write on the front bottom left corner of the draft : To: MITSUI Co; LTD Viettai Co. Ltd
agreed / accepted, and the date of signing and Tokyo ( Signed)
signature. Accepted
15th March 2014
(Signed)
49 50
Accept on the front of the draft (cont.)  Form of acceptance

* If the date of signing is wanting: Accept by a separate document (British and
American Law)
- Law on negotiable instruments: invalid
- ULB: invalid when the bill is payable at a certain - Drawer may set up an acceptance document in which
time after sight or when it must be presented for expresses his consent of payment, date of signing and
acceptance within a certain limit of time signature.
- BEA: holder may insert therein the true date of Traditional document
acceptance.  Electronic document (MT 799)
51 52
 Principles of acceptance:
Unconditional  Time of acceptance:
 Able to accept partial payment  Time of presentment to demand acceptance
 Every modification introduced by an acceptance - Time draft:
into the tenor of the bill of exchange operates as a + Within the fixed limit of time when the time for
refusal to accept. presentment is stipulated on the draft..
+ ULB: may supplement the place of payment, + ULB and Law on negotiable instruments: 1 year (if
or else be deemed as refusal. Draft is payable at a fixed period after sight)
+ Law on negotiable instruments: supplement = + BEA: reasonable time
refuse 9
53 54
 Time of acceptance (cont.)

 Time of acceptance:
 Time of presentment to demand acceptance  Time of presentment to demand acceptance
- Overdue draft: - Sight draft:

+ ULB and Law on negotiable instruments: invalid.
+ BEA: A bill may be accepted When it is overdue, or + ULB and BEA: not specified.
after it has been dishonoured by a previous refusal to + Law on negotiable instruments: within 90 days from
accept, or by non-payment. (Article18)
the date of its drawing (Article 34)
55 56
 Time of acceptance (cont.) 2. Endorsement
 Time-limit for replying acceptance request when the draft Definition: Endorsement is a procedure to transfer the
is presented. ownership from the beneficiaries to others.
 Form of endorsement:
+ ULB and BEA: not specified
- Drawer writes and signs on the back of the draft.
+ LCCCCN: 2 working days later (Article19)
- ULB and BEA: sign on a slip affixed thereto (allonge)
 57 58

 Legal meaning: 2. Endorsement (cont.)
- Acknowledge transfering the draft benefits to others 2. Endorsement
specified in the back of the draft.  Principles of endorsement:
-Unconditional, or else invalid
- Law on negotiable instruments: as an evidence of the
endorser’s commitment to pay the draft for the next - Unacceptable for partial endorsement.
beneficiary (endorsee) in case of payment refusal.
- Every modification introduced by an endorsement into the
* ULB and BEA: not define the responsibilities of the tenor of the bill of exchange is deemed to be invalid.
endorser to pay mandatorily for the draft to be transferred 10
59 60
 Blank endorsement
2. Endorsement  Do not designate the beneficiary of the draft
 Types of endorsement:  sign on the back of the draft
Or write general statement: “pay to…” ; or
 Blank endorsement “Pay to the order of any …”
 May change to other types of endorsement by
 Nominated or restrictive endorsement
adding “pay to the order of Mr. X” …
 To order endorsement Drawbacks?
 Without recourse endorsement Strengths:?
61 62
 Nominated or restrictive endorsement  To order endorsement

 Write “Pay to the order of Mr. A” and sign
 Designate the beneficiary.
 Write: “Pay to Mr. X only”/ “Pay to Mr. X, not to “Pay to the order of Company B” and sign
order” and sign
 Create conditions for consecutive transfer.
The next beneficiary (Mr. X) is not allowed to re-
endorse the draft Endorsement must be made before maturity.
63 64

3. Aval, guarantee
Definition: a commitment of the third-party to pay the whole
or part of the sum of money inscribed on the negotiable
 Without recourse endorsement instrument if the draft has matured but the drawee fails to pay
or pays not in full the amount.
 “Pay to the order of Mr. B, without recourse”.  Rights and obligations of guanrantor:
- Be obliged to pay the draft if the guarantee fails to fulfill its
Signed A.
payment obligation.
 “Pay to the order of Mr. C, without recourse”. - Have the rights to abrogate the draft which does not have
Signed B. enough contents required by the regulations.
- Request the guarantee to repay the amount of security money
already paid. 11
65 66
3. Aval, guarantee (cont.) 3. Aval, guarantee
 Form of aval:
 The guaranty commitment inscribed by the  Principles of aval:
guarantor right on the draft must include the word  Unconditional
"Aval/Guarantee”, the amount of money committed to be  Obliged to write the name of the guarantee.
guaranteed, the name, address and signature of the  Acceptable for partial aval
guarantor and the name of the guarantee.  After making the aval obligation, the guarantor may
receive the guarantee’s rights.
 The guaranty commitment is made in a separate  As an irrevocable commitment for the duration of
written document attached to the negotiable instrument the aval taking effect.
(allonge)
67 68
Operations related to Drafts TYPES OF DRAFTS

4. Protest
-If payment of the draft is refused on the due date  the
beneficiary draws up the protest  Base on the entities establishing the draft
-Time for drawing up the protest: two business days  Commercial draft
following the day on which the bill is payable  Bank draft
 Then, within the four business days which follow the day  Base on the time of payment
for protest, the holder must give notice of non-acceptance or  Draft at sight (At sight draft)
non-payment to his endorser and to the drawer .  Draft at a fixed period after sight
- If there is no protest, assignees are exempt from liability to  Time draft/ Usance draft
pay the draft, except the drawer and the acceptor.
69 70
TYPES OF DRAFTS EXERCISE

Exercise 1: On 28 Nov 2006 Amex Co. signed a contract No. 01/12XK to
export frozen shrimps to Japan with the value of 100,000 USD. The contract is
paid by Letter of Credit deferred 90 days. Shipment is made at SaiGon Port on
02 Jan 2007 under the L/C No. 093432/LC issued by Bank of Tokyo –
 Base on the shipping documents accompanying Mitsubishi dated 10 Dec 2006. Basing on the given or self-made (if necessary)
the draft or not: information and the draft sample below, please issue a draft to demand
 Clean draft payment from the importer.
 Documentary draft No…………….. BILL OF EXCHANGE

For: ……….. ………..Date …./…./….
 Base on the nature of endorsement.
 Unknown draft At … ….. sight of this FIRST Bill of Exchange (SECOND the
same tenor and date being unpaid) pay to the order of
 Nominated draft ………………………………………
 To order draft the sum of …………………………………………
Drawn under ……………………….. dated ......./…../…….
71
To: ……………..
72
12
………………
EXERCISE EXERCISE
Draft of exercise 1:
No: 01/12XK BILL OF EXCHANGE Exercise 2: Savimex company has completed delivery
For: USD 100,000.00 Ho Chi Minh, 02nd Feb 2007 of export conignment valued 48,285 USD under the
sight contract number 21/2006XK signed on 02 Sep
At …90 days….. sight of this FIRST Bill of Exchange (SECOND
the same tenor and date being unpaid) pay to the order of ASIA 2006 to the importer - Tran Co. based at 26 Greenfield
COMMERCIAL BANK the sum of US DOLLARS ONE street, Bankstown NSW 2200, Australia. Place of
THOUSAND ONLY. delivery is Sai Gon Port and payment is made through
Asia Commercial Bank. Basing on the given or self-
Drawn under L/C No. 093432/LC. dated .10 Dec 2006 issued by made (if necessary) information and the draft sample
BANK OF TOKYO MITSUBISHI.
below, please issue a draft to demand payment from the
To: BANK OF TOKYO MITSUBISHI. Amex company
TOKYO, JAPAN HCMC importer
73 74
EXERCISE CHEQUE
Draft of exercise 2:
No: 23/2006 BILL OF EXCHANGE
For: USD 48,285.00 Ho Chi Minh, 02nd Oct 2006
Definition
At …xxx ….. sight of this FIRST Bill of Exchange (SECOND the A cheque is a bill of exchange drawn on a banker
same tenor and date being unpaid) pay to the order of ASIA
COMMERCIAL BANK the sum of US DOLLARS FOURTY EIGHT payable on demand
THOUSAND TWO HUNDRED EIGHTY FIVE ONLY.
- Bills of Exchange Act 1882-
Drawn under Contract No. 21/2006XK dated 02nd Sep 2006
To: Tran Co . Savimex Co.,

26 Greenfield street, HCMC
Bankstown NSW 2200, Australia
75 76
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CHEQUE CHEQUE
Legal basis
Definition
• International Laws:
A written, dated and signed instrument that - Convention Providing a Uniform Law for Cheques ,
contains an unconditional order from the drawer date enacted 19th March 1931(ULC 1931).
that directs a bank to pay a definite sum of • National Laws:
money from his account to a bearer or a -Bill of Exchange Act of 1882 (BEA) of Great Britain
nominated person on the cheque - Uniform Commercial Codes of 1962 (UCC) of the USA
Viet Nam Laws: Law on negotiable instruments,
- Investopedia- effective from 1st July 2006
77 78
13
Legal requirements for
CHEQUE the content and form of
Cheque
CHEQUE SAMPLE OF MARITIME BANK
Participants (6)
(5)
(1)
 Drawer (2)
(3) (7)
 Drawee (4) (4)
 Beneficiary/ payee
79 (8) 80
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CHEQUE CHEQUE
 Content: A cheque contains:
(1) Cheque’s title: the term “Cheque/ Check”
 Content (cont.):
inserted on the cheque
(6) Place of payment
(2) Date of drawing
(7) Beneficiary (payee)
(3) An unconditional order to pay a determinate
sum of money (8) Signature and name of the drawer
(4) Sum payable

(5) Name of the (payer)
81 82
CHEQUE CHEQUE SAMPLE OF BIDV
 Form: decided by the institution opening the

account for drawer (Commercial bank, or Financial
company which is allowed to do cheque payment
service, … )
- Cheque includes: cheque itself and cheque-stub
83 84
14
CHEQUE SAMPLE OF AIB CHEQUE
Conditions and period of validity:
 Conditions for Cheque issuance
- Drawer must have outstanding balance in the current
account (demand deposit account) in the bank.
- The sum payable by a cheque must not exceed the
outstanding balance in the account, except the case of
overdraft.
- A cheque must be a deed/ document and has a certain
form issued a Credit Institution.
85 86
CHEQUE MECHANICS OF A CHEQUE
Conditions and period of validity:  Private cheque

 Period of validity: * Through one bank
According to ULC 1931, Article 29: Bank
+ 8 days  payable in the country. (3)
+ 20 days  payable in different countries but in the same (4)
continent. (5)
+ 70 days  payable in different continents. (2)
According to Law on negotiable instruments of VN, Beneficiary/ Drawer/
Article 69: 30 days from the date of drawing. Exporter Importer
According to BEA 1882, Article 74: reasonable time (1)
87 88
MECHANICS OF A CHEQUE MECHANICS OF A CHEQUE

 Private cheque
 Bank’s cheque
* Through two banks
(5) Payer (1) Beneficiary/ Payee
Bank of Beneficiary/ Bank of Drawer/
Exporter Importer
(4)
(5) (3) (6) (5)

(2) (3)
(4) (6)
(2) (7)
Beneficiary / Exporter Drawer/ Importer Cheque issuing bank Correspondent bank
(1)
89 90
15
Operations related to Cheque Operations related to Cheque
 Cheque endorsement  Cheque endorsement

* Requirements for the content * Requirements for the content
- Endorser is the current beneficiary on the
cheque. - An endorsement must be unconditional
- Endorsement takes effect when the next
beneficiary receives the cheque - A partial endorsement is null and void.
- Endorsement must express the type of cheque - Endorser must endorse to grant authority to the
transfer. Bank for money collection ???
91 92
 Aval/ guarantee
 Cheque endorsement
* Definition: is that a third person other than the
* Requirements for forms of endorsement drawee commits to make unconditional payment for
whole or part of the sum of the cheque in the case that
- Endorsement must be written on the back of the cheque is unpayble when presented.
the cheque or on the slip attached thereto
(allonge). * Requirements for the content of the aval
- Guarantor is a third person.

- It must be signed directly by hand of the endorser
- An " aval " must specify for whose account it is given
93 94
 Aval/ guarantee  Aval/ guarantee

* Requirements for the content of the aval (cont.) * Requirements for the form of the aval
- An aval is irrevocable during the period of validity of - It is expressed by the words " good as aval ", or by any
the cheque. other equivalent formula placed on the face of the
- An aval is only limited in the payment obligation. cheque and signed by the giver of the " aval ".
- An " aval " is given either on the cheque itself or on an
- An aval is an independent guarantee.
" allonge "
95 96
16
 Certified cheque  Certified cheque

Definition: Certified cheque is a form of cheque for Conditions: The cheque must meet the following
conditions:
which the bank verifies that sufficient funds exist in the
- The cheque is filled clearly and completely in all the
account to cover the cheque, and so certifies, at the time contents on the cheque.
the cheque is written. Those funds are then set aside - The drawer must have enough outstanding balance in
(blockaded) in the bank's internal account until the the account.
cheque is cashed or returned by the payee - The drawer requires to certify the cheque
97 98
Operations related to Cheque Types of cheque
 Base on the transferability of cheques

- Nameless cheques: “Pay to bearer”
- Nominated cheques
- “To order” cheques : “Pay to the order of…”
99 100
Types of cheque Types of cheque
 Base on the features of use
- Giro cheques
- Confirmed cheques
- Traveller’s cheques
101 102
17
Types of cheque Types of cheque
 Base on the characteristics of use
- Private cheques
- Bank’s cheques
- Crossed cheques
+ Cheque crossed generally
+ Cheque crossed specially O
103 104
PROMISSORY NOTE PROMISSORY NOTE
 Definition: A promissory note is a legal instrument

in which one party (the maker or issuer) promises in  Participants
writing to pay a determinate sum of money to the
- Drawer
other (the payee), either at a fixed or determinable
future time or on demand of the payee, under - Beneficiary
specific terms.
105 106
PROMISSORY NOTE PROMISSORY NOTE

Contents and ways to draw a promissory note
 Circulation
PROMISSORY NOTE 
No.12658/02  Ha Noi, 25th October 2002 
For USD 5,243.00 * Circulative features:
 On the 25th March 2003 fixed by the promissory note,  we promise
to pay to Victoria Company or order in Hong Kong the sum of FIVE
- There should be a guarantee of a bank or a financial
THOUSAND TWO HUNDRED FORTY THREE US DOLLARS ONLY. company.
- A promissory note is drawn by one or more drawers
To:  Victoria Co. Ltd Tocontap company  to commit to pay for one or more beneficiaries.
HongKong Ha Noi
(signed)  - There is only one main promissory note.
- A statement of acceptance shall be disregarded.
107 108
18
PROMISSORY NOTE PAYMENT CARDS
 Mechanics Definition:
(4)
Bank of Bank of
(3) Payment card is a payment instrument that the
drawer beneficiary
owner can use it to withdraw cash at ATMS, bank
(4) (3) (3)
(4) counters and to pay for goods and services at
(1) merchants (card accepting units)
Drawer Beneficiary
(2)
109 110
PAYMENT CARDS PAYMENT CARDS

 Types of payment card
Types of payment card
• According to the production technology:
- Braille card • According to the using purpose:
- Magnetic stripe card
- Company card
- Smart card
• According to the nature of payment
- Travel and entertainment card
- Credit card • According to the using objects:
- Debit card - Classic card
- ATM card - Gold card
- Payment card
111 112
PAYMENT CARDS PAYMENT CARDS
 Procedur e of issuing and basic payment * Procedure of issuing card (cont.)

1. Issuing card
 Require for issuance
* Participants:  Issue card
- Card holder 2. Using card in payment
 Accept card
- Issuing bank  Provide goods/ services
- Paying bank  Hand in invoices
+ Mechanical machine
- Merchant + Electronic card reader
113 114
19
PAYMENT CARDS QUESTIONS
2. Using card in payment (cont.)
1. Distinguish between Draft and Promissory note?
 Paying bank pays for Merchant. 2. Distinguish between Commercial draft and Bank draft?
 Paying bank sends information to Clearing center. 3. Definitions of Acceptance, Guarantee and
 Clearing center processes clearing Endorsement of Draft?
+ Debit Issuing Bank 4. What is cheque? Distinguish Private cheque and Bank
+ Credit Paying Bank cheque?
 Issuing bank accepts payment for Clearing center. 5. The necessity for introduction of Bank Cards?
 Issuing bank informs the card holder about the Strengths of Bank Cards in comparision with Cheque?
statement monthly and claim for payment. 6. Procedure of issuing and paying card?
 Card holder pays the issuing bank.
115 116
20

Chapter 4 - Payment Instruments

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Chapter 4 - Payment Instruments

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CONTENT

1. Bill of exchange/ Draft

KHOA THƯƠNG MẠI – ĐH TÀI CHÍNH MARKETING

AIMS OF THE CHAPTER METHODS OF PAYMENT IN

1. To understand the basics about instruments

Cheque, promissory note

INTERPRETATION OF TERMS BILL OF EXCHANGE/DRAFT

A bill of exchange is a means of demanding payment

Kwai Wing LUK (2011), “International trade finance” – A practice guide,

BILL OF EXCHANGE Draft’s features

To: The Delta Co. Ltd Tocontap company

LEGAL BASIS LEGAL BASIS

• Regional and International Laws: • National law

• Vietnamese Laws Anglo-American Legal system Geneva Legal system

PRINCIPLES OF LEGAL CONFLICT PARTICIPANTS

- Capacity of parties: Law of each party

Beneficiary Beneficiary (cont.)

Regulations on drawing Regulations on drawing

How to draw How to draw

How to draw How to draw

How to draw How to draw

How to draw How to draw

(8) Beneficiaries: (9) Drawee:

Mechanics of Drafts Mechanics of Drafts

To: Company B Company A (1)

Mechanics of Drafts Mechanics of Drafts

Operations related to Drafts Operations related to Drafts

Operations related to Drafts Operations related to Drafts

Operations related to Drafts Operations related to Drafts

Accept on the front of the draft (cont.)  Form of acceptance

Operations related to Drafts Operations related to Drafts

 Time of acceptance (cont.)

- Overdue draft: - Sight draft:

Operations related to Drafts Operations related to Drafts

 Time of acceptance (cont.) 2. Endorsement

Operations related to Drafts Operations related to Drafts

Operations related to Drafts Operations related to Drafts

 Nominated or restrictive endorsement  To order endorsement

Operations related to Drafts Operations related to Drafts

Operations related to Drafts TYPES OF DRAFTS

TYPES OF DRAFTS EXERCISE

 Documentary draft No…………….. BILL OF EXCHANGE

To: Tran Co . Savimex Co.,

(4) Sum payable

CHEQUE CHEQUE SAMPLE OF BIDV

 Form: decided by the institution opening the

- Cheque includes: cheque itself and cheque-stub

CHEQUE MECHANICS OF A CHEQUE

Conditions and period of validity:  Private cheque

MECHANICS OF A CHEQUE MECHANICS OF A CHEQUE

(5) (3) (6) (5)

 Cheque endorsement  Cheque endorsement

Operations related to Cheque Operations related to Cheque

- Guarantor is a third person.

Operations related to Cheque Operations related to Cheque

 Aval/ guarantee  Aval/ guarantee

 Certified cheque  Certified cheque

Operations related to Cheque Types of cheque

 Base on the transferability of cheques

Types of cheque Types of cheque

 Base on the features of use

+ Cheque crossed specially O

PROMISSORY NOTE PROMISSORY NOTE