Chapter 5

INTERNATIONAL PAYMENT
Chapter 5
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Contents
Issue in concern
Paying Instrument
Methods of payment
Letter of Guarantee (L/G)
Exporting financing
Payment problems
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706026- Chapter 5: International payment
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Learning Outcomes
1 Identify the key issues in handling inter- payments

\
2 Understand use of paying instrument, B/L
3 Define the three basic terms of payment
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Learning Outcomes
4 Compare & contrast characteristics of payment terms
5
1 Identify major parties involved in payment methods
5
6
1
6 Establish a basic understanding of export financing

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Issues in Concern
In what currency will the payment be made?
Who will bear the credit Risk?
What is the cost implication of each method of

payment?
Are there any political or legal risks?

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Paying Instrument
Promissory Note
Bill of Exchange
Check

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Type of Draft
Clean Bill vs Documentary Bill
Commercial Draft vs Banker’s Draft
Sight Draft vs Time Draft/ Usance Draft

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Payment
Methods of
payment
vRemittance
vCollections of Payment
vLetters of Credit

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Payment
Remittance
Payment Order
Remitting Paying
Remitter Beneficiary
bank bank

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Remittance Process
2
Remitting bank Paying bank
3
1
Remitter Beneficiary
Goods &
Documents
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Remittance method
1. M/T
Mail Transfer 2. T/T - TTR
TelegraphicTransfer

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Remittance time
In At After Mixed
Advance sight
Seller deliver Buyer receive Buyer receiver

goods documents goods 12

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Remittance
Pros Cons
Easy Seller Buyer

Low cost Non
Quick No goods
payment
Wrong goods

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Bill of Exchange/ Draft
According to time of payments
At Sight Bill Time Bill

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At sight bill process
6
Collecting bank Presenting bank
3
7 4
2 5
Principal/ Drawee
Drawer 1

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Time bill process

3
4
Principal/ Drawee
Drawer 1

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Time bill process
(Acceptance)
v Accept Debit
v Repayment commitment

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Time bill process
6
3
7 4
2 5
Drawer Drawee
1

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At sight bill process
Drawer Drawee

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Payment
Collection of
payment
Collection
Instruction
Collecting Presenting
Drawer Drawee
bank bank

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Payment
q Kinds of Collection of payment
Clean Collection
Documentary Collection

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Clean collection of payment process

3
4
Drawer Drawee
1

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Collection of payment
Pros Cons
Easy Seller Buyer

Low cost Non
Quick No goods
payment
Wrong goods

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Payment
Document Collection Process
7
3
8 4 6
2 5
Drawer Drawee
1

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D/P Documents Against Payment
D/A Documents Against Acceptance

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D/P
Pros Cons
Buyer Seller
Buyer Seller
Receive Buyer must Buyer do
Not
Goods payment before not
Goods
receiving receive
Goods
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Letter of Credit
q Concepts
Agreement L/C
Buyer Bank Seller

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Process
Parties
o Applicant
o Beneficiary
o Opening Bank/Issuing Bank
o Advising Bank/Notifying Bank

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Process
Opening Bank 2
Advising Bank
Issuing Bank Notifying Bank
3
1
Applicant Beneficiary

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Process
Y
Check L/C Delivery
N
Fix L/C

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Process
7
Opening Bank 6 Advising Bank
Issuing Bank Notifying Bank
2
9 3 7
8 1 5
4
Applicant Beneficiary

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vUCP: Quy tắc thực hành thống nhất về tín dụng

chứng từ
vISBP: Tập quán ngân hàng tiêu chuẩn quốc tế

dùng để kiểm tra chứng từ trong phương thức
tín dụng chứng từ

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Recommendation
Pros Cons
Seller Buyer
Payment Receive goods
-Enough -Enough
-Correct -Correct
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Recommendation
Pros Cons
Seller Buyer
Documents Goods
are not correct are not correct
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Payment
Methods of Time of
payment payment
Payment
Bank
Documents

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Type of Documentary Credit
Revocable Red
Sight Transferable Reciprocal
vs Clause
vs
Irrevocable
Usance
Confirm Straight Revolving Back Standby

vs Vs to
Unconfirm Open back

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Contents
Payment by T/T in advance. The Buyer must pay into

Seller’s account number 1243567 at Tokyo Bank
within 5 days after signing date of contract.
Documents required:
- Clean on board Bill of lading
- Commercial invoice
- Packing list
- Certificate of insurance

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Content
Payment by L/C at 180 days from B/L date.

The L/C should be opened within DEC. 25th 2004 at
latest, in favor of Daewoo Corporation, Seoul, Korea
Advising Bank: Korea Exchange bank, Seoul, Korea
The following documents will be presented for payment

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Content
- 3/3 Clean on board Bill of lading

- Commercial invoice in triplicate
- Packing list in triplicate
- Certificate of Quality
- Certificate of Origin

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L/G is an irrevocable undertaking by the issuer holds itself
financially liable for the consequences of non-
performance of the obligations by a third party towards
the beneficiary
A wider scope Credit L/G and

than a L/C payment L/G
Allow importer than

exporter as beneficiary
of instrument

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Irrevocable
Unconditional
Requirements
L/G
Divisible Fully transferable
Abstract
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Export financing
Guaran Importer
-tor
Forfeiting L/C
Packing Nego-
Forfeiter Exporter tiation
Loan
Packing Factoring Nego-

Loan tiation

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Packing Loan
A pre-shipment
short-term by local bank
financing
To enable the To produce and

exporter to ship the contract
purchase and goods without
prepare materials difficulty

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Negotiation under Documentary Credit
After the exporters ship the

goods and obtains all the
documents under credit.
They can use the credit and the

documents as the collateral for
the application of the loan

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Factoring
A complete financial package

that combines investigating the
creditworthiness of buyer
Under the agreement, the factor

purchase the seller’s accounts
receivable , without resourse

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Factoring
Exporter Importer Ex- factor Im-factor
A client of a Control Local Overseas

factoring “How bank branch of the
transaction quickly & or export factor
easily the factoring or
exporter’s company a nominated
application” correspondent
factor

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Forfeiting
Has French origins, meaning “

without resource”
Devised to finance exports of

capital goods from West German
manufacturers to growing market
of Eastern Europe.

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Forfeiting
Forfeiter Exporter Importer Guarantor

ThemeGallery is a
Design Digital
A major bank Indicate
Content & Contents The original an
mall developed by
or financial employment
Guild Design Inc. drawee on internationally
institution in of forfeiter as debt recognized
the exporter’s payment instrument bank, if not a
country approach state bank

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Forfeiting transaction process
1. The exporter approaches the forfeiting house (or a

local bank) and presents export-related documents
for application
2. Once the usance debt instruments are accepted
and guaranteed by the importer and the guarantor.

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1. The exporter will conclude a forfeiting agreement

with forfeiter
2. The forfeiter will deposit proceeds to the exporter’s
account
3. When time is due, the forfeiter will claim payment
from the importer

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6. A note or bill purchase agreement executed

between the forfeiting company and the
exporter
7. Promissory notes or bill of exchange

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8. Guarantee or aval (an unconditional and

irrevocable guarantee written on the face of
a promissory note or bill of exchange)
9. Signature confirmations and authentications
10. Copies of necessary government approvals.

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Payment Problems
Bad Debt
Contract Negotiate

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Key terms
vAcceptance vCheck
vAnticipatory credit vClean bill
vBack-to-back credit vClean collection
vBeneficiary vClean credit
vBill of exchange

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Key terms
vConfirmed L/C vEndorsement

vDeferred payment vFactoring
vDocumentary letter of vForfeiting
credit vIrrevocable L/C

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Key terms
vPaying instrument vReciprocal credit

vPayment in advance vRed clause credit
vPayment term vRemittance
vPresentation vRevocable L/C
vPromissory note

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Key terms
vRevolving credit vStandby L/C

vSight draft vTenor
vSight L/C vTime/usance draft
vTranferable L/C

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INTERNATIONAL PAYMENT

Letter of Guarantee (L/G)

1 Identify the key issues in handling inter- payments

2 Understand use of paying instrument, B/L

3 Define the three basic terms of payment

29/07/2021 706026- Chapter 5: International payment 3

4 Compare & contrast characteristics of payment terms

29/07/2021 706026- Chapter 5: International payment 4

In what currency will the payment be made?

Who will bear the credit Risk?

What is the cost implication of each method of

Are there any political or legal risks?

29/07/2021 706026- Chapter 5: International payment 5

29/07/2021 706026- Chapter 5: International payment 6

Clean Bill vs Documentary Bill

Commercial Draft vs Banker’s Draft

Sight Draft vs Time Draft/ Usance Draft

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Seller deliver Buyer receive Buyer receiver

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Easy Seller Buyer

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According to time of payments

At Sight Bill Time Bill

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Collecting bank Presenting bank

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Collecting bank Presenting bank

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q Kinds of Collection of payment

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Collecting bank Presenting bank

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Easy Seller Buyer

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Document Collection Process

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D/P Documents Against Payment

D/A Documents Against Acceptance

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Buyer Bank Seller

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vUCP: Quy tắc thực hành thống nhất về tín dụng

vISBP: Tập quán ngân hàng tiêu chuẩn quốc tế

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Confirm Straight Revolving Back Standby

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Payment by T/T in advance. The Buyer must pay into

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