Chapter 3 - Thanh toán quốc tế huflit

14/01/2024
INTERNATIONAL PAYMENT
PHAN VŨ NGỌC LAN – MDE

International Business
Administration Department
lanpvn@st.huflit.edu.vn
Chapter 3
METHODS OF PAYMENT
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In this chapter
1. Remittance
2. Open account
3. Collection
4. Cash against documents (CAD)
5. Documentary Credit (Chapter 4)
Objectives
By the end of this part, you will be able to:
 Identify international payment methods for

various trade transactions
 Recognize the risks and advantages of
payment methods for both buyers and sellers
 Choose the best method for each
international transaction
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1. Remittance
 Definition
 Parties involved
 Classifications
 Remittance procedure
 Advantage & risks
 When to use?
 Outward and inward remittance in
commercial bank
1.1. Remittance
 An arrangement whereby buyer requests his
bank to remit a fund to the account at seller's
bank.
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1.2. Parties involved

 Remitter / Applicant / Customer (Importer)
 Remitting Bank / Applicant Bank
 Beneficiary (Exporter)
 Beneficiary Bank
 Corresponding Bank / Agent Bank
1.3. Classification
Based on Forms of Remittance
 M/T: Mail transfer
 T/T: Telegraphic transfer
Based on Purposes of Remittance

 Trade remittance
 Non-trade remittance
 Remittance for Investment
 Others: FOREX Trading, Loan settlement ...
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1.3. Classification
Based on Time of Payment
 Payment in advance (before shipment)
 Payment at sight
 Payment after shipment
 Risk???
Remittance
Advantages Disadvantages
- No conditions and
connections between
- Fastest method
taking delivery of
- Simple Procedure
goods and payment
- Low fees
 risky for
seller/buyer
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1.4. Remittance Procedures

 Remitting Bank and Beneficiary Bank
maintain foreign account relations
 Remitting Bank and Beneficiary Bank DO
NOT maintain foreign account relations
11
Payment after shipment (Cash in advance):

Remitting & Beneficiary Bank maintain
foreign account relations
T/T ($)
Beneficiary
Remitting Bank
Bank
Debit note (- $)
Money Order
Credit note ($)
Goods + Docs
Beneficiary / Remitter
(Exporter) (Importer)
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Payment after shipment:

Remitting & Beneficiary Bank DO NOT
maintain foreign account relations
Agent Bank
Beneficiary Remitting Bank

Bank
Debit note ( -$)

Money Order
Credit note ($)
Goods + Docs
13

Questions: Procedures for:
 Payment at sight?
 Payment before shipment?
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Risk Comparison
INTERNATIONAL
METHODS OF PAYMENT
CASH IN ADVANCE
Note: SHIPMENT:
sending or
transporting st or
Source: World Bankthe goods shipped
15
PROCESS OF T/T IN ADVANCE

RiskINTERNATIONAL
Comparison
Please number the steps in the correct order
METHODS OF PAYMENT
( ) Ships the goods

( ) Sends out the docs
EXPORTER/ IMPORTER
SELLER /BUYER
( ) ( ) Sets up
Receives wire transfer
( ) Transfers
Jan-24 by pvnlan
Exporter’s bank Importer’s bank 16
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1.5. Advantages & risks

INTERNATIONAL
Risk Comparison
METHODS OF PAYMENT
Advantages Risks
17
1.6. When to use?

 REMITTANCE USAGE:
 Small payment (e.g. fees...)
 High degree of Trust
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1.6 When to use:

Risk Comparison
INTERNATIONAL
CASH-IN-ADVANCE USAGE
METHODS OF PAYMENT
Poor or unknown Small transactions Unique or high-

credit ratings of the demand products
buyer
A large buyer, a Lengthy/capital- In high-risk

small seller, a large intensive projects: countries: unstable
order A percentage of political/economic
payment made in conditions.
advance
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1.7. Outward and inward

remittance in commercial bank
 Outward remittance
 Inward remittance
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Outward vs Inward Remitance?
T/T ($)
Beneficiary Remitting
Bank Bank
Debit note (-$)

Money Order
Credit note ($)
Goods + Docs
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1.7.1. Outward Remittance

1. Receiving Money Order applications and
documents
2. Examining Money Order applications and
documents
3. Remittance by SWIFT (Society for
Worldwide Interbank and Financial
Telecommunication)
4. Filing
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CASH-IN-
ADVANCE –
EXAMPLE
PAYMENT
SWIFT
27
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CASH-IN-
ADVANCE –
EXAMPLE
PAYMENT
ORDER
28
1.7.2. Inward Remittance

Beneficiary Bank will:
 Receive Money order through SWIFT
 Make payment to Beneficiary
 Filing
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2. Open Account
 Definition
 Procedures
 Classification
 Advantage & risks
 When to use?
30
2.1. Definition
 An arrangement whereby the goods are
manufactured and delivered before payment
is required.
 “Purchase on open account means that the
buyer agrees to pay for goods ordered within
an agreed period of time after shipment.”
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2.1. Definition
Source: World Bank
32
Risk Comparison
2.1. Definition
INTERNATIONAL
METHODS OF PAYMENT
Terms of payment range from 30 days to 120

days after date of shipping invoice or receipt of
merchandise.
This payment method requires the seller to

extend a trade credit to the buyer whereby
payment is to be made after shipment.
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2.2. Parties Involved

 Remitter / Applicant / Customer
 Remitting Bank / Applicant Bank
 Beneficiary
 Beneficiary Bank
 Corresponding Agent Bank
35
2.3. Procedures
Agent Bank
Beneficiary T/T ($)

Remitting Bank
Bank
Debit note (-$)
Credit note ($)
Credit note ($)
Money Order
Goods + Docs
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2.4. Classification: Kinds of

Open Account Facilities
- Based on guarantee of solvency
+ Open account to be secured (by export credit
insurance / by a payment guarantee)
+ Open account to be naked
- Based on how to pay when due
+ Open account by collection
+ Open account by remittance
37

INTERNATIONAL
Risk Comparison
METHODS OF PAYMENT
Advantages Risks
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2.6. When to use?

 Internal use
 High degree of TRUST
40
Risk Comparison
2.6. When to use?

INTERNATIONAL
METHODS OF PAYMENT
For trade between parent and foreign

branch/subsidiary companies. Rarely used in
international trade between independent
exporters and importers.
For sales to well-established customers with good

credit ratings, not for unknown buyers.
For increasing sales by assisting foreign

distributors to start new, or expand existing,
product lines.
For testing-market a new product or trying a new

market in a different country.
41
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Risk Comparison
INTERNATIONAL
CASH IN ADVANCE & OPEN ACCOUNT

METHODS OF PAYMENT
- make it absolutely clear in the sales contract:
• When payment is due

1
• Where payment is going

2
• How payment to be made

3
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3. Collection
 Overview
 Procedures
 Collection operation at commercial banks
 Liability & responsibilities of banks
 Advantages & risks
 When to use?
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3.1. Overview
 Law governing
 Definition
 Classification
44
3.1.1. Law Governing

The Uniform Rues for Collection – URC (ICC)
 1956: issuance
 1967: revision
 1978: revision (URC No. 322)
 1995: revision (URC No. 522)
 eURC (addition to URC 522): ICC Uniform

Rules for Collections – Supplement for
Electronic Presentation Version 1.1
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3.1.2. Definition
"Collection" means the handling by banks of
documents as defined in sub-Article 2(b), in
accordance with instructions received, in order
to:
1 obtain payment and/or acceptance, or
2 deliver documents against payment and/or
against acceptance, or
3 deliver documents on other terms and
conditions.
(Article 2a – URC 522)
46
3.1.2. Definition
COLLECTION
Handling by banks of documents
In
Payment/ accordance
In order to
with
Acceptance obtain
collection
instructions
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Risk Comparison
3.1.2. Definition
INTERNATIONAL
METHODS OF PAYMENT
COLLECTION
The handling by banks

of documents in
accordance with
instructions received in
order to obtain payment
and/or acceptance
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3.1.2. Definition
“Documents" means financial documents and/or
commercial documents:
1. "Financial documents" means bills of
exchange, promissory notes, cheques, or other
similar instruments used for obtaining the
payment of money;
2. "Commercial documents" means invoices,
transport documents, documents of title or other
similar documents, or any other documents
whatsoever, not being financial documents.
(Article 2b, URC 522)
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3.1.2. Definition
Documents
Financial documents Commercial documents
Bills of exchange Invoices
Transport
Promissory notes documents
[document of title]
Cheques, etc. Packing list, etc.
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TRANSPORT
DOCUMENT
EXAMPLE:
BILL OF
LADING
needed to obtain
delivery/take
possession of the
goods
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3.1.3. Parties involved

 Principal (exporter): party entrusting the handling
of a collection to a bank;
 Drawee (importer): the one to whom presentation
is to be made in accordance with the collection
instruction.
 Remitting bank (exporter’s bank): the bank to
which the principal has entrusted the handling of a
collection;
 Collecting bank (importer’s bank): any bank,
other than the remitting bank, involved in
processing the collection;
 Presenting bank: collecting bank making
presentation to the drawee.
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3.1.3. Parties involved

Principal
[drawer]
Drawee
COLLECTION
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Parties to a collection
The bank Any bank, The one to

The party to which other than The whom
entrusting the the collecting presentati
the principal remitting bank on is to be
handling has bank, making made in
of a entrusted involved in presentati accordance
collection the processing on to the with the
to a bank handling of the drawee collection
a collection collection instruction
54
PRESENTATION
“The
procedure The procedure
whereby the whereby
presenting
bank makes
the
documents
available to to the
the drawee delivers the
drawee as documents
as instructed
instructed.”
(URC 522,
Art.5)
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3.1.4. Classification
 Clean Collection
 Documentary Collection
- Documents against Payment (D/P)
- Documents against Acceptance (D/A)
- D/OT (D/TC) – Documents against other
terms and conditions
56
3.1.4. Classification
TYPES OF COLLECTION
COLLECTION
Clean
Documentary collection:
collection
Documents
documents documents
against
against against
other terms
payment acceptance
& conditions
(D/P) (D/A)
(DOT/DTC)
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3.2. Procedures
 Clean Collection
 Documentary Collection
58
3.2.1. Clean Collection
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 "Clean collection" means collection of
financial documents not accompanied by
commercial documents.
(Article 2c, URC 522)
60

 The exporter despatches the goods and the
commercial documents directly to the importer
[rather than to his bank]
 Then he sends his bank the bill of exchange for
the value of the goods drawn according to the
sales contract, so that his bank can begin to
collect the due amount from the importer.
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Clean Collection
Collection Order +
Financial Docs
Remitting Collecting
Bank Bank
$$$ / Payment
Financial Docs
$$$ / Payment
$$$ / Payment
Application for
Informing
acceptance
Collection +
acceptance
acceptance
Exporter / Sales Contract Importer /

Seller /
Buyer / Drawee
Principal Goods +
Commercial Docs
62
3.2.2. Documentary Collection

"Documentary collection" means collection of:
1. Financial documents accompanied by
commercial documents;
2. Commercial documents not accompanied by
financialdocuments.
(Article 2d, URC 522)
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Risk Comparison
INTERNATIONAL
METHODS OF PAYMENT
A documentary collection is an order by the seller

to his bank to collect payment or acceptance of
payment from the buyer in exchange for the
transfer of documents that enable the holder to
take possession of the goods
64
CLEAN COLLECTION V.S

DOCUMENTARY COLLECTION
DOCUMENTARY
CLEAN COLLECTION COLLECTION
65
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CLEAN COLLECTION: Collection of
financial docs without commercial
docs
The commercial documents are sent
direct to the buyer, rather than to the
bank. And the B/E is sent to the
collecting bank for handling.
DOCUMENTARY COLLECTION:
Collection of commercial docs
with/without financial docs
The commercial documents
including or not including the B/E
are sent to the collecting bank
instead of the buyer
66

Clean Documentary
collection collection
Whom the seller
sends the docs?
Must the buyer

pay or accept to
pay in exchange
for the docs?
67
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 Under a documentary collection, the seller ships
goods to the buyer but forwards shipping documents
(including title document) to the forwarding
bank/remitting bank [the seller’bank] for transmission
to the collecting bank/presenting bank [the buyer’s
bank].
 The buyer’s bank is instructed not to transfer the
documents to the buyer until payment is made
(documents against payment, D/P) or upon guarantee
that payment will be made within a specified period of
time (documents against acceptance, D/A).
 Once in possession of the documentation, the buyer
may take possession of the shipment.
69

 An arrangement whereby the goods are
shipped and the settlement of Bill of
Exchange (Draft) is drawn by the seller on
the buyer, and document(s) is sent to the
seller’s bank with clear instructions for
collection through one of its correspondent
bank located in the domicile of the buyer.
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Documentary Collection
Collection Order + Financial
& Commercial Docs
Remitting Collecting
Bank Bank
$$$ / Payment
Commercial Docs
Commercial Docs
$$$ / Payment
$$$ / Payment
Informing
acceptance
Application for
acceptance
acceptance
Collection +
Financial &
Exporter / Sales Contract Importer /

Seller /
Buyer / Drawee
Principal Goods
71
Classification of Documentary
Collection
- D/P – Documents against payment
- D/A – Documents against acceptance
- D/OT (D/TC) – Documents against other
terms and conditions
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QUESTION:
Could you identify any differences between
them?
D/A D/P
73
D/P V.S D/A

D/P D/A
When must the
buyer pay?
Whom the seller
sends the docs?
What must the

buyer do in
exchange for the
docs?
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Collection – (D/P)
76
Collection – (D/P)
 The commercial documents [including transport
document needed to obtain delivery of the
goods] are released to the importer only upon
payment.
 Collections on D/P terms can leave the exporter
in effective control of the goods until payment.
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Collection – (D/A)
78
Collection – (D/A)
 The exporter despatches the goods and the
commercial documents to his bank
 He does NOT authorise release of the
documents until the importer accepts the bill of
exchange for payment at a definite future date.
 Unlike collections on D/P terms, collections on
D/A terms can NOT leave the exporter in
effective control of the goods
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3.3. Collection operation at

commercial banks
 Remitting bank
 Collecting bank
80
3.3.1. Remitting bank

 Receiving Documents for Collection
 Checking Documents (Application + Docs)
 Processing Documents (issuing Collection
order)
 Sending Documents and receiving feedback
 Informing results (payment and/or non-
payment) to customers
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3.3.2. Collecting bank

 Receiving and Checking Documents for
collection from foreign bank.
 Informing customers
 Payment and/or non-payment
 Filinh
82
3.4. Liability & responsibility of

Risk Comparison
INTERNATIONAL
METHODS OF PAYMENT
banks
In control of the title documents
Verification of documents received
Compliance with collection instruction
Banks act as agents for collection and assume

NO responsibility for the form, sufficiency,
accuracy, genuiness of any documents.
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Risk Comparison
INTERNATIONAL
3.4. Liability & responsibility of banks

METHODS OF PAYMENT
1. In control of the title documents

2. Verification of documents received: Collecting bank
must determine that the documents received appear to
be as listed in the collection instruction and advise without
delay the remitting bank of any documents missing.
3. Compliance with collection instruction: the collecting
bank is only permitted to act upon the collection instruction
sent by the remitting bank.
4. Banks act as agents for collection and assume NO
responsibility for:
a) The form, sufficiency, accuracy, genuiness of any
documents.
b) The consequences arising out of delay or for loss in
transit of any messages, letters, or documents.
(URC 522) & (Seyoum, 2014)
84

Risk Comparison
INTERNATIONAL
Advantages for both seller and buyer

METHODS OF PAYMENT
As the title to the goods is not transferred until the

draft is paid or accepted, both the buyer and seller
are protected.
Under the same set of procedural rules URC 522
Low transaction costs
Faster flow of transactions
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Exercise:
Risk Comparison
D/P & D/A – Analyze the advantages & risks

INTERNATIONAL
METHODS OF PAYMENT
Advantages Risks
87
3.6. When to use?

 Clean collection: High degree of Trust and /
or used for Goods of low value
 Documentary collection: Medium degree of
Trust
 When the buyer and seller have an established
and ongoing business relationship
 When the transaction does not require the
additional protection and expense of a
documentary credit.
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3.6 PRESENTATION &

COLLECTION INSTRUCTIONS
90
LISTS OF DOCUMENTS FOR

Risk Comparison
INTERNATIONAL
PRESENTATION
METHODS OF PAYMENT
Collection
instruction (a Bill of exchange Transport
must) (B/E) (not a must) documents (ex.
(Art. 2d, URC522) Bill of lading (B/L)
(Art. 4a, URC522)
Invoice Packing list Weight list
Analysis,
inspection, health,
Certificate of Insurance phytosanitary,
origin (C/O) document quantity, quality
and other
certificates
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Risk Comparison
INTERNATIONAL
METHODS OF PAYMENT
COLLECTION INSTRUCTION
NOTES: “All documents sent for collection

must be accompanied by a collection
instruction indicating that the collection is
subject to URC 522 and giving
complete and precise instructions.”
(URC 522)
92
Risk Comparison
A collection
INTERNATIONAL
instruction should contain:
• Details of the remitting bank (exporter’s bank), the
METHODS OF PAYMENT
1 principal (exporter), and the drawee (importer)
2 • Amount, currency, interest, and charges to be collected

• List of documents enclosed & the numerical count of
3 each document
• Terms and conditions upon which payment and/or
4 acceptance is to be obtained
5 • Terms of delivery of documents
6 • Charges and interest to be collected
7 • Method of payment and form of payment advice

• Instructions in case of non-payment, non-acceptance
8 and/or non-compliance with other instructions
9 • Name of a party to be contacted in case a problem arises
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COLLECTION –
Exercise
Application for
collection –
Please fill in
this Application
for collection
based on the
previous
collection
instruction
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Risk Comparison
Collection instruction
INTERNATIONAL
METHODS OF PAYMENT
95
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Risk Comparison
INTERNATIONAL
METHODS OF PAYMENT
Collection instruction
96
4. Cash Against Documents

(CAD)
 Definition
 Procedures
 When to use?
97
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4.1. Definition
 A mode of payment in which the importer,
based on sale contract, requests the
exporter’s bank to open a Trust account for
payment settlement when the exporter
presents the documents as agreed.
98
Risk Comparison
INTERNATIONAL
METHODS OF PAYMENT
4.1. Definition
1. Documents kept in the custody of a third party
(bank) and released only when payment has
been fulfilled. (like escrow)
2. Documents are simply released against
payment without including a Bill of
Exchange.
3. Does NOT provide the security of sight
documentary collection since it operates
according to local practice rather than a set of
rules.
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4.2. Parties involved

 Buyer
 Seller / Beneficiary
 Seller’s Bank / Beneficiary’s Bank
100
4.3. Procedure
Beneficiary
Bank
Informing
Docs
$$$
Beneficiary / Sales Contract Remitter

Goods
101
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4.4. When to use?

 Importer has a representative office at the
exporter’s country.
 Goods are rare or only supplied by a supplier.
102
THANK YOU FOR YOUR LISTENING
103
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References
1. Hinkelman, Edward G. A short course in International
payments. Fourth edition. World Trade Press. 2011
2. Belay Seyoum. Export-import theory, practices, and
procedures (third edition). Taylor & Francis, 2014
3. Jim Sherlock & Jonathan Reuvid. The Handbook of
International Trade - A Guide to the Principles and
Practice of Export (2nd edition). GMB Publishing Ltd.,
2008
4. RBS. Guide to international trade. N.d
5. Tran Hoang Ngan et al. Giao trinh thanh toan quoc te.
NXB Kinh te TPHCM, 2016
6. http://lnweb90.worldbank.org/ECA/Transport.nsf/0/786e3f9
Jan-24 pvnlan 104
f52ad321485256b7a0051b6be/$FILE/PAYMENTP.pdf
104
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14/01/2024

PHAN VŨ NGỌC LAN – MDE

 Identify international payment methods for

1.2. Parties involved

 T/T: Telegraphic transfer

Based on Purposes of Remittance

 Remittance for Investment

 Others: FOREX Trading, Loan settlement ...

 Payment after shipment

1.4. Remittance Procedures

Payment after shipment (Cash in advance):

Payment after shipment:

Beneficiary Remitting Bank

Debit note ( -$)

1.4. Remittance Procedures

 Payment before shipment?

PROCESS OF T/T IN ADVANCE

( ) Ships the goods

1.5. Advantages & risks

1.6. When to use?

1.6 When to use:

Poor or unknown Small transactions Unique or high-

A large buyer, a Lengthy/capital- In high-risk

1.7. Outward and inward

Outward vs Inward Remitance?

Debit note (-$)

1.7.1. Outward Remittance

1.7.2. Inward Remittance

 Make payment to Beneficiary

Source: World Bank

Terms of payment range from 30 days to 120

This payment method requires the seller to

2.2. Parties Involved

Beneficiary T/T ($)

2.4. Classification: Kinds of

2.5. Advantages & risks

2.6. When to use?

2.6. When to use?

For trade between parent and foreign

For sales to well-established customers with good

For increasing sales by assisting foreign

For testing-market a new product or trying a new

CASH IN ADVANCE & OPEN ACCOUNT

- make it absolutely clear in the sales contract:

• When payment is due

• Where payment is going

• How payment to be made

3.1.1. Law Governing

 1978: revision (URC No. 322)

 1995: revision (URC No. 522)

 eURC (addition to URC 522): ICC Uniform

Handling by banks of documents

The handling by banks

Bills of exchange Invoices

Cheques, etc. Packing list, etc.

3.1.3. Parties involved

3.1.3. Parties involved

The bank Any bank, The one to