A.

BILL OF EXCHANGE (BE)

I. Definition
1. A bill of exchange is a financial instrument that is used in international trade and
commerce as a written order by one party (the drawer) to another party (the
drawee) to pay a specified sum of money to a third party (the payee) at a specific
future date. It is a legally binding document and serves as a form of credit or a
promise to make a payment. Bills of exchange are commonly used to facilitate
transactions between parties in different countries and can be a valuable tool for
managing trade credit and financing.
2. The parties involved in a bill of exchange transaction typically include:
 Drawer: The drawer is the party that initiates the bill of exchange by
creating and issuing it. This party is usually the creditor or seller who is
owed money by the drawee (debtor or buyer).
 Drawee: The drawee is the party to whom the bill of exchange is
addressed. This is typically the debtor or buyer who owes money to the
drawer. The drawee is the party responsible for making the payment
specified in the bill of exchange.
 Payee: The payee is the party to whom the payment specified in the bill of
exchange is to be made. The payee is typically the drawer or a third party
designated by the drawer. The payee is entitled to receive the payment on
the due date.
 Beneficiary: is the legal owner of the bill of exchange, and therefore has
the right to receive payment of the amount stated on the bill of exchange.
 Endorser / Assigner: is a person who transfers the beneficial rights of a
bill of exchange to another person by handover or by endorsement.
 Avaliseur: is any person who signs a bill of exchange except the drawer
and the drawee.
3. Characteristics and Features:
 Characteristics:
 Mandatory: A bill of exchange is an "unconditional order to pay money".
The person paying the bill of exchange must pay according to the content
stated on the bill and cannot use any of his or her own reasons to refuse to
pay the bill of exchange or the beneficiary, except in cases where the bill of
exchange is established contrary to the laws governing it.
 Abstraction: The reason for making the bill of exchange is not stated on
the bill of exchange, but only the amount to be paid and the contents related
 to the payment are recorded. The legal effect of a bill of exchange is also
not bound by any cause that created the bill of exchange. In other words,
the obligation to pay a bill of exchange is abstract.
 Circulation: Bills of exchange can be transferred one or more times during
its term. A bill of exchange has this nature because a bill of exchange is an
order demanding money from one person to another. There is a certain
monetary value on the bill of exchange and the bill of exchange is
mandatory and abstract.
 Features:
 Bill of exchange is a means of payment: a bill of exchange is a means to
help the seller collect money from the buyer and help the remitter repay the
seller;
 A bill of exchange is a means of security: a bill of exchange is a valuable
document so it can be bought, sold, pledged, mortgaged, etc.
 Bill of exchange is a means of providing credit: Because a bill of exchange
is a valuable document, it can be an effective tool in providing commercial
credit and bank credit.

II. Bill of Exchange Format

1. Title: The document should be clearly titled as a "Bill of Exchange" to indicate its
nature.
2. Date: The date on which the bill of exchange is issued. This is often referred to as
the "date of issue".
3. Amount, Currency: The total amount of money to be paid, which is specified
both in numerals and words. This is the principal amount of the bill.
4. Maturity Date: The date on which the payment becomes due and the drawee is
required to make the payment to the payee. This date is usually specified in the bill
of exchange and is sometimes referred to as the "due date" or "sight"
5. Number of originals: sole or first/second
6. Pay to the order of: if issued to own order - endorsement required, is exporter’s
bank
7. The amount in words
8. Reference to credit: the sign is “Drawn under…dated” or “Value received as per
our invoices No…dated”
9. Drawee: name and address of the drawee
In the D/A or D/P payment method, the person paying the bill of exchange is the
importer.
In the L/C payment method, the person paying the bill of exchange is the bank
opening the L/C.
10. Drawer: The signature of the drawer to be effective must be the signature of a
person with full legal capacity and capacity. The signature must be written in the
lower right corner of the bill of exchange and the person signing the bill must sign
 with a signature commonly used in transactions. Signatures printed, photocopied
and stamped... that are not handwritten have no legal value.
 Acceptance: In some cases, the drawee must formally accept the bill of exchange
to acknowledge their obligation to pay. If required, there is usually a space for the
drawee to sign and date their acceptance.
 Endorsement: If the payee wants to transfer the bill to another party before the
maturity date, they can endorse the bill on the reverse side. This allows for the bill
to be negotiated or traded.
 Terms and Conditions: Any additional terms and conditions agreed upon by the
parties may be included in the bill of exchange.

III. Types of Bill of Exchange

 Documentary Bill - A documentary bill of exchange is accompanied by relevant
shipping or trade documents, such as a bill of lading or invoice. These documents
provide proof of the underlying transaction, making it a secure form of payment in
international trade.
 Demand Bill - This bill is payable when it is demanded. The bill does not have a
fixed date of payment, therefore, the bill has to be cleared whenever presented.
 Usance Bill - A specific type of time bill where the payment is due at a future
date, typically a certain number of days after sight or acceptance. These are
common in international trade to accommodate shipping and delivery times.
 Inland Bill - An inland bill of exchange is used in domestic transactions within a
single country. It is not associated with international trade and doesn't involve
foreign exchange considerations.
 Clean Bill - A clean bill of exchange is not accompanied by any supporting
documents or shipping-related documents. It relies solely on the creditworthiness
of the parties involved. Often used in financial transactions and are less common
in trade.
 Foreign Bill - A foreign bill of exchange is used in international trade when the
parties involved are from different countries, and the payment is made in a foreign
currency. These bills may involve additional complexities due to exchange rate
considerations.
 Accommodation Bill - A bill that is sponsored, drawn, accepted without any
condition.
 Supply Bill - The bill that is withdrawn by the supplier or contractor from the
government department.

IV. Importance of Bill of Exchange

The need and importance of Bills of Exchange are most evident when there is export
involved. There are some risks related to exports of products which domestic businesses
are not aware of. A Bills of Exchange can help in countering some of those risks related
to the export of goods. Some of them are:

 The constant fluctuations in the rate of exchange can adversely affect long term
trading arrangements. In such a scenario, the fixed term of payment which is laid
out in a Bills of Exchange can give assurance to the exporters of receiving a fixed
price.
 The exporter is also getting protection with a Bills of Exchange. The exporter can
draw up a Bills of Exchange with their bank and submit it to the importer’s bank.
This way, exporters gain an agreement in which they do not need to chase the
importer for payment in the event the company fails to honor the agreement.
 Adequate Time for Payment: Primarily Importers buying goods and services get
a sufficient time limit to pay for the purchase by negotiating in Bills of Exchange.
 The Bills of Exchange helps to enhance the per capita income of the country and
the government is benefited with the foreign trades.

V. Advantages and disadvantages of a Bill of Exchange

1. Advantages
 Legal evidence: A bill of exchange in export serves as a legally binding
document, providing strong evidence of the debt owed. In case of any
dispute or non-payment, the drawer can utilize the bill as proof to initiate
legal action and recover the amount due.
 Fixed amount and date: The clear specification of the amount and due
date on a bill of exchange ensures transparency and certainty for both
parties involved. This eliminates any ambiguity or confusion regarding the
payment obligations and facilitates proper financial planning.
 Discounting facility: One significant advantage of a bill of exchange is the
discounting option. If the drawer or holder requires immediate funds before
the maturity date, they can sell the bill to a bank or financial institution at a
discounted rate. This allows for early cash realization and improves cash
flow.
 Negotiable: A bill of exchange, particularly when payable to the bearer,
offers negotiability. This means that it can be transferred from one person
to another, settling debts or facilitating trade transactions. The negotiability
of bills of exchange enhances their liquidity and flexibility.
 Full credit period for drawee: The drawee, who is obligated to make the
payment on the due date, benefits from the full credit period granted by the
bill of exchange. They are not compelled to make the payment earlier than
the specified date, allowing them to manage their cash flow more
effectively and utilise the funds until the maturity of the bill.
 2. Disadvantage
 Limited suitability for long-term services: Bills of exchange are majorly
used for short-term transactions and may not be an ideal option for long-
term financial agreements.
 Drawee’s responsibility for timely payment: The drawee is obligated to
pay the amount specified in the bill by the due date, which can put pressure
on their financial resources and cash flow management.
 Unsuitability for banking services: Bills of exchange are generally
considered unsuitable for various banking services due to their inherent
complexities and limited flexibility compared to other financial
instruments.
 Additional burden with bill discounting: If a bill of exchange is
discounted, the drawee may incur additional costs or fees, adding to their
financial burden.

VI. Notable elements of B/E in Vietnam

1. Obligations of drawers:
 The drawer shall be obliged to pay the sum in the bill of exchange to the
beneficiary when the bill of exchange is dishonored by non-acceptance or
by non-payment.
 Where the endorser or the guarantor has made payment of the bill of
exchange to the beneficiary after the bill of exchange was dishonored by
non-acceptance or by non- payment, the drawer shall be obliged to pay the
sum stated on such bill of exchange to the endorser or the guarantor.
2. Payments of bill of exchange:
 The drawee must pay, or refuse to pay a bill of exchange to the beneficiary
within three working days from the date of receipt of the bill of exchange.
Where a bill of exchange is presented by registered mail via the public
postal network, such period shall commence from the date on which the
drawee signs [a record] for certification of the receipt of the bill of
exchange.
 When a bill of exchange has been paid out in full, the beneficiary must
deliver the bill of exchange together with any additional sheets attached to
the payer.
 A bill of exchange shall be deemed to be dishonored by non-payment if the
payee is not paid in full the sum stated in the bill of exchange within the
period specified in article 44.1 of this Law.
 When a bill of exchange is dishonored by non-payment in part or in full for
the sum stated in the bill of exchange, the beneficiary may immediately
 have recourse to the preceding endorser, the drawer or the guarantor for the
unpaid amount in accordance with the provisions of article 48 of this Law.

3. Responsibilities of related person

 The drawer and endorser shall be jointly responsible for paying the
beneficiary the full sum stated in the bill of exchange.
 The acceptor and guarantor shall be jointly responsible for paying the
beneficiary the sum undertaken to accept or undertaken to guarantee.

B. BANKER’S ACCEPTANCE (BA)

I. Definition
1. Banker’s acceptance is a financial instrument in which a bank guarantees payment
to a third party at a future date rather than an individual account holder. It is often
used in sales transactions, which provides assurance to the seller that he will be
paid for the goods he sells to a purchaser with whom he is not familiar.

2. How does a banker’s acceptance work?

The issuer of a banker’s acceptance deposits the future payment with a bank.
The bank charges a small fee and issues a time draft against the deposit,
representing a guaranteed future payment by the bank.
Upon acceptance from the bank, the ability transfers from the issuer of the
banker’s acceptance and becomes an obligation of the bank. As such, the credit
rating of a banker’s acceptance is generally the same as that of the bank that
promised the payment.
 Basically, BAs help boost trade by reducing transaction-related risks.

II. Features of a banker’s acceptance

 Time draft: A banker's acceptance is a time draft or a post-dated check drawn on
a bank, which signifies the bank's commitment to pay the specified amount at a
future maturity date.
 Short-term instrument: Banker's acceptances typically have a short-term
maturity period, usually ranging from 30 to 180 days. This makes them suitable
for financing trade transactions and working capital needs.
 Risk reduction: By accepting a time draft, a bank adds its creditworthiness to the
transaction, reducing the risk for the parties involved. The bank guarantees the
payment upon maturity, which gives confidence to the seller.
 Wide acceptance: Banker's acceptances are widely accepted and negotiable
instruments that facilitate international trade. They help provide a measure of
financial security to sellers, as they can be easily sold in secondary markets if
immediate funds are required before the maturity date.
 Secondary market trading: Banker's acceptances can be traded in the secondary
market, providing liquidity to investors who may want to buy or sell these
instruments before their maturity. This allows for more flexibility in managing
cash flows.
 Credit enhancement: Banker's acceptances are often considered low-risk
financial instruments due to the involvement of banks. This can enhance credit
ratings and enable borrowers to access more favorable financing terms.

Overall, banker's acceptances provide a reliable means of facilitating international trade,

reducing risk, and offering financing opportunities for businesses.

III. Banker’s acceptance as Checks

Banker's acceptances, like certified checks, are a relatively safe form of payment for both
sides of a transaction. The money owed is guaranteed to be paid on the date specified on
the bill.
 Post-dated instrument: The use of BAs is most common in international trade
transactions. A buyer with an importing business can issue a banker’s acceptance
with a date after a shipment is due to be delivered, and the seller with an exporting
business will have the payment instrument in hand before finalizing the shipment.
 Negotiability: The person who is paid with a banker's acceptance may hold onto
it until its maturity date in order to receive its full value or can sell it immediately
at a discount to face value.

While both banker's acceptances and checks are payment instruments, their issuance
process, underlying purpose, and legal framework differ significantly. Unlike a regular
check, a banker’s acceptance relies on the creditworthiness of the banking institution
rather than the individual or business that issues it. The bank requires that the issuer meet
its credit eligibility requirements, typically including a deposit sufficient to cover the
banker’s acceptance.

IV. Banker’s acceptance as Investments

Banker’s acceptances are exchanged in a liquid secondary market and are traded like debt
instruments. The instruments are traded through banks and securities dealers and cannot
be purchased on an exchange. The BA is sold below face value, at a discount determined
by the length of time before the maturity date.

The holder of a banker’s acceptance can either hold the instrument until maturity and
receive the face value of the security or sell the security before its maturity, at a discount.
The strategy is similar to the one involved in trading zero-coupon bonds.

Since the instruments promise a payment from a financial institution, they are considered
relatively safe.

V. Advantages and disadvantages of a banker’s acceptance

1. Advantages
 It has a relatively low cost compared to the benefit provided.
In most cases, the cost of issuing a banker’s acceptance is the same as taking a
short-term loan. In a few cases, it may even be lower than taking a short-term loan.
The end result is that the overall cost of funding is low making this instrument
more desirable.
 The exporter is assured about its payment, and the importer doesn’t have to
prepay or pay in advance for goods.
The exporter is comfortable providing their goods on credit since they have the
acceptance of a large financial institution. As a result, the entire transaction is
considered to be secured since it is being monitored and executed by a financial
behemoth.
 BAs’s liquidity is supported by a large secondary market.
The inclusion of a large third-party financial company means that a large number
of parties are willing to hold the banker’s acceptance. This increased liquidity
which results from the bank’s endorsement is what results in the creation of a
money market security.

2. Disadvantages
 The buyer may default, forcing the financial institution to make the payment.
The primary risk of a financial banker is the inability to pay the account holder.
The banker has accepted the risk of default. The bank will have to honor the
 payment even if the account holder does not maintain sufficient funds on the
payment date.
 The bank may require the buyer to post collateral before issuing the banker’s
acceptance.
Banks do not generally easily hand out banker’s acceptances. They often conduct a
thorough check of the borrower’s business. This could be a time-consuming
process. In addition, the bank may ask the borrower to deposit collateral before
they can issue the banker’s acceptance.