Chaper 6

INTERNATIONAL
PAYMENT
MSC Tăng Minh Hưởng
 What is money?
• It is a special commodity that serves as a
common medium of exchange for trading
with other types of goods.
• It has the highest liquidity.
• Gold is a very special type of money that
can be used for buying and selling
transactions in most countries.

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 International currency
• . Trademark: ABC (according to ISO standards) International Standard Organization.
A: Country code according to ISO standards.
B: Currency used in that country.
For example: VND
• VN Dong => VND ID Rupiad => IDR LA Kips =>LAK
• CN Yuan => CNY JP Yuan => JPY CA Dollar=>CAD
• KR Won => KRW TH Batt =>THB DE M => EUR (Đồng tiền chung)
• HK Dollar =>HKD GB Pound => GBP NL; TL
• IN Rupee => INR SG Dollar =>SGD AU Dollar =>AUD US Dollar =>USD

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 Writing of amounts:
• In figures: Thousands and hundreds are separated by a comma ",", and decimal parts
are indicated by a period "."
• USD123.000,24 => WRONG
• USD123,000.24 Định dạng Excel: Accounting Decimal : 2
• USD1,000,000.00

• In words:
• United states dollars one million only (chẵn)
• ....TWELVE CENTS ONLY => WRONG

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 IMF - International Monetary Fund
• USD (US) GBP (UK) JPY (JP)
• EUR (DE) CNY (CN)
• This is the 5 most powerful foreign currencies in the world, widely used in international trade.
• Related to INTERMEDIARY BANKS serving the payment process.
• INTERMEDIARY BANKS: Large, reputable banks in the world are often located in the 5
aforementioned countries and are considered BANKS OF BANKS.

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 International payment methods/tools
• Cash
Less commonly used:
Risks due to high liquidity of currency.
Money can be counterfeited, lost...
Very strict foreign exchange control policies
of both exporting and importing countries.
• Goods
Counter-trade - trading goods for goods.
• Cheque
• Promissory Note
Issued by importer, acknowledging debt and
commitment to pay the exporter in the
future.

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 Bills of Exchange (B/E) – DRAFTS
• General Characteristics
• Drawn by the Exporter (issuer) demanding payment from the Importer/banks serving
importation.
• Characteristics:
• Drafts are divided into 2 types (Tenor - Maturity):
• Sight Drafts: Used in international payment methods (IPM) for immediate
payment (D/P, L/C at sight). Identifying marks: Draft at sight (D/P, L/C at
sight).
• Usance Drafts: Used in IPM for deferred payment (D/A, Usance L/C).
Identifying marks: Draft At xx days after/since + specific time milestone.
Example: Draft At 120 days after Bill of Lading’s date. Draft At 90 days since
Commercial Invoice’s date.

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 Bills of Exchange (B/E) – DRAFTS
• Quantity: Drafts have 1 original copy (original) or 2 original copies (first bill of
exchange/second bill of exchange or marked as 1, 2 in the background).
• Promissory notes can have a name or can be blank.
• Must have an issuance date, must be signed, no mandatory requirement for a seal.
• No alterations allowed on the promissory note, if there are errors, the promissory note
must be voided and a new one issued.
• Format: Promissory notes follow the bank's template or are designed by the exporter,
containing all necessary content of the promissory note.

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 Contents:
• Name
• Number: No. = Commercial Invoice Number Sales Contract
• Importer
• Importer’s bank = Issuing bank of L/C = Field 42A/C Drawee of LC
• TENOR: Maturity of Draft
• Immediate payment: At sight
• Deferred payment: At xx days after/since + specific time milestone
• Country
• Demand for payment
• Exporter
• Exporter’s bank
• Place and date of issue

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 Remittance Method (T/T) (Telegraphic Transfer)

• T/T is divided into 2 types (based on the delivery time):

• T/T in advance
• T/T within xx days after/since + specific time milestone
VD: Contract amount : USD100,000.00
Method of payment: Remittance (Telegraphic Transfer)
Number of payment: Two times
1st Payment: 10% of total contract amount (equivalent to usd10,000.00) will be made
within 03 working days from the date of signing this contract (T/T in advance)
2nd Payment: 90% of total contract amount (equivalent to usd90,000.00) will be made
within 120 days from the date of Bill of Lading (T/T xx days after/since+ 1 mốc time)

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 Note
•EXPORT DOCUMENTS are sent directly from the exporter to the importer through Courier Parcel
Network (DHL, TNT, FEDEX...) (Direct dispatch without involving banks).

•T/T in advance benefits the exporter but disadvantages the importer. Conversely, deferred payment
benefits the importer. The longer the tenor for deferred payment, the more advantageous it is for the
importer. For example, T/T within 120 DAYS AFTER SHIPMENT DATE is highly beneficial for the
importer.

•Remittance: APPLICABLE only when the parties trust each other or the contract is of low value (<
USD10,000.00).

•Down Payment/Deposit:
•For Exporter: i) Need money for production – purchase of raw materials, machinery, hiring labor.
ii) To avoid stockpiling of orders.
•For Importer: i) Loss if goods are not shipped, exporter retains the money. ii) If no money
transferred, exporter does not accept, order fails. Approaches to dealing with agreements for T/T
in advance and T/T deferred payment:

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 T/T in advance
T/T in advance: The importer transfers a deposit to the exporter when:
i) The exporter has a reputable partner.
ii) The importer only transfers the deposit to the exporter under the condition that the exporter
requests the bank to serve the exporter by opening an Advance Payment Guarantee (APG). The
APG has a value equal to or greater than the deposit amount and is effective before or coincides
with the time the importer pays. Note: The APG is issued by a reputable bank in the exporter's
country. If the exporter defaults, the bank issuing the APG is obligated to reimburse the importer.

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 T/T deferred payment
T/T deferred payment: The exporter delivers the goods and allows the importer to pay later
when:
• The importer has a reputable partner. The exporter only allows deferred payment under the
condition that the importer requests the bank to serve the importer by opening a Payment
Guarantee (PG). The PG has a value equal to or greater than the deferred payment amount.
• Note: The PG is issued by a reputable bank in the importer's country. If the importer defaults
and fails to pay, the bank issuing the PG is obligated to pay the goods to the exporter.

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 2. Collection
A, Classification of documents
• Financial Documents –F/D: B/E – Hối phiếu – Drafts.
• Commercial Documents – C/D). Include:
Commercial Invoice
Packing list/Detailed Packing List
Certificate of origin
Certificate of Insurance/Insurance Policy
Transport Documents:
+ Air: Air Waybill
+ Sea: Bill of lading
+ Railway: Rail waybill
+ Road: Cargo Receipt/Goods Receipt/Consignment Note
Fumigation Cert
Phytosanitary Cert
Catch Cert
Health Cert
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 2. Collection
Classification of Collection
• Clean Collection:
• EXPORT DOCUMENTS sent by the exporter through the bank will only include
financial documents (Bills of Exchange) (F/D).
• EXPORT DOCUMENTS prepared and sent by the exporter through the bank to the
importer will only consist of bills of exchange.
• Other documents from the exporter are still sent directly to the importer through
the Courier Parcel Network.

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 2. Collection
Documentary Collection.
EXPORT DOCUMENTS include commercial documents (C/D) attached or not attached with financial documents (F/D).
Example: The following EXPORT DOCUMENTS presented (sent through the bank) belong to clean collection or documentary
collection?
Ex1
B/E
Commercial Invoice
Packing list
Certificate of origin...
=> Answer: ????
Ex 2
Commercial Invoice
Packing list
Certificate of origin....
=> Answer : ????
Ex 3
B/E
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 2. Collection
• Clean Collection or Documentary Collection is negotiated between the exporter and importer and must be
specified when signing the contract, which should be explicitly stated in the payment terms.
• Documentary collection with accompanying documents is divided into the following two types:
• i) D/P: Documents against Payment. The importer pays immediately along with the sight draft. (The
importer pays money to the bank to exchange for the collection documents to take possession of the
goods).
• ii) D/A: Documents against Acceptance. The importer pays later along with the time draft (draft at xxx
days from/since + specific time milestone). The importer accepts payment/acknowledges payment to
exchange for the collection documents to take possession of the goods. The importer requests the bank to
send them the drafts for deferred payment. Upon receiving these drafts, the importer will proceed to sign
acceptance on the back of the deferred payment draft, providing a signature of acceptance to exchange for
the collection documents to obtain the goods.
• For example, a deferred payment draft with acceptance may be as follows:
Accepted on 11th Sept, 2023
On behalf of Vinamilk
CEO Mai Kieu Lien

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 Note

• D/P benefits the exporter, while D/A benefits the importer.

• Regarding D/A: Upon maturity (DUE DATE = MATURITY DATE), if the importer fails to
make payment, all banks including the presenting bank and remitting bank are relieved
of responsibility.
• Both the importer and exporter will adhere to the provisions stipulated in the contract
to resolve the matter.

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 Letter of Credit (L/C) (D/C: Documentary credit)
• It is a written commitment from the issuing bank (IB – Opening bank: OB) to the exporter. Content:
The IB promises/commits to pay the exporter under the condition that the exporter presents a
complete set of documents in accordance with the LC issued (not with the contract). To receive the
payment:
• Required condition: The exporter prepares a set of documents to demand payment.
• Sufficient condition: The set of documents must be perfect in accordance with the LC

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 Letter of Credit (L/C) (D/C: Documentary credit)
• Major banks: JP Morgan Chase, Bank of New York, Citibank, HSBC, Commercial Bank, ANZ, BNP
Paribas, Wells Fargo, ICBC, Shinhan Bank, Sumitomo Bank, Mizuho Bank, United Oversea
Bank...
• Compliant documents / complying documents – These are documents without errors, perfect,
and suitable.
• Discrepant documents – These are documents with errors, inconsistencies, and not suitable.
Discrepancy.

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 Letter of Credit (L/C) (D/C: Documentary credit)
• The international trade contract (ITC) is an agreement negotiated and signed between
the exporter (XK) and the importer (NK). The ITC clearly specifies the payment method,
such as L/C.
• In the ITC, a single payment method can be used or multiple international payment
methods can be used together.
Example: Contract amount: USD100,000.00
1ST PAYMENT: T/T IN ADVANCE: 10% of the contract amount
2ND PAYMENT: L/C: 90% of the contract amount

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 Letter of Credit (L/C) (D/C: Documentary credit)
The importer requests the issuing bank (IB) to issue the L/C.
The LC opening file includes:
• ITC (International Trade Contract)
• L/C opening request form
• The Export Department is responsible for filling in these documents.
• Credit agreement (CA)
• Foreign exchange purchase contract
=> Source of funds for opening L/C. The Accounting Department is responsible for filling
in these documents.

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 Letter of Credit (L/C) (D/C: Documentary credit)
• Transferable: Can be transferred, used in three-party transactions.
• Confirmed: L/C confirmed.
• Expiry Date & Place:
• Place: Country of the exporter.
• Expiry date = Latest shipment date + 21 days (typical period for export documentation
completion to claim payment) + 10 days (Bank serving the exporter, serving the
importer to process documents) + 7 days (express delivery time to transfer documents
from the exporter's country to the importer's country) + 10 days reserve.
• L/C opening fee = LC value * (Expiry date - Date of issue) * LC opening fee rate.
• Period for presentation: Maximum time for the exporter to prepare the documents to
claim payment.

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 Source of funds for opening L/C:
Funds from the company - Importer:
• Example 1: If the LC to be opened is valued at USD 100,000.00 and the company's USD account
has USD 300,000.00, the importer requests the bank to hold/block/freeze USD 100,000.00 to use
as collateral to open the LC => Open LC using the company's collateral funds.
• Example 2: If the LC to be opened is valued at USD 100,000.00 and the USD account has 0 USD,
but the importer's EUR account has 500,000.00 EUR, the importer requests the bank to execute
a FX contract (sell EUR, Buy USD) to have 100,000.00 USD in the account => Request the bank to
hold/block/freeze USD 100,000.00 as collateral to open the LC => Open LC using collateral funds.

Borrowed funds from the bank (Importer signs Credit Contract with the Bank):
• Unsecured loan (A form of loan without collateral) – High interest rate for lending. High Risk –
High profit.
• Secured loan (Collateral: raw materials, factories, machinery, real estate ... A form of loan with
collateral that reduces the bank's risk compared to unsecured loans) – The interest rate for
secured loans will be lower than unsecured loans.

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 Note
• Opening L/C with company funds: Quick L/C opening procedure, low opening fees.
• Opening L/C with borrowed funds: Lengthy L/C opening procedure, high opening fees.
• Opening L/C in practice is a combination of the two sources above. The most common
ratio is (10% company reserve, 90% borrowing).

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 IB/OB can open an LC using one of the following methods:
• Mail (Hard copy)
• SWIFT message (a software system for interbank communication): Common SWIFT
message types used in Documentary Credits (L/C) (MT7XX message group):
• MT202: Payment message (T/T: MT103)
• MT700: Letter of Credit issuance
• MT701: Amendment of a Letter of Credit (in cases where MT700 is too long and
needs to be forwarded to MT701).
• MT710/MT711: Transfer of L/C
• MT707: Amendment to a Letter of Credit
• MT730: Advice of discrepancy and amendment of LC
• MT734: Advice of refusal of payment of documents - documents contain
discrepancies.
• MT742: Interbank reimbursement demand message.
• MT756: Advice of payment of documents under LC.
• MT799: Free format text - Used for free text in LC.
• MT 910: Confirmation of advice of payment.
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 SWIFT code
• SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication.
• Members: Banks.
• When joining the SWIFT organization, banks are assigned a SWIFT CODE (the SWIFT code of
each bank, with each bank having only one SWIFT code). SWIFT CODE = BIC = Bank Identifier
Code The code consists of 8 or 11 characters:
• 8 characters – Head Office (H.O)
• 11 characters – Branch Example: BFTVVNVX001 = SWIFT CODE of the SGD branch of VCB
BFTVVNVX = SWIFT CODE of the Head Office of VCB BFTVVNVXXXX = SWIFT CODE of
the Head Office of VCB
• BFTV: Abbreviation of the VNNT bank
• VN: Country code according to ISO
• VX: Location code
• 001: Branch code Example: BIDVVNVX120 = SWIFT CODE of the SGD branch of BIDV
BIDVVNVXXXX = SWIFT CODE of the Head Office (TSC) of BIDV BIDVVNVX = SWIFT
CODE of the TSC of BIDV

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 Types of L/C
• Irrevocable: Cannot be revoked. Once created, it can only be cancelled with the
agreement of ALL of the following parties:
• Applicant (Importer - the party requesting the L/C to be opened)
• Issuing bank/Opening bank (NHPH)
• Beneficiary (Exporter - the party to whom the L/C is payable)
• Confirming bank (if applicable)
• Revocable: Can be revoked. Once created, it can be cancelled with the agreement of
ONLY ONE of the following parties:
• Applicant (Importer - the party requesting the L/C to be opened)
• Issuing bank (NHPH)
• Beneficiary (Exporter - the party to whom the L/C is payable)
• Confirming bank

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 L/C payment process
1. The serving bank for the exporter (Union Bank) notifies the Letter of Credit (LC) to the exporter and
carefully checks its content.
2. The serving bank requests the importer to amend the LC.
3. The exporter delivers goods to the carrier to obtain transport documents.
4. The exporter prepares the document set and sends it to the serving bank to demand payment.
5. The serving bank generates a payment demand letter and includes it in the document set to be sent via
courier service to the presenting bank.
6. The Issuing Bank (IB) inspects and notifies the discrepancy status of the document set to the presenting
bank:
1. The IB requires a maximum of 5 business days to inspect the documents.
2. Within this period, the Presenting Bank (PB) must take one of the following actions:
1. Decision 1: Process the LC payment immediately or accept deferred payment terms if the
document set matches the issued LC. Failure to comply by Friday results in a penalty for late
payment.
2. Decision 2: The IB must refuse payment for discrepant documents. If rejection occurs after
Friday, the IB loses the right to reject and must handle the document set as if it were compliant,
regardless of actual discrepancies.
7. The IB directly confirms or rejects payment to the serving bank:
1. The IB directly confirms payment to the serving bank via MT202.
2. If processed through a second tier, the IB sends MT756 to the serving bank and MT202 to the
Transferring Bank (TB) to proceed with the transaction.
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Addserving
a footer bank for the exporter (Union Bank) records the credit in the exporter's account.
 Handling Documents with Errors
• Exporter (XK):
• Option 1: Amend the export documents to match the LC (documents with errors will be corrected, and the amended
documents will be sent through the same channel as the original documents). Example LC: 10,000 MT RICE
Exporter's Document Set: Commercial invoice: 10,000 mt rice. Packing List: 1,000mt rice => Packing List is
incorrect => Prepare a new Packing List and submit it as supplementary/replacement documents through the original
document channel.
• Option 2: Amend the LC (requested by the importer through the issuing bank) to match the documents. Example
LC: Latest shipment date: 10th June 2023 Exporter's Document Set: Bill of lading: Shipment date: 15th June 2023
=> Bill of Lading is incorrect (Late shipment)
• Attempt to amend the Bill of Lading => Shipping company refuses to make changes
• Exporter convinces Importer to request Issuing Bank to amend the LC => Amend the latest shipment date on the LC
to 30th June 2023 => Documents become compliant
• Option 3: Exporter does not request the Importer through the Issuing Bank to amend the LC, and the Exporter does
not correct the documents => Exporter requests the Importer to accept any errors in the documents for the delivery
of goods and proceed with the payment. Note: Importer agrees to the payment, but the exporter still incurs a
discrepancy fee deducted by the Issuing Bank (50-200 USD per document set).

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 Handling Documents with Errors
• Importer (NK):
• Option 1: If the error in the document is minor (having minimal impact on unit price, quantity, quality,
time of delivery), the Importer should accept the documents with errors to proceed with receiving the
goods and making payment => NK SHOULD NEGOTIATE WITH THE EXPORTER for a price
reduction before accepting the documents and proceeding with payment (5%).
• Example LC: Rice. Moisture <2%
• Exporter's Document Set: Certificate of quality. Moisture = 2% => Document set has errors.
• Option 2: If the error in the document is significant (affecting unit price, quantity, quality, time of
delivery), the Importer should reject the documents, refuse to receive the goods, and refuse to make
payment.
• Example LC: Rice moisture <2%
• Exporter's Document Set: Certificate of quality. Moisture = 8% => Document set has errors.

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 Risk in Letter of Credit (L/C) Method
Exporter (XK): (Failure to receive payment)
• Exporter's Document Set contains errors:
• Enhance the professional competence of export staff.
• Hire a bank to serve the exporter in checking documents before sending them for
payment (Inspection fee: 5USD-200 USD).
Exporter's Document Set is perfect but unable to claim payment from the issuing bank:
• The issuing bank lacks credibility (has money but does not pay).
• The issuing bank lacks payment capability (bankruptcy, financial difficulties...).

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 Risk in Letter of Credit (L/C) Method
Mitigation Measures:
• Request the importer to open the L/C with a reputable issuing bank (the exporter can
request their serving bank to check the credibility of the issuing bank) => Cost-effective
method.
• Request the importer to open a confirmed L/C. In addition to the issuing bank, there
will be a Confirming Bank (CB) to guarantee payment to the exporter. The Confirming
Bank is a highly reputable and significant bank globally => The exporter benefits
significantly as the risk is minimal => The confirmation fee is very expensive, and it will
be borne by the exporter.
Example: L/C valued at 1.7 million USD. The confirmation fee is up to 17,000 USD.

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 Risk in the Letter of Credit Method
• Importer (Related to goods):
• The documents provided by the exporter are counterfeit. The issuing bank only
focuses on the surface of the documents, and if the documents comply with the LC,
the payment is executed.
• The documents are genuine, but the information on the documents differs from
reality. Example: For rice products, the actual moisture content is 5%, but the
exporter pays a company for inspection, which records 1.5% to comply with the LC.
• Preventive measures:
• Find international importers for cooperation => Most effective.
• Hire personnel, appoint representatives to participate in supervising and inspecting
the entire production, packaging, and transportation process => Effective method but
high cost.

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 Note
Based on the LC term, it is divided into two types:
• L/C at sight: It comes with a Sight Draft - The issuing bank makes immediate payment
within 5 working days if the documents are perfect.
• Usance L/C: It comes with a Time Draft - The issuing bank is obliged to make payment
on the due date/maturity date in the future if the documents are perfect (with D/A, it
may not be possible; until the due date, the presenting bank - the bank serving the
importer - may not make payment but still be exempt from responsibility).

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 Excercise
1. Read and translate the contract of Phu Nong.
2. Which party benefits from the international payment method in that contract, and
which party does not? In this case, which party will bear the risks?
3. As Phu Nong company, please fill in the following template forms:
• Money transfer order
• Foreign exchange purchase/sale agreement
• Letter regarding document debt.

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