DISERTATION INTERNATIONAL PAYMENT PREPARATION THE DOCUMENT PACKAGE AS LETTER OF CREDIT REQUEST

Explain how to write an application for L/C opening with a specific contract...15 CHAPTER 2: PREPARATION THE DOCUMENT PACKAGE AS LETTER OF CREDIT REQUEST 16 2.1.. In international tradin

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MINISTRY OF TRANSPORT VIETNAM MARITIME UNIVERSITY DEPARTMENT: FOREIGN TRADE

DISERTATION INTERNATIONAL PAYMENT

STUDENT: VŨ HOÀI NAM - 75949

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TABLE OF CONTENTS

ABBREVIATION 1

INTRODUCTION 2

CHAP 1: APPLICATION FOR LETTER OF CREDIT ISSUANCE 3

1.1 Fundamental theory on documentary credit 3

1.1.1 Documentary credit definition 3

1.1.2 Parties to a Documentary credit 3

1.1.3 Documentary credit procedure 5

1.2 Procedure to open a letter of credit 7

1.2.1 Conditions for opening letter of credit 7

1.2.2 Procedure to open a letter of credit 7

1.3 Filling in the application for letter of credit insuarance 10

1.3.1 Explain how to write an application for L/C opening with a specific contract 15

CHAPTER 2: PREPARATION THE DOCUMENT PACKAGE AS LETTER OF CREDIT REQUEST 16 2.1 Introduction to documents used in documentary credit 16

2.1.1 Overview of documents used in documentary credit 16

2.1.2 Bill of exchange 16

2.1.3 Commercial Invoice 17

2.1.4 Bill of lading 17

2.1.5 Insurance Documents 18

2.1.6 Certificate of Origin 18

2.1.7 Packing list 19

2.1.8 Other Documents (if any) 19

2.2 Standart for insuarance and examination of documents under UCP 600 iand ISBP 745 19

2.2.1 UCP 600 19

2.2.2 ISBP 745 25

2.3 Preparing the documents package base on the given LC 27

2.3.1 Bill of lading (B/L) 27

2.3.2 Bill of exchange (B/E) 28

2.3.3 Commercial Invoice 29

2.3.4 Certificate of origin 30

2.3.5 Packing list 31

2.3.6 Certificate of analysis 32

2.3.7 Insurance documents 34

2.3.8 Sale Contract 36

CONCLUSION 39

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CreditsInternational Standard Banking Practice for the

Credits

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After integrating into the international economy, Vietnam has achieved certain achievements To achieve this result, we cannot deny the great contributions of foreign trade - the bridge connecting the Vietnamese economy and the world economy The opening up of international trade and investment relations

increasingly widely requires the continuous development of relations of

international payment, currency and banking services

In international trading activities today, there are many payment methods such

as money transfer, collection request, opening a debit book, entrustment of

collection, guarantee of letters, credit and documents However, only the voucher credit payment method guarantees the highest benefit of both parties Payment by this method will strictly bind the seller and the buyer responsibility Therefore, theinternational payment course project has detailed details on the documentary credit method, providing useful knowledge for students

The project of international payment subject consists of two parts:

Chap 1: Application for letter of credit issuance

Chap 2: Preparation the document package as L/C request

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CHAP 1: APPLICATION FOR LETTER OF CREDIT

ISSUANCE1.1 Fundamental theory on documentary credit

1.1.1 Documentary credit definition

Documentary credit is an agreement in which a bank (which opens letters ofcredit) at the request of a customer (Letter of Credit) will pay a certain amount ofmoney to a third person (Beneficiary of letter of credit) or accepts a bill ofexchange drawn by a third party within such amount when he presents to thepaying bank a set of payment documents in accordance with the provisions setforth in the letter of credit

A letter of commercial credit (Letter Credit) or L/C is a legal document in whichthe bank opening an L/ commits to pay the seller if they present a set of paymentdocuments in accordance with the L/C L/C is formed on the basis of a salescontract After the bank has opened the L/C, the L/C is completely independentfrom the sale and purchase contract

Governing legal documents are Uniform Customs And Practice For

Documentary Credit UCP 400, UCP 500, UCP 600

1.1.2 Parties to a Documentary credit

There are four main parties to a basic documentary letter of credits transaction:a) Applicant (Buyer/ Importer)

Is the Buyer and importer of goods and services

+) Obligation:

between the exporter and the importer

L/C, pay and opposite

+) Benefit:

b) Beneficiary (Exporter/ Seller)

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Is the seller, exporter or the third person designated by the first beneficiary.

+) Obligation:

C, it must be corrected and delivered according to the L/C no delivery without orreasonable L/C

the documents must be in accordance with the L/C and entrust the collection bank.+) Benefit:

depending on the type of L/C)

c) Issuing bank (Opening bank)

Is the bank representing for the importer, the bank that provides credit to the exporter

+) Obligation:

the notification bank

test results that the bank will accept to pay If the voucher is consistent with the L/Cthen money will be paid and opposite

+) Benefit:

if the importer pays the payment, the document will be handed over to the importer

On the contrary, the bank has full rights to handle this shipment

d) Advising bank (Correspondent bank)

Is the bank in the beneficiary country person

+) Obligation:

the original L/C to the beneficiary person (the exporter);

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- When the bank opens pay (accept) or refuse, the advising bank will transfer the

money or notify the exporter

pay the exporter

+) Benefit:

- The bank will be charged fees, exempt from liability in case of force majeure

In addition to the above 4 objects, the voucher credit payment method may also

have banks such as confirmation banks if it is a confirmation letter of credit; being

the acquiring bank if the bank opening letters of credit does not directly pay but

appoints another bank to pay the exporter; negotiating bank; transfer bank

1.1.3 Documentary credit procedure

Thông báo

(Exporter)

terms between the exporter and the importer Then they sign a sales contract It is

important to stress here that letters of credit are not a sales contract Actually, letters of

credit are independent structures from the sale or other contract on which they may be

based Therefore, it should be kept in mindthat a good sales contract protects the party,

which behaves in goodwill against various kinds of risks

bank to issue a letter of credit The letter of credit application must be in accordance

with the terms of the sales agreement

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3 If the importer and its bank reach an agreement together on the workingconditions the importer’s bank (issuing bank) issues its letter of credit In case the

issuing bank and the exporter (beneficiary) are located at different countries, the

issuing bank may use another bank’s services (advising bank) to advise the credit

to the beneficiary

4 The advising bank advises the letter of credit to the beneficiary without any

undertaking to honor or negotiate The advising bank has two responsibility against

to the beneficiary Advising bank’s first responsibility is satisfy itself as to the

apparent authenticity of the credit and its second responsibility is to make sure that the advice accuarately reflects the terms and conditions of the credit received

from the advising bank If some disparities have been detected beneficiary shouldinform the applicant about these points and demand an amendment If letter of creditconditions seem resonable to the beneficiary then beneficiary starts producing thegoods in order to make the shipment on or before the latest shipment date stated in theL/C The beneficiary ships the order according to the terms and conditions stated in thecredit

requested by the credit and forwards them to the advising bank The advising bankpost the documents to the issuing bank on behalf of the beneficiary

the credit In addition, the governing rules, which are mostly latest version of the UCPare taken into account If the documents are found complying after the examination theissuing bank honors the payment claim The issuing bank makes payment for thebeneficiary via advising bank

clear the goods from the customs

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1.2 Procedure to open a letter of credit

1.2.1 Conditions for opening letter of credit

Writing the L/C opening request to send to the bank is an important stage of thedocumentary credit method because only on the basis of this paper does the bankhave a basis to open a letter of credit for the beneficiary exporter and then theexporter delivers the goods Legally, the request for opening L/C is a civil contract,

so the content of the document must be complete, accurate, clear, strict, avoidingmistakes that cause misunderstanding and confusion of interests and obligations ofthe parties involved

According to the regulations of the Bank for Foreign Trade of Vietnam, theapplicant for L/C opening in our country must:

form of the bank Then fill in the required content

the mandate must comply with the current authorization regulations in our country

authorization must follow the current authorization regulations in our country

credit, together with this paper, the importer must have 2 payment orders: 1 to payinterest on fee for opening L/C ,1 for deposit L/C issue

sign the last left corner of the L/C application form and specify the number of theopened L/C, date of opening The L/C is on the side of the bank's signature

Thus, this request for opening import credit has become a two-party civil contract,specifically it is seen as a special form of contract between the L/C applicant andthe bank

1.2.2 Procedure to open a letter of credit

Step 1: Preparing documents to open a letter of credit:

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• Sales project to payment import

Bank)

Step 2: Application for opening a letter of credit:

After preparing the full set of documents to apply for opening L/C, the importercarries this full set of documents to the bank for opening L/C In this bank, the staffwill give the application form for opening L/C to the importer (including at sightform and deferred form) According to the sales contract of their own and theexporter, the importer will fill in the application for letter of credit

Notice when appying for the letter of credit:

importer can add some content which take the benefit for the importer

of the importer If entrusted importing, application for L/C must be fully 4 signture:the signature of the director and chief accountant of entrusted importer and thesignature of director and chief accountant of the entrusted company

costly, the importer can fax the L / C application to the exporter for preview andconsultation

(if necessary) to protect their rights

Step 3: Depositing to open L/C:

Depositing to open L/C is considered a deposit that the importer uses to commit topaying all the money which the bank has already been in charge of paying theexporter The importer can deposit by cash, company assets or real property,…Now, The bank depends on payment reputation of the enterprise, the relationshipbetween enterprise and bank, the balance of exchange in the enterprise's account, theindebtedness, the feasibility in the project of imported goods of the

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importer to determine the deposit rate Normally, the importer has 3 cases todeposit:

the bank will deduct from the deposit account and transfer to the escrow account Theimporting department will directly make the money order to open L/C and thentransfer it to the Accounting Department for execution

the depositing of company will be solved by 2 ways:

Step 4: Issuing the Pre-L/C:

After the depositing was be done, the bank will issue the Pre- L/C to theimporter The importer will consider carefully the articles and conditions thatcoincide or not with the previous application L/C In case of any error,immediately, the importer must notify to the bank for editting

In case, there is nothing wrong, but the importer wants to edit the L/C, so theimporter has to do application for correction of LC with the law

Step 5: Payment opening L/C fee

Finally, after the all steps have been completed, the importer must pay theopening L/C fee to the bank The opening L/C fee depends on how the importerfulfills the deposit as well as if the importer wants to open L/C at sight or L/Cdeferred

After the payment of the opening LC fee, the bank will issue an official LC tothe importer Thus, the opening LC was completed

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The L/C opening fee depends on how the importer fulfills the deposit as well as

if the importer wants to open L/C at sight or L/C deferred

1.3 Filling in the application for letter of credit insuarance

Giấy đề nghị xin mở L/C.

GIẤY ĐỀ NGHỊ MỞ THƯ TÍN DỤNG KHÔNG HUỶ NGANG

APPLICATION FOR IRREVOCABLE DOCUMENTARY CREDIT

Kính gửi: NGÂN HÀNG TMCP XUẤT NHẬP KHẨU VIỆT NAM

Ngày(date):

50: Applicant:

ECOBA ENVIRONMENTAL

TECHNOLOGY CO.,LTD

5th Floor , Udic Complex

Building, Hoang Dao Thuy Str.,

Trung Hoa Ward., Cau Giay

Dist., Ha Noi, Vietnam

Credit to be issued by:

(air)mail full telex/SWIFT

40A: Credit type Confirmation

theTransferable

BeneficiaryApplicant

31D: Date and place of expiry: 2020220 IN

TAIWAN

32B: Curency code, Amount 57A: Advising bank: BANK OF

125,100.00

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41D: Available with any bank at your option

(unless otherwise stated below)

payment against presentation of documents

as specified below together with beneficiary‘s draft(s)

44A: Shipment from: TAICHUNG PORT,

TAIWAN

44B: For transportation to: ANY PORT(S)

IN HAI PHONG, VIET NAM

44C: Not later than: 200130

45A: Goods (Brief description without excessive details): Trade Terms

ORIGIN: TAIWAN

46A: Documents required:

notify ………

…110%…… of invoice value in the currency of the Credit, stipulating claims payable in Vietnam covering Institute Cargo clauses (all risk clause),

Shipping Advice sent by fax advising the Applicant of Shipment

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48 Period for presentation: Documents to be presented within…21… days

after shipment but within the validity of the credit

71B: All bank charges outside Vietnam are for the account of beneficiaryapplicant

All documents to be forwarded by the negotiating bank in cover(s) by unless other wise stated

Insurance is cover by us under general cover, policy No / policy is attached herein

Documentarty Credit is subject to Uniform Customs and Practice for

Documentary Credit 2007 revision No 600 published by ICC

Please debit all Documentary Credit issuing charges to our Account No

47A: Additional condition:

presented for LC issuing Bank`s file Otherwise USD 10.00 will be deducted from the proceeds

documents negotiated with discrepancys drawn under this credit Notwithstanding any instruction to the contrary, this charge should be for account of the beneficiary

5 This LC exclude the phrase “a place for presentation other than that of the issuing Bank is in addition to the place of the issuing Bank” in article 6DII of

UCP 600 All docs must be be presented to the negotiating Bank(s) at

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For bank use only

20: Số L/C Đại diện Công ty:

company:

Số tiền ký quỹ:

MarginChữ ký:

Signature

We hereby request you to issue an irrevocable documentary credit for ouraccount in accordance with the above instructions Our signature on this form isevidence of our confirmation and agreement to comply with and be bound by theGeneral Undertaking stated on the reverve side of this form We understand anaccept the The General Undertaking may be amended from time to time by theBank without prior notice and that we shall comply with and be bound by anysuch amended undertaking

CAM KẾT CHUNG

Để Ngân hàng thương mại cổ phầ n xuấ t nhậ p khẩ u Việt Nam (EB) pháthành Thư tín dụng (L/C) với các chi tiết ở mặt trước văn bản này, chúng tôi,Công ty chúng tôi cam kết:

Điều 1: Có đầy đủ giấy tờ thủ tục hợp pháp để nhận hàng như giấy phép kinh

doanh xuất nhập khẩu (đối với mặt hàng xin nhập khẩu), giấy phép của bộ Thươngmại (đối với mặt hàng quản lý bằng hạn ngạch), không nợ thuế xuất nhập khẩu

Điều 2: Nộp đủ tiền ký quỹ theo qui định của EB trước khi EB phát hành L/C.

Số tiền ký quỹ sẽ được chuyển sang thanh toán L/C khi đến hạn thanh toán

Điều 3: Uỷ quyền cho EB trích tiền từ tài khoản của chúng tôi để thu các phí có

liên quan đến giao dịch của L/C

Điều 4: Khi bộ chứng từ phù hợp với các điều kiện điều khoản của L/C được

xuất trình tại EB, chúng tôi cam kết thanh toán hoặc chấp nhận thanh toán vôđiều kiện toàn bộ trị giá L/C và tất cả các chi phí có liên quan đến L/C kể cảtrường hợp hàng hoá bị tổn thất một phần hay toàn bộ, hàng hoá không đếnđược hoặc không được phép nhập vào Việt nam vì bất cứ lý do gì

Do đó khi bộ chứng từ của người thụ hưởng phù hợp với các điều kiện và điềukhoản của L/C, EB được quyền trích tiền từ tài khoản của chúng tôi, hoặc chấp

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nhận hối phiếu đối với L/C trả chậm, hoặc cho vay bắt buộc để thanh toán choNgân hàng đòi tiền mà không nhất thiết phải thông báo hay chờ đợi sự chấpnhận thanh toán của chúng tôi

Điều 5: Chúng tôi cam kết sẽ mua bảo hiểm theo chỉ thị của EB cho lô hàng nhập

khẩu khi:

Trường hợp chúng tôi không mua bảo hiểm kịp thời, đề nghị EB tự động muabảo hiểm cho lô hàng và chúng tôi chịu trách nhiệm thanh toán phí bảo hiểm

Điều 6: Phần tiền chênh lệch giữa trị giá L/C và tiền ký quĩ được coi như phần

tiền của EB bảo lãnh cho chúng tôi, do đó, khi chúng tôi chưa hoàn tất việcthanh toán cho EB thì EB được quyền giữ các chứng từ và các hàng hoá đượcgửi theo giao dịch của L/C này hoặc những tài sản khác mà chúng tôi đã cầm

cố, thế chấp cho EB để đảm bảo cho khoản tiền mà chúng tôi còn nợ EB đượcquyền bán một phần hay toàn bộ lô hàng hoặc tài sản mà chúng tôi đã cầm cố,thế chấp để thu nợ mà không cần thông báo cho chúng tôi Trường hợp sốtiền thu được do bán các tài sản này không đủ để thanh toán các món nợ,chúng tôi chịu trách nhiệm thanh toán hết phần còn thiếu

Điều 7: Trong trường hợp nhập khẩu uỷ thác cho một Công ty khác, chúng tôi

hoàn toàn chịu trách nhiệm về điều 1 và liên đới chịu trách nhiệm với Công ty

uỷ thác về việc thực hiện các cam kết nói trên

GENERAL UNDERTAKING

For the purpose of the Documentary Credit (L/C) issuance by Vietnam ExportImport Commercial Joint Stock Bank (EB) with details stated on the reverse side

of this document, we request the applicant undertake:

Article 1: To have all documents to meet legal procedure for goods consignment

such as: Import - Export License (in case of imported goods), Permission ofMinistry of Trade (in case of goods under plan and quota control), not have overdue import export tax

Article 2: To deposit sufficient amount for margin as stipulated by EB before L/C

has been issued This margin shall be utilized for L/C payment on due date

Article 3: To Authorize EB to debit our account for collecting L/C’s chages Article 4: When the shipping documents presented at EB’s counter are in

compliance with the terms and conditions of the L/C, we undertake to effect thepayment or accept payment of the total L/C amount and L/C related charges (if

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any) without any conditions, even if the goods have been partly or totally damaged

or have not been transported or imported to Vietnam due to any reasons

Therefore, when the beneficiary’s shipping documents are in compliance withthe terms and conditions of the L/C EB is entitle to debit our account or accept thedrafts (in case of usance L/C), or provide compulsory loan to effect the payment tothe claiming bank without necessary notice to us or waiting our acceptance ofpayment

Article 5: We undertake to buy insurance for the imported goods under EB

instruction in following cases:

In case we do not buy insurance in time EB is requested to buy insurance for the goods and insurance commission is for our account

Article 6: The difference between L/C’s and margin amounts is considered amount

guaranteed by EB to us, thus when we did not fulfill our payment obligation to EB,the bank is entitle to hold documents and goods under this L/C transaction or otherour pledged assets for our debts EB is entitled to sell the goods or assets pledgedpartly or totally without any notice to us In case the funds from selling these assetscan not cover the debts, we are responsible to settle the remaining

Article 7: In case of import under assignment from other customer, we are fully

responsible for Article 1 and jointly and reciprocally responsible with the assignorfor the fulfillment of the above mentioned undertakings

1.3.1 Explain how to write an application for L/C opening with a specific

contract.

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CHAPTER 2: PREPARATION THE DOCUMENT PACKAGE

AS LETTER OF CREDIT REQUEST2.1 Introduction to documents used in documentary credit

2.1.1 Overview of documents used in documentary credit

There are commonly 3 types of documents:

which are issued by the carrier while and after operating the transportation

of each nation and request from parties, each shipment can contain differentdocuments such as Certificate of Origin, Certificate of Quantity, Quality… Thesedocuments can be provided by the seller, the buyer or a third party to clarify allinformation of goods

2.1.2 Bill of exchange

According to the Negotiable Instruments Act 1881, ‘a bill of exchange is defined

as an instrument in writing containing an unconditional order, signed by the maker,directing a certain person to pay a certain sum of money only to, or to the order of

a certain person or to the bearer of the instrument.’

Types of Bill of Exchange:

documents that confirm the genuineness of sale or transaction that took place betweenthe seller and buyer

a fixed date of payment, therefore, the bill has to be cleared whenever presented

within the given time period and time

other foreign country This bill is opposite to foreign bill

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• Clean Bill: This bill does not have any proof of a document, so the interest iscomparatively higher than the other bills.

Two examples of a foreign bill are an export bill and import bill

condition is known as an accommodation bill

government department is known as the supply bill

2.1.3 Commercial Invoice

Invoice is the basic document of the payment stage It is a seller's request for thebuyer to pay the amount indicated on the invoice The invoice clearly states theunit price of the goods and the total value of the goods

The invoice is presented to the bank opening the L/C to collect the goods Aninvoice is presented to the customs office for the calculation of import and exportduties, and to the insurer upon purchase of cargo insurance It has 2 types:

And has 5 types:

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• Surrender bill of lading

2.1.5 Insurance Documents

Certificate of insurance is a document used to provide information on specific insurance coverage The certificate provides verification of the insurance and usually contains information on types and limits of coverage, insurance company, policy number, named insured, and the policies’ effective periods

The role of Insurance Documents:

international traffic

distributed form of risk according to the community principle

2.1.6 Certificate of Origin

A certificate of origin (CO) is a document declaring in which country a

commodity or good was manufactured The certificate of origin contains

information regarding the product, its destination, and the country of export

There are some forms of C/O for different types of goods and markets

non-preferential rules of origins

Vietnam and exported to all the countries as the regulations of International Coffe Organization (ICO)

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• C/O form T (Textile): Textile/Garments products exported to EU as the Vietnam-EU Textiles/Garments Agreement

exported to Mexico as the regulations of the country

country

2.1.7 Packing list

A packing list is a detailed statement of the contents of a package, which is used

by the recipient to verify the contents A packing list typically includes a

description, quantity, and weight for each item in a package It does not include the prices of the items being delivered It is prepared by the seller, which includes

it in the package or attaches it to the outside of the package in an adhesive pouch

In addition, there are the following types:

2.1.8 Other Documents (if any)

2.2 Standart for insuarance and examination of documents under UCP 600

i and ISBP 745

2.2.1 UCP 600

Article 14: Standard for Examination of Documents

the issuing bank must examine a presentation to determine, on the basis of

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the documents alone, whether or not the documents appear on their face to constitute a complying presentation.

the issuing bank shall each have a maximum of five banking days following the day ofpresentation to determine if a presentation is complying This period is not curtailed orotherwise affected by the occurrence on or after the date of presentation of any expirydate or last day for presentation

to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiarynot later than 21 calendar days after the date of shipment as described in these rules,but in any event not later than the expiry date of the credit

itself and international standard banking practice, need not be identical to, but must notconflict with, data in that document, any other stipulated document or the credit

goods, services or performance, if stated, may be in general terms not conflicting withtheir description in the credit

document, insurance document or commercial invoice, without stipulating by whomthe document is to be issued or its data content, banks will accept the document aspresented if its content appears to fulfil the function of the required document andotherwise complies with sub-article 14 (d)

may be returned to the presenter

compliance with the condition, banks will deem such condition as not stated and willdisregard it

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Tiêu đề	Preparation The Document Package As Letter Of Credit Request
Tác giả	Vũ Hoài Nam, Vũ Xuân Tiến
Người hướng dẫn	Luong Thi Kim Oanh
Trường học	Vietnam Maritime University
Chuyên ngành	Foreign Trade
Thể loại	dissertation
Năm xuất bản	2020
Thành phố	Haiphong

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