Topic describe the payment term of contract no 038:van mks:xii:2018, then give your commet to show that whether buyer or seller will be in favor of the term

iv LIST OF IMAGES Figure 1: Payment terms --- 2 Figure 2: the parties to the irrevocable letter of credit transaction.. Payment method Figure 1: Payment terms Based on Clause 12 paymen

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF HOA SEN FACULTY OF ECONOMICS & ADMINISTRATION MIDTERM TEST Topic: Describe the PAYMENT TERM of contract No.038/VAN-MKS/XII/2018, then give your commet to show that whether buyer or seller will be in favor of the term SUBJECT IMPORT EXPORT MANAGEMENT– CLASS NT404DE01 LECTURER NGUYEN THI HUYEN TRAN STUDENT PERFORMANCE Nguyen Thanh Nguyen 2195558

Tran Thi Uyen Nhi 2197359

Nguyen Ngoc Khanh 2192575

Le Yen Nhi 2198643

HO CHI MINH CITY, 22 May 2021

i

TEACHER'S COMMENTS

HO CHI MINH CITY, DATE 22 MONTH 05 YEAR 2022

SIGN Group 6

ii

MEMBERS ASSESSMENT TABLE

Nguyen Thanh Nguyen 2195558 100%

Tran Thi Uyen Nhi 2197359 100%

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TABLE OF CONTENTS

TEACHER'S COMMENTS -i

MEMBERS ASSESSMENT TABLE - ii

Chapter 1: Introduction about contract No.038/VAN-MKS/XII/2018 - 1

1.1 Related parties - 1

1.2 Commodity - Quantity - Price - 1

1.3 Delivery - Payment method - 1

Chapter 2: DESCRIBE THE PAYMENT TERM OF CONTRACT - 3

2.1 2.1 Introduction Irrevocable LC? - 3

2.1.1 Definition - 3

2.1.2 Type of Irrevocable LC - 4

2.1.3 Step to make Irrevocable LC - 5

2.1.4 Advantages _ Disadvantages - 7

2.2 About the payment term in contrast - 8

2.2.1 Buyer obligation: - 8

2.2.2 Seller’s obligation: - 10

2.3 Dispute resolution - 12

2.4 Event of default - 13

Chapter 3: Comments - 15

References - 16

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LIST OF IMAGES

Figure 1: Payment terms - 2

Figure 2: the parties to the irrevocable letter of credit transaction - 3

Figure 3: Irrevocable letter of credit - 6

Figure 4:Difference between Irrevocable Letter of Credit and Other terms - 8

Figure 5 Article 12.1 in payment term - 8

Figure 6: Article 12.2 in payment term - 9

Figure 7:Article 19 Governing law and arbitration - 12

1.2 Commodity - Quantity - Price

This contract is made between the seller and the buyer whereby the seller agrees to sell and the buyer agrees to buy the goods described below subject to the terms and conditions as stipulated below

Commodity Quantity (MT) Unit Price (USD) Total

Port of Loading: Teap Jetty, Talang Duku, Jambi, Sumatra, Indonesia

Port of Discharge: Go Dau Port, Dong Nai Province, Vietnam

2

Terms: FOB Teap Jetty, Talang Duku, Jambi, Sumatra, Indonesia - INCOTERMS

2010

b Payment method

Figure 1: Payment terms

Based on Clause 12 payments terms, clause 12.1 will determine the irrevocable L/C payment contract

Seller’s bank: Bank Central Asia

Buyer’s bank - Issuing Bank of The Original Documentary Credit: Vietnam Prosperity Joint Stock Commercial Bank VPBANK

Irrevocable letter of credit (ILOC) is a type of documentary credit which can not

be canceled or amended by the issuing bank without the agreement of the parties of the letter of credit transaction

Figure 2: the parties to the irrevocable letter of credit transaction

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2.1.2 Type of Irrevocable LC

- An unconfirmed irrevocable letter of credit

- A confirmed irrevocable letter of credit

Unconfirmed Irrevocable L/C

Confirmed Irrevocable L/C

Meaning The issuing bank

guarantees payment

Payment is guaranteed by the issuing bank as well as the confirming bank

expensive than the confirmed letter of credit

Comparatively costly as charges of the second bank (confirming bank) also apply

Changes and Corrections Only the beneficiary, i.e.,

the seller, can request changes in the letter of credit via the applicant, i.e., the buyer

The second bank can suggest changes and corrections directly to the issuing bank

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Process In an unconfirmed letter of

credit, the seller requests the payment from the issuing bank where there is

a second bank as a mediator

In a confirmed letter of credit, the seller requests the payment from the confirming bank

Confirming the bank makes the payment to the seller and, in turn, requests the payment from the issuing bank

2.1.3 Step to make Irrevocable LC

An ILOC works as per the details of the letter and the documents attached However, the basic elements remain the same in every LC The elements and conditions are listed below:

· The bank makes the guarantee of the payment

· The LC is made on behalf of the buyer to pay the seller the said amount of money

· A specific set of documents are required to verify the supply of goods/services

· The following details must be mentioned dates, locations, time limit, and the method –

of transaction

· All the attached documents must comply with the LC

Step 1: Buyer (applicant) and seller (beneficiary) sign contract with payment guaranteed

by irrevocable letter of credit

Step 2: Issuing bank issues an irrevocable L/C and forwards it to the advising bank

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Who issues an Irrevocable Letter of Credit?

An LC that is issued by a commercial bank guarantees that the correct payment amount is received by the seller on time Suppose a buyer is unable to pay, the bank is liable to pay on his/her behalf, either for the remaining or for the complete amount of the purchase, whatever the case may be

Front page Back page

Figure 3: Irrevocable letter of credit

(Source: yumpu.com)

Step 3: Advising bank authenticates the letter of credit and forwards it to the seller Step 4: Seller sends goods to the carrier in exchange for shipping documents Step 5: Seller sends shipping documents to advising bank

Step 6: Advising bank examines shipping documents for compliance and forwards to

issuing bank

Step 7: Issuing bank sends payment to advising bank who pays seller

Step 8: Issuing bank sends shipping documents to buyer in return for payment

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Step 9: Buyer uses shipping documents to get goods from the carrier

* Though using an irrevocable letter of credit facilitates the transaction between the buyer and seller, it does not eliminate all risk The parties involved have to meet the requirements

of the letter with 100% compliance for the transaction to proceed smoothly and for the seller to get paid

Note: A seller may be required to pay their bank at different points For example:

- Seller provides funds upfront, whichare then held at the bank until the transaction is completed

- A seller with sufficient credit and collateral repays the bank after the transaction is complete

- The bank issues a loan to the seller to cover the payment, which is then repaid over time

If anything is off, the bank can refuse payment, including:

- Major problems, such as sending the shipment late

- Minor errors, such as typographical errors in the agreement or substituting the word

"Suite" for "Unit" in the address

2.1.4 Advantages _ Disadvantages

Advantages

- Because it is irrevocable after opening, the bank will be responsible for paying the exporter and the importer cannot modify, add or cancel the contents of the letter of credit.)

- Importers cannot refuse payment by raising a complaint about the goods

- It eliminates the risk of dealing with an unknown importer in a different country

- Importer is guaranteed to receive timely delivery of goods

For seller

- The seller gets to rely on the strength of the bank, not the strength of the buyer The bank will pay the seller as soon as he/she proves that he/she has met the conditions spelled out in the agreement, eliminating the need to assess the financial stability and trustworthiness of every potential buyer in a foreign country

- Seller is more assured, can not arbitrarily modify L/C

For buyer

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- Help ensure that something has actually been shipped However, buyer’s bank will make payment once his/her seller provides documents showing that a shipment was made He/she won't know what's in the shipment until it arrives To manage risk, He/she can require that an inspection certificate be one of the required documents before payment can

Figure 4:Difference between Irrevocable Letter of Credit and Other terms

2.2 About the payment term in contrast

2.2.1 Buyer obligation:

Figure 5 Article 12.1 in payment term

( Source: Contract reference no: 038/VAN-MSK/XII/2018)

In the article 12.1, it means that:

- Buyer must pay for shipment by an irrevocable documentary letter of credit

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- The issuing bank of the irrevocable documentary letter of credit must be the bank acceptable to the seller such as military commercial joint stock bank or bank for investment and development of vietnam or any world class bank

- This provision has helped the seller to reduce the risk of not being paid for by the buyer In addition, the seller appoints a bank to choose a reputable bank and will assume the responsibility of payment for them

However, the terms did not show what would happen if the buyer did not comply with the contract and whether the contract was canceled or not I think this clause should be edited

Figure 6: Article 12.2 in payment term

(Source: Contract reference no: 038/VAN-MSK/XII/2018)

In the article 12.2, it means that:

- The buyer shall establish an irrevocable documentary letter of credit within 14 working days before the first day of laycan (Lay Days is the day on which the vessel arrives at the port of loading and Cancellation Date: The date of cancellation of the contract)

- The buyer must pay in United States dollars for total shipment value for each shipment, including a plus/minus 10% loading tolerance It allows the parties to deliver with a volume higher or lower than the volume specified in the sales contract

- The article gives the seller peace of mind to ship the goods on board as an irrevocable documentary letter of credit has been established and funds are likely

to be received

However, the terms did not show what would happen if the buyer did not comply with the contract.I think this clause should be edited

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2.2.2 Seller’s obligation:

The Seller shall present the following documents to the Seller’s Bank, within 21 working days from the B/L date to Seller’s nominated negotiating bank for payment of 100% of cargo value after price adjustment, if any:

i Seller’s signed and stamped commercial invoice in 1 original + 3 copies showing details

of calculation of GCV (ADB) and Ash and Total Sulfur parameters are below or above

as per specification

ii Full set of 3 originals and 3 copies of clean on board Charter Party B/L of the barge, made out to order, marked <freight Payable as Per Charter Party= and notify party advised by the Buyer

iii.Certificate of Sampling and Analysis in 1 original + 3 copies issued by an Independent surveyor at loading port.v

iv Certificate of Weight in 1 original + 3 copies issued by an Independent surveyor at loading port

v Draft Survey Report in 1 original + 3 copies issued by an Independent surveyor at loading port

vi Certificate of Hold cleanliness issued by an Independent surveyor at loading port vii Beneficiary certificate to certify that Non-negotiable shipping documents has been sent, by email or fax, to the buyer for review within 5 working days after the B/L date

Before the commencement date of Coal loading to vessel, Seller shall issue to the Buyer Proforma Invoice with the following essential information to be specified in the Proforma Invoice:

i Quantity, which shall mention as per Article 6.1

ii Unit Price, which shall be the FOBT Price as specified in Article 8 herein

Within 5 working days after the completion date of Coal loading, Seller shall deliver tthe Buyer by counter a copy of the following documents:

i Certificate of Origin (COO) issued by the relevant Indonesian governmental authority: 1 original and 2 copies

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All bank charges, fees and costs outside Thailand in connection with the Letter of Credit shall be for the account of Seller All bank charges, fees and costs incurred at Seller;s negotiating bank shall be for the account of Seller

Documents containing third party shipper names of the Seller is acceptable

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2.3 Dispute resolution

Figure 6:Article 19 Governing law and arbitration

( Source: Contract reference no: 038/VAN-MSK/XII/2018)

13

In the article 19, it means that:

If the seller and the buyer have a dispute and proceedings related to the contract, it will be resolved under the SIAC rules by an arbitrator appointed under the laws of Singapore Only one arbitrator may be selected within seven days Next, the losing party shall bear all costs and expenses of arbitration proceedings including legal fees Besides, the language to be used by the arbitrator shall be English It is reasonable for the seller and buyer to choose Singapore because a third party will judge more fairly

2.4 Event of default

Defaulting Party means "insolvent party"

Events of default are cases that are considered insolvency of the insolvent party

25.1 Non-payment

In contract: failure to pay on the due date any payment due under this Agreement that is not remedied within five working days of the other party notifying the defaulting party of this agreement

Suppose Viet An has completed the payment, however, the issuing bank (VP BANK) due

to some problem of late payment since the goods have been completed and delivered to the vessel (FOB), if this problem is not rectified within five working days from the date the SENTOSA’s bank reports that the money has not been received, Viet An will be a Defaulting Party

For example, suppose that Viet An party does not receive the goods on time or does not receive the goods, then Viet An is the default party Similarly, the SENTOSA party unilaterally changes its mind, terminates the contract or refuses to ship a listed product, the goods meet the conditions when delivered to Viet An as agreed in the contract in the contract, then Sentosa is the defaulting party

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25.3 If at any time an event of default with respect to the defaulting party has occurred,

the other party may, in its sole discretion and without prejudice to all other rights under this Agreement, by notice in writing to the defaulting party

- Forthwith suspend and/or terminate this agreement

- Withhold any payment due to the defaulting party until such event of default is cured (Assuming that the payment is made in each shipment, there are 7 deliveries in total in this contract, after the first 2 deliveries are on December 25-30, 2018, and the period from December 1 January -5, 2019, the 3rd delivery Viet An due to not completing the payment, after 5 working days but Viet An still has not resolved, SENTOSA has the right to withhold the payment of 2 deliveries.)

- Suspend performance of its obligations under this agreement until such event of default

is cured

- Declare that all amounts accrued or outstanding under this Agreement be immediately due and payable, including any costs legal or other expenses, whereupon they shall become immediately due and payable in USD