Thuyết trình chủ đề methods of payment

Open account Collection of payment Bank remittance Documentary credit... Collection of paymentG6 1 Definition Collection of is process, in which after deliver the goods, the seller instr

Open account Collection of payment

Bank remittance Documentary credit

I Open account

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Features of open account method or characteristics of an open account:

 Applicability: Recommended for use in secure trading relationships or markets or in competitive markets to win customers with the use of one or more appropriate trade finance techniques.

 Time: as agreed between a buyer and seller, net 15, 30, 60 day terms, etc., from date of invoice or bill of lading date.

 Risk: Exporter faces significant risk as the buyer could default on payment obligation after shipment of the goods ( highest risk )

Definition: Open account method means that the seller delivers goods or services to the buyer without receiving cash, a bill of exchange or any other legally binding enforceable undertaking at the time of delivery, and

the buyer is expected to pay according to the terms of the sales contract and the seller’s latter invoice

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I Open account

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• Trust: the exporter and importer trust one another implicitly, and

they have traded together for a number of years

• Pros ( advantage )

- Boost competitiveness in the global market

- Establish and maintain a successful trade relationship

• Cons ( disadvantage )

- Exposed significantly to the risk of nonpayment

- Additional costs associated with risk mitigation measures

I Open account

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3 Procedure of open account payment

Both parties

 There are only two parties to

Importer

be exporter and importer

Advantages of method of open account payment

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❖ Easiest payment method, low

expense, friendly payment method

❖ Reduce document expense

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Risks to

Seller

•Buyer defaults on payment obligation.

•Delays in availability of foreign exchange and transferring of funds from buyer’s country occur.

•Payment is blocked due to political events in buyer’s country.

Risks to

Buyer

•Seller does not ship per the order (product, quantity,

•Seller does not ship when requested, either early or late

Applying case

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- Exporter and importer trust each other

- Use in regular transactions

- Use in pay transport expenses, commission expenses, guarantee expenses

Note

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- Must regular specific kinds of currency

- Define specific currency value to be paid in shipping date

- Which kinds of currency transfer will be used in payment date – Mail

transfer or TTR transfer

II Collection of payment

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1 Definition

Collection of is process, in which after deliver the goods, the seller instructs his bank

to forward documents related to the export of goods to the buyer’s bank with a request

to present these documents to the buyer for payment, indicating when and on what

conditions these documents can be released to the buyer

- Collection order between exporter and exporting bank is not a contract

- In collection of payment, banks are only intermediary in payment method

- Collection of payment is only implemented after the seller delivers goods basing on

issuing documents

II Collection of payment

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3 Parties

- Principal (Seller, Exporter, Drawer)

- Drawee (Importer, Buyer)

- Remitting Bank (Principal’s Bank, seller’s bank, exporter’s bank)

- Collecting Bank and/or Presenting Bank (Buyer’s Bank,

Importer’s Bank)

4 Types of collection of payment

Clean Collection Documentary Collection

4 Types of collection of payment

Clean Collection

• Definition: Clean Collection are collections of financial documents

(promissory notes, Checks, payment slips, etc…) without attactedcommercial documents (invoices, shipping documents and insurancedocuments)

4 Types of collection of payment

Clean Collection

• Procedure

Clean Collection

• Simple

• Beneficial to the importer

• Receiving cargo and paying the cargo are separate

• Export may not be paid for shipping the cargo

• Payment time is slow because of some reasons as follow:

• Up to good will of the importers/buyers

• Up to transferring document process

• Do not take all advantages of bank

• Applying cases:

1 Paying services expenses of importing and exporting activities

2 Importer and exporter trust each other/one another

3 Parent company and branches (MNCs, MNEs)

4 Types of collection of payment

Documentary collection

• Definition: Documentary Collections are collections of financial

documents, which may have attached commercial documents, orcollections of commercial documents without financial documents

4 Types of collection of payment

Documentary collection

Procedure

Documentary Collection

• Overcome disadvantages of clean

collection Payment and Shipment are

connected together

• Collecting bank will control

commercial documents instead of

sending directly to importer when

deliver the cargo

• For the seller to use this method is

not expensive, and the seller is helped

by the bank to control and control the

transport document until guaranteed

payment.

• The benefit to the buyer is that there

is no obligation to pay if the

documents have not been inspected

in some cases, including goods.

• The importer can refuse to receive the cargo

• Payment time is slow

• For exporters at risk as importers do not accept the goods sent by not receiving the documents

• The importer's credit risk, political risk

in the importing country and the risk

of the goods may be kept by the customs

• Paying too late, from delivery to receipt may take several months to a year.

Documents against payment (D/P)

Documents against Acceptance (D/A)

Acceptance Documents against Payment) (D/TC)

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Documents against payment (D/P)

In D/P terms, the collecting bank releases the documents to thebuyer only upon full and immediate cash payment D/P termsmost closely resemble a traditional cash on delivery transaction

In D/A terms, the collecting bank is permitted to release the documents tobuyer against acceptance (signing) of a bill of exchange or signing of a timedraft at the bank promising to pay at a later date (usually 30,60, or 90 days)

An acceptance documents against payment has features from both D/P and D/A:

-The collecting bank presents a bill of exchange to the buyer for acceptance

-The accepted bill of exchange remains at the collecting bank together with the documents up to maturity

-The buyer pays the bill of exchange at maturity -The collecting bank releases the documents to the buyer who takes possession of the shipment

-The collecting bank sends the funds to the remitting bank, which then in turn sends them to the seller

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Acceptance Documents against Payment) (D/TC)

Role of bank in documentary collection

- Banks are required to act in good faith and exercise reasonable care to verify

that the documents submitted appear to be as listed in the collection order

- Banks are not liable nor can they be held accountable for the acts of third parties

- Banks also assume no responsibility regarding the quantity or quality of goods shipped

- Without explicit instructions, the collecting bank takes no steps to store or

insure the goods

- If a collection remain unpaid or a bill of exchange is not accepted and the

collecting bank received no new instructions within 90 days it may return the documents to the bank from which it received the collection order

II Collection of payment

III Bank remittance

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1 Definition

• This is a method of transferring money by instructing a bank to directly

transfer funds from one bank account to another without the uses of checks

• The seller delivers goods or services to the buyer without receiving cash, a bill

of exchange or any other legally binding and enforceable undertaking at the time delivery and the buyer is expected to pay according to the terms of the sale contract and seller’s later invoice

2 Parties in bank remittance

- Buyer (remitter)

- Buyer’s bank (paying bank)

- Seller’s bank (remitting bank)

- Seller (beneficiary)

III Bank remittance

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3 Procedure

III Bank remittance

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4 Swift system

- What is swift network?

Swift of society for worldwide interbank financial telecommunication is

an internal bank network that most bank transfers are processed through for international payments ang messages

III Bank remittance

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4 Swift system

Who owns and uses SWIFT?

Owned by participating bank which have created a low- cost, secue and very effective internal communication system for both payments and massages.

More faster The majority of SWIFT system members are banks, but it is also used by trading institutions; money brokers and security broker dealers; clearing systems; investment management institutions and more To actually become

a member of SWIFT itself (along with gaining the shares and voting rights that membership bestows), the institution must hold a Banking License.

III Bank remittance

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4 Swift system

How does the SWIFT system work?

The SWIFT network does not actually transfer funds, but instead

it sends payment orders between institutions’ accounts, using SWIFT codes

III Bank remittance

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4 Swift system

How does the SWIFT system work?

Example : bank of china in Bejing = BKCHCNBJ

Italian bank UniCredit Banca = UNCRITMMZZZSWIFT owns and administrates the BIC system, meaning that it can

quickly identify a bank and send a payment there securely You can get

the BIC and IBAN number associated with your bank account from

your bank - or it might even be printed on your debit card

But it’s necessary that the buyer provide the correct and necessary

information to pass on to their bank Those information must appeared

in the terms of payment and in the invoice If incorrect and incomplete

information is give, the fee that charged could be higher

III Bank remittance

-Low expense -But take time

III Bank remittance

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5 Types of bank transfer

Telegraphic transfer (TTR)

• It is an electronic method of transferring funds; it is utilized

primarily for overseas wire transactions

• Transfer of funds by telegraph, telex, cable, or SWIFT from a

bank to its branch or another bank authorizing the payment offunds to a specified account

• Usually fairly expensive due to the fast nature of the

transaction Generally, the Telegraphic Transfer is completewithin two to four business days depending on the origin anddestination of the transfer, as well as any currency exchangerequirements

III Bank remittance

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5 Types of bank transfer

Telegraphic transfer (TTR)

Fastest mode of money transfer and is used for payments

- It makes a couple of days to

transfer

+ Based in oversea: within 5 days

+ Based on local: within same day

IV Documentary credit

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1 Definition

Documentary credit is the written promise of a bank undertake onbehalf of a buyer, to pay a seller the amount specified in the creditprovided the seller complies with the terms and conditions setforth in the credit The terms and conditions of a documentarycredit revolve around two issues:

(1)The presentation of documents that evidence title to goods shipped

by the seller,(2)Payment

IV Documentary credit

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2 Features of L/C

• L/C is different from international sales of contract and it separates

with sale contract

• L/C is considered to be an economic contract between importing

bank and importer or between remitting bank and the buyer

• In documentary credit method, documents plays an important role in

payment activity

• The documentary credit method is the safest payment methods

among parties in international payment

IV Documentary credit

IV Documentary credit

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5 Types of L/C

Standard types of L/C

Special types of L/C

IV Documentary credit

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5 Types of L/C

Standard types of L/C

- Revocable L/C: L/C that may be amended or cancelled any time

by the buyer (the account party) without the approval of theseller (the beneficiary)

- Irrevocable L/C: this L/C cannot be cancelled (or its termsamended) without the seller’s(beneficiary’s) prior writtenapproval and comes usually as a confirmed irrevocable letter ofcredit Also called irrevocable credit

IV Documentary credit

- Irrevocable without recourse L/C: Without recourse term defines the situation in which the paying bank will not be able to claim refunds from the beneficiary in case the letter

of credit documents are not paid by the issuing bank In general the confirming bank pay the letter of credit amount to the beneficiaries without recourse terms.

IV Documentary credit

• Back to back L/C: consist of two letters of credit (LCs) used together to finance a transaction A back to back L/C is usually used in a transaction involving an intermediary between the buyer and seller such as a broker, or when a seller must purchase the goods it will sell from a supplier as part of the sale to his buyer

• Revolving L/C: A letter of credit established one time that enables the receiver to access specific amounts of credit for scheduled shipments over a specified period of time Issued as a cumulative or non-cumulative L/C, the former allows for unused credit amounts to rollover into subsequent periods while the latter maintains affixed amount of credit available each period

IV Documentary credit

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5 Types of L/C

Special types of L/C

 Standby L/C:

• A standby letter of credit (SLOC) is a guarantee of payment issued by a bank on behalf of a client that is used as

“payment of last resort”

• Standby letters of credit are created as a sign of good faith in business transactions and are proof of a buyer’s credit

quality and underwriting duties to ensure the credit quality of the party seeking the letter of credit, then sends

notification to the bank of the party requesting the letter of credit (typically a seller or creditor)

 Deferred payment L/C: A type of letter of credit that enables the buyer in a transaction to pay the seller and receive

the goods immediately, and to pay the bank back for the sale amount at a later date Also called ausance letter of

credit.

 Red clause letter of credit: The red clause letter of credit is a specific type of letter of credit in which a buyer

extends an unsecured loan to a seller Red clause letters of credit permit documentary credit beneficiaries to receive

funds for any merchandise outlined in the letter of credit These letters are commonly used by beneficiaries who act

as purchasing agents for buyers in another country.

 Green clause letter of credit: A condition in a guarantee document that allows a purchaser to receive advances ahead

of shipment against collateral property represented by warehouse receipts Use of a green clause letter of credit is

often used in the agricultural business where a company can fund the harvest of a new crop by pledging available

stock as collateral.

IV Documentary credit

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6 Procedure

IV Documentary credit

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7 Legal documents of LC

UCP: (Uniform customs and practice) for Documentary Credits Historically, the

commercial parties, particularly banks, have developed the techniques and

methods for handling letters of credit in international trade finance.

UCP is issued by ICC (International Chamber of Commercial ) in 1933 and

updating it throughout the years => The result is the most successful

international attempt at unifying rules ever, as the UCP has substantially

universal effect.

The latest version of UCP called UCP 600, formally comes into effect on 1, July

2007