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Defenition Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay o

PAYMENT INSTRUMENTS GROUP 5: Phạm Tâm Long Đào Trung Anh Nguyễn Tuấn Anh

Vũ Nhật Anh Bùi Việt Anh Nguyễn Xuân Minh

LECTURER: PhD.Nguyen Dieu Chi

Hà Nội, ngày 17 tháng 3 năm 2017

A CHEQUE

1 Defenition

Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign

by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument

2 Characteristics of Cheque

- Cheque is an instrument in writing

- Cheque contains an unconditional order

- Cheque is drawn by a customer on drawer’s bank.

- Cheque must be payable on demand

- Cheque must mention exact amount to be paid

- Payee must be certain of whom payment is made

- Cheque must be duly dated by customer of bank

3 Parties to a cheque

- Drawer: A drawer is a person who draws a cheque

- Drawee: A drawee is a bank on whom a cheuqe is drawn

- Payee: A payee is a person who is entitled to receive the payment of the cheque

- Indorser: When the holder transfer or indorses the cheque to anyone else, the holder become “indoser”

- Indorsee: The person to whom the bill is indorsed is called an “indorsee”

4 Regulations to issue cheque

- Have money in banking account;

- Have money in paying account at the bank;

- Issued cheque with value is less than the value of the account;

- Check needs to have a heading;

- Check date and time need to be written clearly

5 Parts of a cheque

- Name of your bank which is also called the "drawee bank" or paying bank

- "Account Payee Only" crossing is a directive to the collecting bank to pay into the account of the payee

- Payee is the person to whom the cheque is to be made Ensure that the name of the person

is correctly spelt and written close to the words "pay to" Draw a line on the space after the payee's name to avoid alteration

- Date of the cheque To be able to receive payment, the date must be the current date

- The person who holds and presents the cheque at the bank It is advisable to cross out "or bearer" to avoid any stolen cheque from being paid out

- The payment amount written in words The same value will be written in the box beside

it Ensure that the amount in words and figures are written close to the words "Ringgit Malaysia" and "RM" printed on the cheque Do not leave any gap by drawing a line after them Make sure that the amount in words and in figures tally, otherwise, the bank will return the cheque

- Your signature as the "drawer" of the cheque

- Serial number of the cheque Each cheque has a different number for identification purposes

- The drawee bank's state and branch code

- Your current account number

- The drawee bank's internal code for current account product

6 Procedure of cheque payments

- Cheque is transferred through a bank

+ Step 1: Seller deliver goods to buyer

+ Step 2: The buyer issue cheque to pay the transactions

+ Step 3: The seller present cheque at the bank

+ Step 4: The bank credits account for the seller

+ Step 5: The bank debits account for the buyer

- Cheque is transferred through two banks

+ Step 1: The buyer issue cheque to pay the transactions

+ Step 2: The seller present cheque at seller’s bank

+ Step 3: The seller’s bank deliver the cheque to buyer’s bank

+ Step 4: The buyer’s bank debits account for the buyer

+ Step 5: The seller’s bank credits account for the seller

+ Step 6: The clearance between banks

7 Types of Cheque

- Based on payment method :

+ Cash cheque: A form of cheque only exchange for money over the counter in one of the bank’s branches

+ Certified cheque: A form of cheque for which the bank verifies that sufficient funds exist in the account to cover the cheque, and so certifies, at the time the cheque is written + Personal cheque: A form of cheque that you can write an amount of money on and sign

in order to make a payment from your own bank account rather than the bank account of

an organization

- Based on verified beneficiary:

+ Named Cheque: A cheque where the name of beneficiary is wrote on it

+ Bearer cheque: A cheque where the money can be paid to any person who presents it to the bank, not just to a person named on the cheque

+ Order cheque: A cheque which is payable to a particular person The payee can transfer

an order cheque to someone else by signing his or her name on the back of it

- Another types:

+ Traveler’s cheque: Kind of an open type bearer cheque issued by the bank which can be used by the user for withdrawal of money while touring

+ Crossed cheque: Crossing is a popular device for protecting the drawer and payee of a cheque Both bearer and order cheques can be crossed Crossing prevents fraud and wrong payments Crossing of a cheque means "Drawing Two Parallel Lines" across the face of the cheque Thus, crossing is necessary in order to have safety Crossed cheques must de presented through the bank only because they are not paid at the counter

 Generally, cheques are crossed when: There are two transverse parallel lines, marked across its face or the cheque bears an abbreviation "& Co "between the two parallel lines or the cheque bears the words "Not Negotiable" between the two parallel lines or the cheque bears the words "A/c Payee" between the two parallel lines A crossed cheque can be made bearer cheque by cancelling

the crossing and writing that the crossing is cancelled and affixing the full signature of drawer

 When a particular bank's name is written in between the two parallel lines the cheque is said to be specially crossed In addition to the word bank, the words "A/c Payee Only", "Not Negotiable" may also be written The payment of such cheque is not made unless the bank named in crossing is presenting the cheque The effect of special crossing is that the bank makes payment only to the banker whose name is written in the crossing Specially crossed cheques are more safe than a generally crossed cheques

8 Related regulations:

- Global: Convention Providing a Uniform Law for Cheques (19 Mar 1931)

- Vietnam: + Decision No.30/2006/QĐ-NHNN on check supply and use

+ Ordinance No.28/2005/PL-UBTHQH11 on foreign exchange control

B Bill of Exchange

1 Definition

- An unconditional order written by an drawer (exporter) in structing a drawee (importer)

or its agent to pay a specificed amount of money at a specific tine to a specific party (beneficiary) Thus it is the exporter’s formal demand for payment from the importer

2 Main feature of Bill of exchange

2.1 Transferability

- To be negotiable instruments

+ Must be payable to order or to bearer

+ Must have no marks indicating non-negotiable

-> Ensure the liquidity of Bill of exchange If the BEs do have mark indicating non-negotiable, individuals do not believe in them, so it leads lower liquidity of Bes

- Proper transfer:

+ Endorsement “pay to order” draft

+ Handover or blank endorsement: blank draft

-> The ability of transfer is shown by endorsement

2.2 Legal protection of payment

- Holder has right to receive payment in due course

- In due course, if the drawee dishonors the draft, payment must be made to holder by endorser or the maker

-> Ensure the benefit of holder and increase the liquidity of BE

-> BE is nogotiable instruments that is used popularly over the world

3 The funtions of BE

- Provide the granting of trade credit in lawful format

- Facilities format evidence of the claim for payment from a seller to a buyer

- Facibilities the seller with assess to finance by transfer BE to bank of financer through discount BE

- Allows the financer, bank to have a convincing legal claim on the buyer or seller

4 Elements of BE

4.1 Heading of BE:

 The title must be Bill ofexchangeor draft

4.2 BE value :

4.3 Place of presenting draft :

 If on the bill don’t have the address that present the placeof making this draft, there will be no effect on that bill ofexchange

4.4 Time of presenting draft :

 The issuing dateof BE play an important role of deciding the time that presenting draft, it also determine the period of payment and check the consistency of the document

4.5 Time of draft payment:

 Payment duration is the date that “drawee” has to pay the bill There’re 2 types : + At sight of this first BE - which means “drawee” must have the responsibility to finish the payment right after receiving the draft

+ Time – Usance BE – The payment duration is the type of payment that must be finish in a certain time of period

e.g : at x days after sight

at x days after signs

at x days after bill of landing date

4.6 Draft drawee :

There will be 2 types of payment: “collection payments” & “credit payments”

 Collection payments:

+ CLEAN COLLECTION :

If a business has numerous bills he got from various debtors he may send these bills to his banker for collection purposes It should be remembered that, this is not discounting of a bill of exchange The bill is sent for safety and collection purposes The bank keeps the bill in its custody till the due date and on the due date, the bank will present the bill to acceptor After collecting the amount, the bank transfers the amount to the account of its customer (by giving credit to his account) The bank charges some nominal fee from the customer for service he rendered This is an expense for the customer and revenue for the bank

+ DOCUMENTARY COLLECTION:

The exporter will have bank as collector but not just base on the bill of exchange The transaction must go with other good documentaries and also the BE, under 1 condition that bank agree to show the documents when having importer’s

acceptance on the bill of exchange

 Credit payments:

2 highlighted sections above are only in the credit payment Any fees related to open letter of credit will be charged by the opener Bank that has to pay opening fees is next to the word “drawn under” Right under it is number and date of opening credit

4.7 Beneficiary:

 The beneficiary is the last person who receive the amount of payment, it could be the exporter or one subject that exporter have pointed In the case of having bank as exchange record, the beneficiary could be bank According to the law of BE

management in VN, the beneficiary must be commercial bank that authorized by the government

4.8 Draft drawer:

 Is the party that issues a Bill of Exchange in an international trade transaction; usually the seller or exporter

5 Endorsement of BE

5.1 Definition of Endorsement of BE:

The drawer or holder of the bill may endorse (transfer) the bill in favor of his creditor for the clearance of his own debts A bill of exchange is a "negotiable instrument" i.e a document which is transferable by delivery without notice to the party liable (drawee)

If the holder of the bill puts his signature on the back of the bill with a view to transfer the property contained in it (right to receive money from the acceptor), then he becomes endorser, and the person to whom the bill of exchange is transferred will become

endorsee This procedure by which a bill is transferred from one person to another person for the settlement of debts is called "endorsement"

5.2 Type of Endorsement of BE: 4 types:

a Blank endorsement:

Placing of only your company name and signature on the back of the bill of exchange without indicating the payee The effect of this is that it becomes payable to the bearer + The endorser just leaves their name

+ The endorser leaves their name with “pay to” or “pay to the order of any…”

By this type of endorsement, the transfer don’t need any endorse, but transferred hand to hand -> who pick up the bill will definitely be the beneficiary of it

b Restrictive endorsement:

A restrictive endorsement or restricted endorsement places a limitation on the use of a check or other negotiable financial instrument The most common restrictive

endorsement is the phrase For Deposit Only written along with the payee's signature on the back of a check Other wording for a similar restrictive endorsement might be Pay to the Order of Sample Bank for deposit to account #xxxx followed by the payee's

signature Many companies endorse checks by using a rubber stamp containing this restriction

c Without recourse endorsement:

Is the way of adding “ without recourse” in the endorsement gap and the company that accepted the transfer can’t recourse the bill

d To order endorsement:

In this type of endorsement, the endorser points a person to be the beneficiary in a speculative way The transferor just need to sign and write “to order of Mr X” So the beneficiary in this case hasn’t been set clearly -> need to figure Mr X intension

6 Type of BE

6.1 Based on the issuer of BE:

- Trade Bill of exchange: is issued by exporter, and require the importer to take a payment for the beneficiary

- bank Bill of exchange: is issued by bank, and require the correspondent bank to take a payment for beneficiary

6.2 Based on attached documents:

- Clean Bill of exchange: The taking a payment on BE without documents

- Documentary Bill of exchange: The taking a payment on BE with documents that include documentary Against Payment (D/P) and documentary Against Acceptance (D/A)

6.3 Basel on transferability of BE:

- Order Bill of exchange : This BE writes “pay to order” of beneficiary, and is transferd

to other beneficiary by endorsement

- Norminal Bill of exchange: This BE writes full name of beneficiary and does not have transfer ability by endorsement

6.4 Based on duration payment of BE:

- At sight Bill of exchange - On demand bill of exchange: when the drawee has seen this

BE, this person must have to take a payment

- Time Bill of exchange - After sight BE: After someday or period since the drawee has seen this BE, this person have to take a payment

7 Acceptance of BE:

- After the draft was issued, it must be deliver for drawee so as to drawee accepts take a payment, with maturity- draft

- Form of acceptance the draft :

+ Sign in the front of BE

+ Acceptance by separate document

8 Procedure of BE payment:

- At sight BE:

1 Exporter delivers goods

2 Exporter issues and entrust export bank to collect

3 Importer pays through the Import Bank after seeing the BE

- After sight BE:

1 Exporter deliver goods and commercial documents

2 Exporter issues BE and entrust the Bank to require importer to sign acceptance

3 Exporter Bank return accepted BE to the Exporter

4 Exporter Bank requests Importerto maturity BE

5 Importer pays expense of BE, import Bank debits account of the Importer and export Bank credits account for the exporter

C PAYMENT CARD

I Denifition

A payment card is a device-usually an embossed plastic carrd-that allows its owner (the cardholder) to make an electronic payment

II Characteristics of using payment card

1 Convinient and safe: reduces the need to carry cash or use an ATM

2 Lost or stolen cards are quickly replaced and any unauthorized purchases are refunded