Finance of International Trade

Đinh Trần Thanh Mỹ

Department of International Business
Chaper 4 & 5

TERMS OF PAYMENT &

METHODS OF PAYMENT
 Terms of payment

TIME OF PAYMENT

PLACE OF PAYMENT

METHOD OF PAYMENT
 Terms of payment

Why do we need to understand the structure of terms of payment?

- To establish the payment obligations of the buyer

- To control payment terms in contract -> more profitable business
- To minimize the risks
- To optimize the outcome and profitability of the transaction
- To be used as an additional sales argument to strengthen the
competitive edge
- To use the capital resources in the most efficient way
 Terms of payment

Key factors in determining the terms of payment

- Relationship between buyer and seller: the nature and length of

the business relationship (trust & confidence)
- The nature of the merchandise and industry norms
- The distance between buyer and seller
- The potential for currency fluctuation
- Political and economic stability in either or both countries
 Design of the terms of payment

- Terms of payment in the quotation

- > To establish the payment obligations of the buyer – when and
how they occur in relation to the seller’s delivery obligations
- Seller needs to decide which terms of payment that should include
in the offer or propose in the negotiations
- The final structure and design will be dependent on the seller’s
evaluation of the importance of the deal and its potential
profitability in relation to the risks involved
 When payment should take place (time of payment) (trước – sau –
ngay)
 Where payment should take place (place of payment) (ngân hàng)
 How payment should take place (method of payment)
 Time of payment

- The seller and buyer have different view on when payment should
take place:
 The buyer wants to make the best use of a competitive situation by
having seller also finance the purchase through a shorter/longer
term supplier credit on attractive terms
 The seller prefer payment on delivery or with a shorter differed
payment covering the shipping period only
-The negotiations will determine when the payment will take place
- The gap between the different views of time payment of seller and
buyer depends on the size of transaction, the delivered goods and
the length of credit discussed
 Place of payment

- Place of payment will determine the fulfillment of the obligations of

the buyer
-> Relating to what form of payment is used
 Bank transfer
 Open account
 Collection
 Documentary credit
 Summary of the structure of the terms of payment

Terms of payment Comments

A: Payment before delivery
1.Without advance payment guarantee. 1.Gives the highest security for the seller.
2.Against contractual advance payment guarantee.
2.As above, based on due fulfillment of the
contract.
3.Against an ‘on demand’ advance payment 3.Gives less security for the seller.
guarantee.
B: Payment at delivery
1.Letter of credit, documents against payment. 1.High security – dependent on the strength of the
issuing bank – and if confirmed or not.
2.Documentary collection, documents against 2.Dependent on the buyer honouring the
payment. documents – and which documents are included.
C: Payment after delivery
1.Letter of credit, documents against acceptance. 1.Same security as B but with later payment.

2.Payment secured by payment guarantee. 2.The security is dependent on the issuing bank and
the wording of the guarantee.
3.Documentary collection, documents against 3.As B, but after the release of documents the risk
acceptance. is on the buyer until payment.
4.Bank transfer. 4.Risk on the buyer until payment.
 Terms of payment

Structure of terms of payment based on bank transfer in open-account

- ‘Payment through bank transfer, which shall have reached (name

and address of the seller’s chosen bank – with full details of the
SWIFTBIC code and customer account numbers), not later than 90
days from date of invoice, which shall be the same as the date of
shipment. Interest on arrears at x% p.a. is charged from maturity
date until payment is received.’
 Terms of payment

Structure of terms of payment combined with a bank guarantee

- ‘The buyer has to arrange a payment guarantee issued by ... ( the

name of the buyer’s bank) for USD 15,500 in favour of the seller,
covering the buyer’s payment obligations according to contract. The
guarantee shall be advised through ... (the name of the seller’s
bank) and shall have reached that bank not later than 30 days from
date of contract and be valid for 30 days from last delivery as
stipulated in the contract.’
 Terms of payment

Structure of terms of payments based on documentary collection

- ‘Payment through documentary collection at first presentation of

documents through (complete name and address of the chosen
bank at the domicile of the buyer, where the documents should be
presented).
- All collection charges (alternatively, bank charges outside the
seller’s country) are to be paid by the buyer. Interest on arrears at x
per sent p.a. will be charged on overdue payments and is to be paid
together with the documents.’
 Terms of payment

Structure of terms of payments based on documentary collection

- Payment should be effected against presentation of the following

documents:
+ at sight bill of exchange drawn on ... (the buyer)
+ invoice in triplicate;
+ certificate of origin issued by ...
+ insurance policy, covering ... (value and risks);
+ full set of clean-on-broad bill of lading, blank endorsed.
 Terms of payment

Structure of terms of payment based on a letter of credit

- ‘Payment through letter of credit, payable at sight with and

confirmed by ... (the agreed advising bank). The letter of credit shall
be issued by ... (the agreed issuing bank) and shall have reached the
advising bank in form and substance acceptable to the seller in
accordance with the contract, not later than 60 days from the date
of the contract.
 Terms of payment

Structure of terms of payment based on a letter of credit

- The letter of credit, which must give reference to the contract

number and date, shall be valid for three months and be payable
against the following documents:
+ at sight bill of exchange, drawn on the advising bank;
+ invoice in triplicate;
+ packing list;
+ certificate of origin, issued by ... :
+ full set of clean-on-board marine bill of lading, blank endorsed and
showing ... (shipping date, ports, etc.)
Methods of payment
 Methods of payment
 International trade presents a wide variety of risks, which causes
uncertainty over the timing of payments between the exporters and
the importers
 Exporters want to receive payment as soon as possible, preferably
as soon as an order is placed or before the goods are sent to the
importer
 Importers want to receive the goods as soon as possible but to
delay the payment as long as possible, preferably until after the
goods are resold to generate enough income to pay the exporter
 Methods of payment

ADVANCED PAYMENT
 Advanced payment

- This is the safest way for an exporter to receive payment for goods
shipped abroad because the finds are received before the goods are
released
- Full or significant partial payment is required, usually via
telegraphic transfer (bằng điện) (T/T) or mail transfer (chuyển tiền
bằng thư) (M/T) through bank, before the ownership of the goods is
transferred.
- Recommended for use in high-risk trade relationships or export
markets, and appropriate for small export transactions
- Exporter is exposed to virtually no risk as the burden of risk is
placed almost completely on the importer
* Discussion: Pros and cons of this terms for importer and exporter?
When to use Advanced payment terms?
 Phương thức chuyển tiền trả trước

Remitting Bank Beneficiary Bank

(2)
Ra lệnh chuyển
(1) tiền cho người
Đơn xin Ctiền thụ hưởng (3)
+ Chuyển tiền cho
Ủy nhiệm chi người thụ hưởng

(4)
Người chuyển tiền Người thụ hưởng
Giao hàng + bộ chứng từ
Importer Exporter
 Advanced payment

- Pros:
+ Payment before shipment
+ Eliminates risk of non-payment

- Cons:
+ May lose customers to competitors over payment terms
+ No additional earnings through financing operations
 Advanced payment

* When to use Advanced payment terms?

+ The importer is a new customer and/or has a less-established
operating history
+ The importer’s creditworthiness is doubtful, unsatisfactory or
unverifiable
+ The political and commercial risks of importer’s home country are
very high
+ The exporter’s product is unique, not available elsewhere or in
heavy demand
+ The exporter operates an Internet-based business where the
acceptance of credit card payment is a must to remain competitive
 Methods of payment

OPEN ACCOUNT – A/C

 Open Account

OPEN ACCOUNT?
 Open Account

- An O/A transaction in international trade is a sale where the goods

are shipped and delivered before payment is due, which is typically
in 30, 60 or 90 days -> advantageous to the importer in terms of
cash flow and cost, but it is consequently a risky option for an
exporter.
- The goods, along with all the necessary documents, are shipped
directly to the importer who agrees to pay the exporter’s invoice at
a future date (30-90 days)
- > Exporter faces significant risks as buyer could default on payment
obligation after shipment of the goods
- The exporter should be absolutely confident that the importer will
accept shipment and pay at the agreed time that the importing
country is commercially and politically secure
 Open Account

Exporter’s bank Importer’s bank

(2)
Payment at agreed future
date, via banking system

(1) Importer
Exporter Goods shipped + docs sent direct
 Open Account

- Applicability: Recommended for use:

+ In secure / long standing trading relationships or markets
+ In competitive markets to win customer with the use of
appropriate trade finance techniques to mitigate the risks of
nonpayment
- This term may help win customers in competitive markets and may
be used with one or more of the appropriate trade finance
techniques that mitigate the risk of non-payment
 Open Account

Advantages to the Exporter:

- There are less constraints on documentation, timing of shipments
and places of dispatch that make this method more feasible (đơn
giản)
- As only the settlement payments pass through the banking system,
the exporter incurs no charge
Disadvantages to the Exporter:
- Exposed significantly to the risk of nonpayment
- There is no guarantee of control if goods are lost
- Because there is no specific constraint on the timing of payments, it is
very difficult to control the cash flow
- There is a possibility that delays in the banking system will delay the
 Open Account

Advantages to the Importer:

- The importer retains control over the timing of settlement and the
method by which funds are remitted
- Inspection of the goods is usually possible before payment

Disadvantages to the Importer:

- There is a possibility that the importer buys goods at higher price

Role of the bank:

- Bank is as an intermediary transferring of fund
- Not responsible for nonpayment, delayed payment or loss goods
 Methods of payment

CONSIGNMENT
 Consignment

- Consignment in international trade is a method of payment in

which payment is sent to the exporter only after the goods have
been sold by the foreign distributor to the end customer
- An international consignment transaction is based on a contractual
arrangement in which the foreign distributor receives, manage, and
sells the goods for the exporter who retains title to the goods until
they are sold
- Payment is sent to the exporter only after the goods have been sold
by the foreign distributors
- One of the common uses of consignment in exporting is the sale of
heavy machinery and equipment because the foreign distributor
needs floor models and inventory for sale
 Consignment

- Exporting on consignment can be help exporters enter new markets

and increase sales in competitive environments on the basis of
better availability and faster delivery of goods
- > Risky for exporter: the exporter is not guaranteed any payment
and someone outside the exporter’s control has actual possession
of its inventory
- Appropriate insurance should be in place to mitigate the risk of
non-payment & to cover consigned goods in transit or in possession
of a foreign distributor

* Discussion: Pros and cons of this terms for importer and exporter?
When to use this terms?
 Consignment
 Applicability: Recommended for use in long standing relationship
between buyer and seller; competitive environments to enter new
markets and increase sales in partnership with a reliable and
trustworthy foreign distributor
 Risks: Risk for exporter because payment is done after consigned
goods
 Pros:
+ Enhance export competitiveness on the basis of greater
availability and faster delivery of goods
+ Reduce the direct costs of storing and managing inventory
 Cons:
+ Exporter is not guaranteed payment
+ Additional costs related to risk mitigation measures
 Methods of payment

COLLECTION
 Collection

- “Collection” means the handling by banks of documents in

accordance with instruction received, in order to:
+ obtain payment and/or acceptance or;
+ deliver documents against acceptance (D/A) or against payment
(D/P);
+ deliver documents on other terms and conditions (DOT)
- “Documents” means financial and/or commercial documents:
+ Financial documents: bills of exchange, promissory notes,
cheques, or other similar instruments used for obtaining the
payment of money
+ Commercial documents: invoices, transport documents,
document of title or other similar documents
 Collection

The Uniform Rules for Collection - URC

- URC 322: Uniform Rules for the Collection of commercial paper,

revision 1978
- URC 522: Uniform Rules for Collection, Publication No. 522, 1995
Revision
 Apply to all collections where these rules are incorporated into the
text of the “collection instruction”
“This collection is subject to the URC, 1995 Revision ICC, Pub No. 522”
 Binding on all parties unless otherwise expressly agreed or contrary
to the provisions of a national, state or local law
 Collection

Collection instruction

- All documents sent for collection must be accompanied by a

collection instruction indicating that the collection is subject to URC
522 and giving complete and precise instructions
- Banks are only permitted to act upon the instructions given in such
collection instruction, and in accordance with these Rules
- Bank will not exam documents in order to obtain instructions
 Collection

Parties to a Collection

- The Principal: who is the party entrusting the handling of a collection

to a bank (exporter)
- The Remitting bank: which is the bank to which the principal has
entrusted the handling of a collection
- The Collecting bank: which is any bank, other than remitting bank,
involved in processing the collection
- The Presenting bank: which is the collecting bank making
presentation to the drawee
- The Payer/Drawee: is the one to whom presentation is to be made in
accordance with the collection instruction
 Collection

* Clean collection:

- Collection of financial documents NOT accompanied by commercial

documents

* Documentary collection:
- Collection of:
+ financial documents accompanied by commercial documents
+ commercial documents not accompanied by financial document
 Clean Collection

- For a clean collection, the exporter dispatches the goods and the
related documents directly to the buyer and then sends his/her bank
the bill of exchange for the value of the goods drawn according to the
sales contract. The bank can then set in train the collection of the due
amount from the buyer.
- Advantages: All in favour of the buyer.
-  Disadvantages: All against the exporter. If the buyer does not pay, or
if he does pay but his country blocks remittance of funds to exporter: 
• the exporter has neither the goods nor the money, and 
• the exporter may not get his goods back.
 Clean Collection

Remitting bank (5)

Funds or
accepted drafts
Collecting bank

(2) Collection instruction

(6) (3)
Funds or accepted B/E
(1) Bill of exchange
Collection
? (4)
instruction Payment or
+ accepted drafts
Bill of
exchange
Goods

Commercial docs
Principal Drawee
 Documentary Collection

- Documentary collection (D/C) is a transaction where by the

exporters entrusts the collection of payment to the exporter’s bank
(remitting bank), which sends documents to the importer’s bank
(collecting bank), along which instruction for payment
- D/Cs involved using a draft that requires importer to pay (at sight –
D/P or on a specified future time – D/A)
- Funds are received from importers and remitted to the exporter
through the banks in exchange for those documents
- Under a D/C transaction, the importer is not obligated to pay for
goods before shipment
- The exporter retains control over the goods until the importer either
pays the draft to incur a legal obligation to pay at a specified later
date
 Documentary Collection

Funds or accepted
Remitting bank (5) draft Collecting bank

(6)
Funds or (2)Collection instruction +
accepted draft Commercial docs + (3)
(B/E) Request to pay or
(1)
Collection
accept draft ?
instruction
(4)
Documents are released Payment or
+
if importer pays at sight accepted draft
Commercial
docs or signs acceptance on
+ draft only
(B/E)

Goods
Exporter Importer
 D/C transaction flow
1. The exporter ships the goods to the importer and receives the
documents in exchange
2. The exporter presents the documents with instructions for
obtaining payment to his bank
3. The exporter’s remitting bank sends the documents to the
importer’s collecting bank
4. The collecting bank releases the documents to the importer on
receipt of payment or acceptance of the draft
5. The importer uses the documents to obtain the goods and to clear
them at customs
6. Once the collecting bank receives payment, it forwards the
proceeds to the remitting bank
7. The remitting bank the credits the exporter’s account
 Documentary Collection

* Document against Payment (D/P)

- The exporter takes the goods for shipment and the collecting bank
may only deliver the documents to the importer in exchange of his
immediate payment (at sight)
- Collection instruction: “Release Documents against Payment”
 Time of Payment: After shipment, but before documents are released
 Transfer of Goods: After payment is made at sight
 Exporter risk: If draft is unpaid, goods may need to be disposed of or
may be delivered without payment if document do not control
possession
 Documentary Collection

* Document against Acceptance (D/A)

- The exporter takes the goods for shipment and the collecting bank
may only deliver the documents against acceptance of a draft signed
by the drawee (importer)
- Collection instruction: “Release Documents against Acceptance”
 Time of Payment: On maturity of draft at a specified future date
 Transfer of Goods: Before payment, but upon acceptance of draft
 Exporter risk: Has no control over goods after acceptance and may
not get paid at the due date
 Documentary Collection

* Applicability

- Because the exporter has little recourse against the importer in case
of non-payment. Therefore, D/Cs should be used only under the
following conditions:
 The exporter and importer have a well established-relationship
 The exporter is confident that the importing country is politically and
economically stable
 An open account sale is considered too risky, and an L/C is
unacceptable to the importer
 Documentary Collection

Nhà XK VN ABC sau khi giao hàng cho KH ở Singagore (XYZ), lập chỉ
thị nhờ thu kèm chứng từ và hối phiếu gửi cho NH phục vụ mình là
Vietcombank. Sau khi nhận được chỉ thị nhờ thu, NH Vietcombank thực
hiện nhờ thu bằng cách gửi thư nhờ thu cho NH HSBC ở Singapore.
HSBC sau đó lại chuyển thư nhờ thu cho NH DBS ở Singapore. NH
DBS thực hiện thu tiền và giao chứng từ cho nhà NK.
Xác định các bên liên quan
 Risks in Collection

Importer
Exporter
 Documentary Collection

Advantages to the Exporter:

- D/Cs are less complicated and less expensive than L/Cs
- Bank assistance in obtaining payment
- Exporter retains control over the goods until the importer either
pays the draft or accepts the draft
Disadvantages to the Exporter:
- The importer is not obligated to pay for goods before shipment
- Bank’s role is limited and they do not guarantee payment
- Bank do not verify the accurate of the documents
 Documentary Collection

Advantages to the Importer:

- A period of credit can be obtained through the use of a term Bill
- It is more convenient and less expensive than a documentary credit

Disadvantages to the Importer:

- Payment or acceptance is required on presentation when the
commercial documents have arrived at the collecting bank and before
the arrival of goods
- If the bill is accepted the importer is legally liable despite, for
example, any clauses in the contract relating to defective goods
Methods of payment
 Methods of payment

DOCUMENTARY CREDIT
 Definition

- Credit means any arrangement, however named or described, that

is irrevocable and thereby constitutes a definite undertaking of the
issuing bank to honour a complying presentation." (UCP 600, article
2)
- Honour means:
+ to pay at sight if the credit is available by sight payment
+ to incur a deferred payment undertaking and pay at maturity if
the credit is available by deferred payment
+ to accept a draft drawn by the beneficiary and pay at maturity if
the credit is available by acceptance
 Definition

Complying presentation

Terms and
Provisions of
Terms of L/C provisions of
ISBP
UCP
 Documentary credit

Sale contract
EXPORTER IMPORTER

L/C Application for L/C

BANK
 UCP 600 & ISBP 745

UCP 600 - Uniform Customs and Practice for Documentary Credits

- UCP 600 (ICC Publication No. 600) is prepared by International
Chamber of Commerce’s (ICC) Commission on Banking Technique and
Practice. The ICC Commission on Banking Technique and Practice
approved UCP 600 on 25 October 2006.  The rules have been effective
since 1 July 2007.
- First uniform rules published by ICC in 1933. Revised versions were
issued in 1951, 1962, 1974, 1983 and 1993.
- Currently majority of letters of credit issued everyday is subject to
latest version of the UCP. This widely acceptance is the key sign that
shows the importance of the UCP, which are the most successful
private rules for trade ever developed. 
 UCP 600 & ISBP 745

eUCP

- It is used for electronic paperless transactions, electronic and mixed

presentations
- The eUCP is not a revision of the UCP. It is a supplement to the UCP
that, when used in conjunction with the UCP, will provide the
necessary rules for the presentation of the electronic equivalents of
paper documents under letters of credit.
 UCP 600 & ISBP 745

ISBP - International Standard Banking Practice for the Examination of Documents

- ISBP is the short and well-known name of the ICC publication No. 745;
International Standard Banking Practice for the Examination of
Documents under Documentary Letters of Credit; was approved by ICC
banking commission in October 2002.
- UCP rules are written in a general manner. They are not detailed
enough to cover the day-to-day practice. ISBP was prepared in order
to fill the gap between general principals of UCP and the daily practice.
It is a supplement to the UCP.
 Parties to Letter of credit

Applicant

Issuing Bank

Advising Bank

Beneficiary
 Parties to Letter of credit

Applicant (người xin mở LC – nhập khẩu)

• Applicant is the buyer of the goods or services supplied by the seller.
Letter of credit is opened by the issuing bank as per applicant's
request.
• Applicant does not belong one of the parties to a letter of credit
transaction, because letters of credit are separate transactions from
the sale or other contract on which they may be based. 
Beneficiary (người thụ hưởng – xuất khẩu)

• Beneficiary is the seller of the goods or the provider of the services in

a standard commercial letter of credit transaction. Letter of credit is
opened by the issuing bank in favor of the beneficiary. 
 Parties to Letter of credit

Issuing bank (ngân hàng phát hành - phía bên nhập khẩu)
• Issuing bank is the bank that issues a letter of credit at the request of
an applicant or its own behalf. It undertakes to honor a complying
presentation of the beneficiary without recourse.
• Issuing bank is the ultimate payer of the letter of credit. Even if other
banks do not pay to the beneficiary against a complying presentation,
issuing bank must pay the letter of credit amount.
• Issuing bank’s responsibilities will be effective as soon as letter of
credit issued. As a result an issuing bank is irrevocably bound to honor
a complying presentation as of the time it issues the credit. 
Parties to Letter of credit
 Parties to Letter of credit

Advising bank (ngân hàng thông báo – xuất khẩu)

• Advising bank is the bank that advises the credit to the exporter at
the request of the issuing bank. Advising banks act upon issuing banks
request advising the letters of credit to the beneficiaries. 
• Advising bank has no payment responsibility against the exporter as
long as the advising bank that is not a confirming bank. The advising
bank advises the letter of credit and any amendment without any
undertaking to honour or negotiate.
• Responsibilities to advising bank: check the apparent authenticity of
the letter of credit or amendment and ensure that the advice of the LC
accurately reflects the terms and conditions of the letter of credit or
amendment received from the issuing bank.
Parties to Letter of credit
Parties to Letter of credit
 Parties to Letter of credit

Công ty XNK A nhận được một L/C do Ngân hàng BOC - Singapore
phát hành.
Trên L/C đó có đoạn ghi như sau: “Ngân hàng BOC sẽ trả tiền ngay sau
khi nhận được chấp nhận thanh toán của người xin mở L/C nếu hàng hóa
phù hợp với chứng từ của người hưởng lợi xuất trình”
Đoạn cuối của L/C có ghi: “L/C này áp dụng UCP 600, bản sửa đổi năm
2007 của ICC”
Công ty XNK A có nên chấp nhận L/C này không? Tại sao?
 Parties to Letter of credit

Theo điều 5 UCP 600: Các ngân hàng giao dịch trên cơ sở các chứng từ
chứ không phải bằng hàng hóa, dịch vụ, hoặc các giao dịch khác mà các
chứng từ có liên quan
 Parties to Letter of credit

Confirming bank

Nominated bank

Transferring bank

Reimbursing bank

Presenting bank
 Parties to Letter of credit

Confirming bank
• Confirmation means a definite undertaking of the confirming bank , in
addition to that of the issuing bank, to honour or negotiate a
complying presentation.
•  Confirming bank means the bank that adds its confirmation to a credit
upon the issuing bank's authorization or request.
• Confirmation can be seen as a security mechanism which works in
favour of the beneficiaries that eliminates the country risks and the
insolvency risks of the issuing bank.
 Parties to Letter of credit

Field 49: Confirmation Instructions

• This field contains confirmation instructions for the Receiver.
• According to current letter of credit rules confirmation means a
definite undertaking of the confirming bank, in addition to that of the
issuing bank, to honour or negotiate a complying presentation.
• According to current letter of credit rules confirming bank means the
bank that adds its confirmation to a credit upon the issuing bank's
authorization or request. As a result banks can not add their
confirmations to the letter of credit without having a confirmation
request by the issuing banks.
• According to current letter of credit rules a confirming bank is
irrevocably bound to honour or negotiate as of the time it adds its
confirmation to the credit.
 Parties to Letter of credit

Sample Field 49: Confirmation Instructions

MT 700
Field 49: Confirmation Instructions:
DEFINITION
This field contains confirmation instructions for the Receiver
CODES
One of the following codes must be used.
+ CONFIRM The Receiver is requested to confirm the credit
+ MAY ADD The Receiver may adds its confirmation to credit
+ WITHOUT The Receiver is not requested to confirm the credit
 Parties to Letter of credit

Nominated bank
• Nominated bank is the bank with which the credit is available or any
bank in the case of a credit available with any bank
• Field 41A: Available with … by …
Issuing bank Payment
Advising bank Acceptance
Confirming bank Deferred payment
ABC Bank Negotiation
Mixed payment
 Parties to Letter of credit

Reimbursing bank
• Reimbursing bank is the bank that, at the request of the issuing bank,
is authorized to pay, or accept and pay time draft under a
documentary credit in accordance with UCP 600 article 13 or if
incorporated, the ICC uniform Rules for Bank-to-Bank Reimbursements
under Documentary Credits (URR 725). 
• Example 1 : Bank-to-Bank Reimbursements subject to URR 725
----------------------- Message Header ---------------------------------
Swift OUTPUT FIN 700 Issue of a Documentary Credit
----------------------- Message Text ----------------------------------
40E:  Applicable Rules
   UCPURR LATEST VERSION
 SWIFT & MT 700/701 in Letter of Credit

Fields in MT700 (Issuing L/C)

M 27 Sequence of Total
M 40A Form of Documentary Credit
M 20 Documentary Credit Number
O 23 Reference to Pre-Advice
O 31C Date of Issue
M 40E Applicable Rules
M 31D Date and Place of Expiry
 SWIFT & MT 700/701 in Letter of Credit

O 51a Applicant Bank

M 50 Applicant
M 59 Beneficiary
M 32B Currency Code, Amount
O 39A Percentage Credit Amount Tolerance
O 39B Maximum Credit Amount
O 39C Additional Amounts Covered
M 41a Available With … By …
O 42C Drafts at …
O 42a Drawee
 SWIFT & MT 700/701 in Letter of Credit

O 42M Mixed Payment Details

O 42P Deferred Payment Details
O 43P Partial Shipments
O 43T Transhipment
O 44A Place of Taking in Charge/Dispatch from…/Place of Receipt
O 44B Place of Final Destination/For Transportation to…/Place of
Delivery
O 44C Latest Date of Shipment
O 44D Shipment Period
O 45A Description of Goods and/or Services
O 46A Documents Required
 SWIFT & MT 700/701 in Letter of Credit

O 47A Additional Conditions

O 71B Charges
O 48 Period for Presentation
M 49 Confirmation Instructions
O 53a Reimbursing Bank
O 78 Instructions to the Paying/Accepting/Negotiating Bank
O 57a ’Advise Through’ Bank
O 72 Sender to Receiver Information
***Note: M = Mandatory O = Optional
Letter of credit
 Issuing Bank Advising Bank
(6) Payment
The Opening The
(5) Presenting docs
bank, Issuing Advising
(2) Transmit L/C
bank bank

Payment/Accept/Nego
(8) Payment

documents
(5) Presenting
(1)L/C application

(3) Advising L/C

(6)
Issuing L/C
(7) Transmit
documents

Shipment ( (4) Admendment

Importer Exporter
 Available with nominated bank (XYZ)

NH mở L/C NH chỉ định

The
The Opening (8) Trả tiền
Nominatin
bank, Issuing (7) Xuất trình Ctừ g bank
bank

(5) Xuất trình Ctừ

(6) Trả tiền

Exporter,
Seller,
 Available with advising bank

NH mở L/C NH thông báo/NH chỉ định

The
The Opening (8) Thanh toán
Advising
bank, Issuing (7) Gửi bộ Ctừ bank
bank

(5) Xuất trình Ctừ

(6) Chiết khấu bCtừ

Exporter,
Seller,
 Types of Letter of credit

Revocable L/C
• Revocable L/C give issuer the amendment or cancellation right of the
credit any time without prior notice to the beneficiary. Since revocable
letters of credit do not provide any protection to the beneficiary, they
are not used frequently.  

Irrevocable L/C
• Irrevocable L/C cannot be amended or cancelled without the
agreement of the credit parties. Unconfirmed irrevocable letters of
credit cannot be modified without the written consent of both the
issuing bank and the beneficiary. Confirmed irrevocable letters of
credit need also confirming bank's written consent in order any
modification or cancellation to be effective. 
 Types of Letter of credit

Confirmed L/C
• Confirmation means a definite undertaking of the confirming bank, in
addition to that of the issuing bank, to honor or negotiate a complying
presentation.
• Confirmed L/C is the L/C that a letter of credit's payment undertaking
is guaranteed by a second bank, in addition to the bank originally
issuing the credit. The confirming bank agrees to pay or accept drafts
against the credit even if the issuer refuses to do so. Only irrevocable
credits can be confirmed.
 Types of Letter of credit

Advance payment (Red clause) L/C

• Letter of credit that carries a provision (traditionally written or typed
in red ink) which allows a seller to draw up to a fixed sum from the
advising or paying-bank, in advance of the shipment or before
presenting the prescribed documents 

Standby L/C
• Standby letters of credit are not primary payment method. Standby
letters of credit are secondary payment options which means they act
as a guarantee and will be utilized in case another primary payment
mechanism does not work. 
 Types of Letter of credit

Revolving L/C
• A revolving letter of credit is a special letter of credit type which is
structured in a way so that it revolves either in value or in time
covering multiple-shipments over a long period of time under single
letter of credit. 
• It is used when exporters and importers sign a long term commercial
sales contract which covers shipments of the same commodity on a
regular basis
Shipments of 10.000 mtons of iron ore from Australia to China
monthly basis for a 6 months period of time
 Types of Letter of credit

Transferable L/C
•  Transferable letter of credit is a documentary credit that is issued
with the option to allow a trader to transfer its rights and obligations
to the supplier

Back-to-back L/C
• Arrangement in which one irrevocable letter of credit serves as the
collateral for another; the advising bank of the first letter of credit
becomes the issuing bank of the second L/C. Unlike transferable letters
of credit, there are two separate letter of credits exist in back-to-back
letter of credit transactions.
 Back to back L/C

Advising bank Issuing bank of back to back L/C Issuing bank

(6) (3)
Back-to-back L/C Original L/C

(4) (2)
(7) (5) Application of
Back to back Application BTB Original L/C
original L/C
L/C L/C

(1b) (1a)
Exporter Contract Middle man Contract Importer

Credit amount: Back to back L/C < Original L/C

Quantity of docs: Back to back L/C > Original L/C

 Availability of Letter of credit

• Field 41A: Available with … by …

Issuing bank Payment
Advising bank Acceptance
Confirming bank Deferred payment
ABC Bank Negotiation
Mixed payment
 Availability of Letter of credit

• Sight Payment : refers to the payment which is made as soon as the

complying presentation is seen by the issuing bank or the bank
nominated in the letter of credit. The nominated bank fulfills its
payment obligation with recourse basis
• Deferred Payment : refers to the payment which is made after a
period of time that is specified also in the letter of credit. The payment
period is usually determined as specific number of days after the date
of presentation or the date of the transport document. Bill of
exchange or draft is not required under deferred payment
• Acceptance : refers to acceptance of a bill of exchange which is drawn
on the bank mentioned in the letter of credit to be presented with the
other required documents and payment at the maturity
 Availability of Letter of credit

• Negotiation : Negotiation means the purchase by the nominated

bank of drafts (drawn on a bank other than the nominated bank)
and/or documents under a complying presentation, by advancing or
agreeing to advance funds to the beneficiary on or before the banking
day on which reimbursement is due to the nominated bank. (UCP 600
- Article 2)
 Discussion

Importer
Exporter
 Discussion

L/C quy định:

41D: AVAILABLE WITH CONFIRMING BANK BY PAYMENT
Qua kiểm tra, NHXN kết luận BCT có lỗi và từ chối thanh toán.
Trong trường hợp này, người thụ hưởng phải làm gì
 Discussion

a. Nếu người thụ hưởng quả quyết là chứng từ phù hợp thì yêu cầu
NHXN xuất trình tiếp đến NHPH
b. Nếu thời hạn xuất trình còn và L/C chưa hết hạn thì khẩn trương sửa
chữa sai sót, bổ sung chứng từ thiếu, thay thế chứng từ không phù
hợp… và xuất trình lại cho NHXN
c. Nếu BCT có sai sót mà không thể sửa chữa, thay thế hay bổ sung, thì
vẫn gửi chứng từ đến NHPH xin nhà NK bỏ qua các lỗi và sai sót
d. Nếu các lỗi và sai sót không được nhà NK bỏ qua, thì chuyển sang
phương thức nhờ thu, hoặc đàm phán đấu giá, giảm giá, tìm người
mua mới…
 Discussion

Công ty Vinafood xuất khẩu gạo 35% tấm sang Philipines. L/C không hủy ngang và cho
phép giao hàng từng phần có quy định như sau:
+ Chuyến 1 giao 10.000T gạo vụ mùa 2014, ngày giao hàng muộn nhất
01/05/2014.
+ Chuyến 2 giao 10.000T gạo vụ mùa 2014, ngày giao hàng muộn nhất
01/06/2014.
+ Chuyến 3 giao 15.000T gạo vụ mùa 2014, ngày giao hàng muộn nhất
01/07/2014.
Công ty VNF không kịp thực hiện chuyến giao hàng đầu tiên. Sau đó, công ty thực hiện
hoàn chỉnh chuyến giao hàng thứ hai, thứ ba. Trong chuyến giao hàng thứ hai công ty
VNF đã giao bổ sung hàng của chuyến thứ nhất.

Bộ chứng từ do cty VNF xuất trình có được chấp nhận thanh toán hay không?
 Discussion

Điều 32, UCP 600: Giao hàng hoặc trả tiền nhiều lần
Nếu việc trả tiền hoặc giao hàng nhiều lần trong từng thời kì nhất định
được quy định trong tín dụng và bất kì lần nào không thanh toán hoặc
không giao hàng trong kì dành cho lần đó, thì tín dụng không còn giá trị
đối với lần đó và bất kì lần nào tiếp theo.
 Discussion

L/C quy định: “Expiry date for presentation: 05/08/2014 in beneficiary

country”.
Người thụ hưởng xuất trình BCT cho NHđCĐ ngày 04/08/2014.
Ngày 05/08/2014 NHđCĐ thông báo thiếu chứng từ.
Ngày 06/08/2014 người thụ hưởng xuất trình bổ sung đầy đủ, NHđCĐ
chiết khẩu BCT, chuyển tiếp đến NHPH và điện đòi tiền NHPH. Nhận
được điện đòi tiền, NHPH hoàn trả ngay cho NHđCĐ. Do giá hàng nhập
khẩu giảm mạnh nên người nhập khẩu kiện quyết không nhận BCT vì
cho rằng xuất trình là quá hạn và yêu cầu NHPH tuyên bố từ chối thanh
toán vì chưa quá 5 ngày làm việc.
Ai là người chịu rủi ro?
 Discussion

- BCT xuất trình là quá hạn -> không thể coi xuất trình là phù hợp.
- Người NK có quyền từ chối BCT và từ chối hoàn trả tiền cho NHPH vì
xuất trình quá hạn
- Quyết định thanh toán/ chấp nhận thanh toán của NHPH luôn luôn là
miễn truy đòi -> không thể đòi lại tiền từ người thụ hưởng
ÞViệc NHPH quyết định hoàn trả ngay cho NHđCĐ (mà lại không tiếp
xúc xin ý kiến của người NK) là một yếu kém về nghiệp vụ
Þ NHPH phải tự chịu rủi ro
 Discussion

Công ty Simac của Anh, một công ty chuyên sản xuất đồ gỗ nội thất, đã
nhập khẩu gỗ từ hãng Latel của Pháp. Cuộc mua bán được giới thiệu
thông qua một số thông tin trên Internet. Do đang trong lúc cần gỗ gấp
nên Simac đã nhanh chóng thỏa thuận nhập khẩu với Latel. Họ đã thỏa
thuận thanh toán theo L/C, vì vội vàng nên Simac chưa đề cập kĩ các nội
dung cụ thể của L/C mà nhanh chóng chuyển tiền cho Latel theo L/C
thông qua một ngân hàng do Simac chỉ định. Nhưng rồi tiền thì được
gửi đi, nhưng mãi vẫn chưa thấy hàng về. Tìm hiểu kĩ thì Simac mới vỡ
lẽ ra rằng Latel chỉ là một công ty ảo trên mạng, không có thật.
 Discussion

- Tìm hiểu bạn hàng kĩ lưỡng

- Tham khảo ý kiến ngân hàng về quá trình kinh doanh của người XK
- Quy định trong HĐ điều khoản Penalty, trong đó quy định phạt bên
nào không thực hiện nghĩa vụ của mình một cách đầy đủ
- Yêu cầu cả hai bên kí quỹ tại một ngân hàng để đảm bảo thực hiện hợp
đồng
- Yêu cầu những công cụ của ngân hàng như: Stand by L/C, Bank
Guarantee, Performance Bond… (chỉ áp dụng đối với những HĐ lớn và
khách hàng không quen biết nhau) để đảm bảo quyền lợi nhà NK
 Discussion

Công ty Hapos của Úc đã kí thỏa thuận mua hàng với một đối tác Nhật
Bản, nhưng trong những thỏa thuận trong HĐ Hapos đã để cho đối tác
Nhật Bản lựa chọn hãng tàu vận chuyển. Hapos cứ đinh ninh đợi hàng
về, nhưng sự việc bất ngờ xảy ra, chiếc tàu của hãng tàu trên đường từ
Nhật Bản đến Úc đã bị hải quan bắt giữ vì có vận chuyển hàng cấm và
hàng chưa kê khai hải quan. Kết quả là tất cả hàng hóa mà Hapos đặt
cũng bị tịch thu luôn.
 Discussion

- Giành quyền chủ động thuê tàu (nhập khẩu theo điều kiện nhóm F)
- Chỉ định hãng tàu nổi tiếng, đặc biệt nên thuê tàu của các hãng có văn
phòng giao dịch tại nước nhà nhập khẩu
- Mua bảo hiểm cho hàng hóa
- Trong hợp đồng nên ràng buộc trách nhiệm của nhà xuất khẩu trong
vấn đề xếp hàng lên tàu như nhập khẩu theo điều kiện FOB stowed, CFR
stowed, CIF stowed…
 Discussion

LC qui định:
 Cấm giao hàng từng phần.
 Hàng được giao từ cảng Bunsan, Hàn Quốc.
 Hàng hóa là xe tải hieeuh Huynhdai, số lượng 25 chiếc.
 Nhà XK ở HQ đã xuất trình các vận đơn.
VĐ 1: Cấp 07/02/2009 thể hiện số lượng xe :10 chiếc, giao hàng từ cảng Ulsan, tàu
Hanjin IV, cảng dỡ hàng là cảng SG.
VĐ 2: Cấp 07/02/2009, số xe: 5 chiếc, từ cảng Ulsan đến cảng SG, trên tàu Hanjin IV.
VĐ 3: Cấp 15/02/2009 số xe: 10 chiếc từ cảng Quảng Châu, TQ đến cảng SG, trên tàu
Hanjin IV.
a. Ngày giao hàng được nhận định là ngày nào?
b. Người XK trong TH này có vi phạm qui định cấm giao hàng từng phần của LC
hay không, tại sao?
c. NHPH đã từ chối các VĐ xuất trình trên, anh (chị) có nhận xét gì về quyết định
của ngân hàng?
 Discussion

Theo điều 31(b) UCP 600:

Việc xuất trình nhiều bộ chứng từ vận tải chỉ rõ việc giao hàng được thực
hiện trên cùng 1 phương tiện vận chuyển, cùng chung 1 hành trình ngay
cả khi ngày giao hàng khác nhau, cảng bốc hàng khác nhau thì không
được coi là giao hàng từng phần.
Nếu xuất trình nhiều bộ chứng từ vận tải, ngày giao hàng sau cùng trên
bất cứ chứng từ vận tải nào sẽ được coi là ngày giao hàng.
 Discussion

a. Ngày giao hàng là ngày 15/02/2009.

b. Người xuất khẩu trong trường hợp này không vi phạm qui định giao
hàng từng phần vì trong 3 lần giao hàng, tuy ngày giao hàng và cảng bốc
hàng khác nhau nhưng việc giao hàng được thực hiện trên cùng 1
phương tiện là tàu Hanjin IV và cùng chung 1 hành trình đến cảng Sài
Gòn, VN.
c. NHPH từ chối việc xuất trình các vận đơn trên là đúng vì cảng bốc
hàng được qui định trên LC là cảng Busan, Hàn Quốc trong khi trên 3
vận đơn thể hiện:
Lần vận chuyển 1: cảng Ulsan, HQ.
Lần vận chuyển 2: cảng Ulsan, HQ.
Lần vận chuyển 3: cảng Quảng Châu, TQ.
Như vậy, do cảng bốc hàng không phù hợp với LC nên NHPH từ chối
việc xuất trình vận đơn là hợp lý.