Chapter 6

Price and payment terms

Learning Objectives

1 Understand the stipulation of price

2 Understand the time and methods of payment

3 Understand the stipulation of payment

Stipulation of export price
• Code of currency: USD, CAD, CNY, EUR, GBP… Parties’ agreement: Export/Import
countries’ currency or a third country’s currency
• Number indicating the unit price
• A unit for measuring quantity: kg, gr, MT, yd, set…
• A certain trade term: FOB, CFR, CIF,… Incoterms (2020)
• Total value: in number and in words; Discount (if any)
 Pricing methods
1. Fixed price: Price shall not be reconsidered despite unexpected fluctuation
Unit price: USD 280/MT CIF Vietnam port, Incoterms 2020

2. Price to be advised: The contract does not indicate a certain price but
mentions time, method to define it in the future
Unit price: The market price in FOB term, Incoterms 2020 to be issued by Market Price Bulletin at the date of delivery

3. Flexible price: Basic price + method to review basic price in case of

unexpected rise/fall
USD 220/MT FOB Saigon port, Incoterms 2010. The price will be changed if on the delivery date, market price varies more than 10%
 Time of payment
• Advance payment – full or partial, before the shipment

• Immediate payment – full or partial, before or at the time the seller puts the
doc or goods under the control of the buyer

• Deferred payment – full or partial after the time the seller puts the doc or
goods under the control of the buyer
 Payment documentations
A set of documents related to the shipment prepared by the seller

• Bill of lading (most important documents in sea transportation)

• Commercial invoice
• Packing list
• Certificates of quality/ quantity
• Certificate of origin

 The buyer needs this documentation to receive the shipment

 Seller can use this documentation to control the buyer’s right of receiving
the shipment
PAYMENT METHODS
 1. Open Account
Payment documentations

- An open account transaction is a sale where the goods are shipped and
delivered before payment is due

- Goods, along with necessary export documents, are shipped directly to the
importer who has agreed to pay the exporter's invoice at a specified date (in
30, 60 or 90 days)

- Apply when there is high trust between buyer and seller

- Advantageous for importer, but high risk for an exporter.

 Open Account
Payment documentations

- Open account terms may help to win customers in competitive markets

- May be used with appropriate trade finance techniques that mitigate the risk
of non-payment (export credit insurance, export factoring…)
 2. Remittance
• Remittance is transfer of money from one party to another party through banks
Payment documentations

• Parties involved in remittance are:

 Remitter (importer)
 Payee/beneficiary (exporter)
 Remitting bank
 Paying bank

• Types of remittance: Mail transfer (M/T) and Telegraphic transfer (T/T)

• Replacing Open Account method, most popular method with normal contracts
2.1 Transfer money before
delivery
Exporter Importer
Process
1. Contract

5. Delivery &
Documents

4. Payment 2. Draft

3. Transfer money

Remitting Paying bank

bank
 2.1 Transfer money before
delivery
Đặc điểm

Seller Buyer
• Chứng từ thương mại
và/hoặc chứng từ tài chính
Document
được người bán chuyển
trực tiếp cho người mua,
không qua ngân hàng

• Ngân hàng chỉ là Selle Buyer

r
trung gian chuyển
tiền, không có trách Money Money
nhiệm thanh toán tiền
hàng hóa/dịch vụ
2.1 Transfer money before
delivery
Lợi ích - Bất lợi
Áp dụng khi nao

Lợi ích • Có lợi cho người bán: Chiếm dụng vốn

• Bất lợi cho người mua: Bị chiếm dụng vốn, chưa chắc đã nhận
được hàng hoặc nhận được hàng không đúng chất lượng hoặc
Bất lợi số lượng hoặc không đúng hạn.
• Không có quy tắc thực hành thống nhất quốc tế điều chỉnh dễ
dẫn đến rủi ro về xung đột pháp luật.

Áp dụng khi:
• Người mua tin tưởng người bán và muốn thiết lập mối quan hệ lâu dài với
người bán
• Người bán lo lắng khả năng tài chính của người mua
• Người bán là DN lớn/Hàng SX là hàng đặc chủng
2.2 Transfer after delivery

Exporter Buyer
Process
1.Contract

2. Deliver &
documents

5. Payment 3. Draft

4. Transfer

Remitting bank Paying bank

2.2 Chuyển tiền sau khi giao hàng

Đặc điểm

• Chứng từ thương mại Seller Buye

r
và/hoặc chứng từ tài
chính được người bán Document
chuyển trực tiếp cho
người mua, không qua
ngân hàng

• Ngân hàng chỉ là Selle Buyer

trung gian chuyển r
tiền, không có
trách nhiệm thanh Money Money

toán tiền hàng

hóa/dịch vụ
2.2 Chuyển tiền sau khi giao hàng
Lợi ích - Bất lợi
Áp dụng khi nao

Lợi ích • Có lợi cho người mua: Nhận hàng rồi mới phải thanh toán

• Bất lợi cho người bán: Có thể bị chậm thanh toán hoặc không
được thanh toán
Bất lợi
• Không có quy tắc thực hành thống nhất quốc tế điều chỉnh dễ
dẫn đến rủi ro về xung đột pháp luật.

Áp dụng khi:
• Người bán hoàn toàn tin tưởng người mua, tin tưởng vào khả năng tài chính
và uy tín của người mua.
• Hai bên có mối quan hệ làm ăn lâu dài với nhau và người mua có lịch sử
thanh toán đúng hạn.
 3. Collection
• A payment method in which the exporter after delivering the goods shall
issue the draft to order the buyer to pay money via the bank with or without
transferring the documents

• A Bill of exchange (draft) is a written, unconditional order by one party (the

drawer) to another (the drawee) to pay a certain sum
 Collection
-Parties involved in Collection: Payment documentations

• Principal---drawer, usually the seller

• Remitting bank---in the seller’s country working as the agent of the seller
• Collecting bank---in buyer’s country presenting the documents to the
buyer, usually the remitting bank’s overseas branch or correspondent bank
• Payer---drawee, usually the buyer

- 2 types of collection:
• Clean collection
• Documentary collection
 Clean Collection
Payment documentations

Collections of financial documents (promissory notes, cheques, payment slips, etc)

without attached commercial documents (invoices, and shipping and insurance
documents)
Documentary Collection (D/C)
Collections of financial documents that required commercial documents
 4. Letter of Credit (L/C)
Payment documentations

- L/C is a document sent from a bank or financial institution that guarantees

that a seller will receive a buyer's payment on time and for the full amount.

- Applicant (importer) - requests the bank to issue the LC.

- Issuing bank (importer’s bank) - issues the LC

- Beneficiary (exporter)

- Advising bank/ Confirming bank

 Letter of Credit (L/C)
Payment documentations

- The L/C is a separate document from the sales contract;

- The bank’s obligation to pay is solely conditioned upon the seller’s compliance
with the terms and conditions of the L/C

- In L/C transactions, banks deal in documents only, not goods.

- In cases sellers have little confidence in the financial strength of the buyer’s
country or the issuing bank, they should require a bank in their country to
confirm L/C
 Letter of Credit (L/C)
Payment documentations

- L/C classifications
• L/C at sight
• Deferred L/C
• Revocable L/C
• Irrevocable L/C
• Confirmed irrevocable L/C
Choosing the payment methods
Payment documentations

- Analyse data and information about buyers and their creditworthiness

- Consider export value, type of goods, cost of shipping, type of risk…

- Exporters must carefully prepare the documentation necessary for

transactions to take place and be completed in a timely way.

- The best payment method is one that meets the needs of both the buyer
and the seller while minimizing risk.