5/19/2026

ACADEMY OF POLICY AND DEVELOPMENT

ISEF

INTERNATIONAL PAYMENT

Phd. Luu Huyen Trang

Email: tranglh@[Link]

Ha Noi 2024

Objective
Completed subject, students will be able to:
✓ Advise clients appropriately on international trade and
finance
✓ Understand the process involved in international trade
✓ Understand the risks involved International trade and how to
mitigate them
✓ Understand the current banking practices and convention
applicable to international trade
✓ Understand the roles and responsibilities of all parties
involved in trade finance
✓ Take the exam of London Institution Banking and Finance on
Trade Finance: CITF – Certificate of International Trade
Finance or CDCS (Certificate of Documentary Credit
Specialist)

Reading
◼ Required reading
➢ Finance of International trade (Eric Bishop)
➢ The Handbook of International Trade and Finance – Anders
Grath 2008)
➢ ICC publications: Incoterms 2010; UCP 600 ; ISBP 745; BEA
1882; ULB 1930
➢ International Trade and Finance – Prof Dinh Xuan Trinh and
Dang Thi Nhan
◼ Supplementary reading
➢ International Trade Finance: A pragmatic approach (Tarsem
Bhogal, Arun Kumar Trivedi)

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Assessment
Student’s Responsibilities:
❑ Attend class regularly
❑ Participate in discussions in class
❑ Group assignments Assessment:
20%: attend class and mini test
20%: mid-term test
60%: written exam (MCT)

Introduction to
International Trade market

Content
◼ Introduction and course overview
◼ The external factors faced in International trade
market
◼ Risks involved in International trade
◼ Research market and method of entering an
overseas market
◼ What is international payment?
◼ The principal players in international payment
◼ Role of intermediaries in international trade
finance

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Introduction and course overview

Introduction and course overview

Introduction and course overview

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Foreign Trade
◼ Exporter vs Importer:

Negotiation of a Contract

❑ Exporter – PAYMENT

❑ Importer - GOODS

Introduction and course overview

The external factors faced in International trade market

PESTEL model reflect the external factors affecting to
International trade market

❑ Political (influenced by multilateral or bilateral agreement;

historical relationship bw countries, political regime...)
❑ Economic (industrial growth, impact of currency fluctuation
bw countries, level inflation, employment level bw
countries affect trade..)
❑ Social (religious or culture differences, culture custom,
language be a barrier to trade, negotiation style bw two
countries..)
❑ Technology
❑ Environmental
❑ Legal

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Risks involved in international trade

Product,
production
and transport
risks Commercial
Financial risks risks

Main trade
risks

Currency risks Political risks

Adverse
business risks

Risks involved in international trade

❑ Product risks: unexpected working conditions in the buyer’s
country lead to reduced performance of the delivered goods
(negligence concerning operating procedures or restrictions,
careless treatment or lack of current maintenance, damage
due to the climate/environmental reasons).

❑ Manufacturing risks: some elements of the manufacturing

process itself.

❑ Transport risk: damage the good during shipment until final

destination

Risks involved in international trade

❑ Commercial risks (purchaser risks): the risks of the buyer

going into bankruptcy or being in any other way incapable
of fulfilling their contractual obligations

❑ Credit information: the more the seller understand their

customers, the more they are able to respond to their
individual needs and circumstances.

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Risks involved in international trade

❑ Adverse business risks: include all business practices of a

negative nature, such as bribery, money laundering and a
variety of facilitation payments.

❑ The need for a strong policy: supported by local laws,

which give both the company and its employees a much
stronger moral and legal defense against every attempt to
extort bribes from them or to induce them into any other
form of corrupt practice.

Risks involved in international trade

❑ Political risks: the risk of a separate commercial

transaction not being realized in a contractual way due to
measures emanating from the government or authority of
the buyer’s own or any other foreign country.

❑ Causes of political risks:

▪ Political stability
▪ Social stability
▪ Economic stability

Risks involved in international trade

❑ Currency risks: fluctuate of foreign currency or movement
in exchange rate can create an unexpected Profit and Loss
in transaction...
The size of that risk will depend on the currency and the
outstanding period until payment.

❑ Assessment of currencies: Currencies are divided into

“strong” and “weak”, affecting preferred trade currencies.
The highest preference is normally for currency of the home
country.
“Strong” or “weak” currencies subject to economic and
political stability, strong economy, low inflation, stable policy.

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Risks involved in international trade

❑ Financial risks: occur when the deal is not settled as

intended, affecting the seller’s liquidity during its
different phases including Purchasing, Production and
shipment.

❑ Financial risk and cash management: The financial risks

are generally intimately connected to the structure of the
terms of payment. The safer terms of payment are, the less
the financial risks will be, ensuring cash management.

Risks involved in international trade

❑ Other risks
▪ Languages and culture
▪ Legal issue
▪ Credit risk: buyer not paying or country with a poor credit risk
of where buyer is resident

Questions
A risk that buyer will not pay for the goods is also known as:
a. Credit risk
b. Financial risk
c. Legal risk
d. Exchange risk
An unexpected movement in exchange rates on a transaction
can cause an unexpected:
a. Profit and Loss
b. Income or expenditure
c. Sales or cost
d. Asset or liability

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Research market
When a business decides to enter into an overseas market, they can
conduct via research on the countries that they want trade. Many
sources of information that can be used for research:

❑ Government department (ex: UK trade and investment –UKTI;

International trade administration (ITA) of Department of
commerce in US)
❑ Chambers of commerce: provide a range of services: training,
provide country report, lawyer...
❑ Trade mission (coordinated overseas visit buy a group of
bussiness individual representing their company to meet potential
buyer or seller) and exhibition/trade shows: expo to show the
latest products and services to potential buyer
❑ Banks
❑ Status enquires and credit control
❑ The internet and media
❑ Networking

Research market
❑ Banks: assistance with range of services as produce
economic reports on individual countries, giving information
about standard living, consumer expenditure, foreign
currency reserves....
+ obtain credit information and reports on both potential
customers and supplier
+ advise importer or exporters all aspects of making and
receiving payment from overseas, risk involved and the
mechanisms it can offer to minimize the risk
+ advise the details in various trade finance products that may
be available and advise how these work....

Research market
❑ Status enquires and credit control
❑ Banks: can provide contain just a few line comment
of creditworthiness of customers...
❑ Credit reference agencies: can check in
[Link]: list of various credit reference
agencies used in the world
❑ Credit rating agency: Fitch, Moody’s and Standard
and Poor... provide rating on credit standing of any
large bz that raised capital on international markets
❑ Credit insurer: provides of credit insurance will also
provide credit report

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Method of entering an overseas market

◼ Direct to end user

◼ Appointment of an agent or distributor

◼ Through a joint venture

◼ Through international franchising or licensing

What is International Payment?

◼ International payments, also known as cross-border payments,
are transactions in which the payer and the payee are based in
different countries. These payments are key for businesses that
have international suppliers, contractors, employees, customers,
or partners.
◼ What are international payments used for?

•Purchasing goods and services •Acquiring assets

•Paying salaries to international •Financial market transactions
employees or contractors
•Payment for travel and expenses
•Paying dividends or interest
•Charitable donations
•Investment activities

Classification of International Payment

◼ Terms of payment without documents
➢ Remittance
➢ Open Account
➢ Clean Collection
➢ Demand Guarantee

◼ Terms of payment with documents

➢ Documentary Collection
➢ Documentary Credit
➢ Letter of Authority to Purchase

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The principal players in International Payment

❑ Exporters
❑ Importers
❑ Freight forwarders
❑ Warehousemen
❑ Carriers
❑ Insurers
❑ Banks
❑ Factors
❑ Government agencies and international financial
institutions

The principal players in International Payment

❑ Exporters: are at the beginning of any trade transaction and

may be manufacturers, traders, farmers or commodity
producers who sell goods or services to overseas buyers in a
variety of ways.
❑ Importers: may be manufacturers buying raw materials for
their factories, or merchants and traders fulfilling contracts
with domestic and foreign consumers.
❑ Freight forwarders: or forwarding agents, collect goods from
exporters, sometimes packing them for shipment, transport
goods to ports of shipment by road, rail or barge and arrange
with the shipping company for goods to be loaded on board.
❑ Warehousemen: perform warehouse service prior to the
shipment of goods and after their arrival at the port of
destination

The principal players in International Payment

❑ Carriers: Goods may be transported in a number of different

ways and by several types of carriers such as containers,
shipping companies and airlines.
❑ Insurers: provide a wide range of cover against marine and
war risks, in many cases write specific policies for individual
commodities. (Reference: Institute Cargo Clauses – ICC)
❑ Banks: provide a multitude of banking services to every
operator in the trade chain and for every stage of any
transactions.
❑ Government agencies and international financial
institutions

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Role of intermediaries in International trade finance

The bank/customer relationship:

1. To make payment through secure and reliable system

2. To collect amounts payable to its customer in respect of
check and other instruments (bill of exchange)
3. To provide regular statements
4. To keep its customers’ affairs confidential, subject only to
certain laws that require information to be disclosed
5. To have a clear complaints procedure
6. To repay advance as agreed
7. To pay reasonable charges
8. With customer; to protest against fraud and prevent
criminal activity

Case study

◼ PLC company is based in Vietnam. The company has a broad

international client base and sells oil and related products
across the world. As is common in this industry, the oil is paid
in USD and PLC which reports in VND.

1. Analysis the risk that company need to manage?

2. Provide the potential solutions for PLC company

Questions

1. What are the external factors faced in International

trade market?
2. What are the risks in international trade?
3. Which sources of information that can be used for
market research?
4. What are the role of intermediaries in International
trade finance

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Contracts and Documents be

used international trade
finance

Objectives
By the end of this topic, you should have an understanding of:
◼ What makes a valid contract

◼ Understanding the terms and condition in Sales contract

◼ The 1980 United Nation Convention on Contracts for

International Sale of Goods (CISG)
(A full list of signatories and their current status can be
found at:
[Link]/uncitral/en/uncitral_texts/sale_goods/19
80CISG_status.html)
◼ Trade terms – The ICC Incoterms 2010 Rules
◼ Financial documents: Bill of exchange & promissory note
◼ Other documents used in international trade : transport
documents, insurance documents….

Content

◼ What is a sale contract?

◼ A valid sale contract
◼ Terms and conditions in Sale contract

◼ The 1980 United Nation Convention on Contracts

for International Sale of Goods (CISG)

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Foreign Trade
◼ Exporter vs Importer:

Negotiation of a Contract

❑ Exporter – PAYMENT

❑ Importer - GOODS

What is a sales contract

A sales contract is a legally binding agreements that govern
a transaction between a buyer and seller.

◼ The document includes the details of the exchange, the

terms of sale, clear product or service descriptions and
more.
◼ A good sales contract should leave no doubt in either party’s
mind about their rights and obligations during a transaction.

A valid contract
Conditions must have been met:
❑ There must be a firm offer and an acceptance of that offer
❑ There must be an intention to create a contract
❑ There must be consideration − each party provides
something to the other
❑ There must be capacity to contract − for a limited
company that means that the nature of the business is
within the objectives set out in the company’s
memorandum and articles;
❑ Consent must be freely given without duress or based on
false information;
❑ The purpose must be legal.

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The Sales Contract covers:

▪ Contract parties ▪ Transfer of ownership

▪ Goods, services ▪ Documentation
▪ Price, currency ▪ Miscellaneuos provisions
▪ Delivery time ▪ Law, Jurisdiction
▪ Trade term (Incoterm) ▪ Attachments …
▪ Transport-insurance
▪ Payment conditions

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CONTRACT OF SALE
◼ We need to specify above all:
• Identification of parties;
• Description of goods;
• Price of the goods (what is included?);
• Inspection of the goods – obligations and limitations;
• Quantity and quality variations in the products delivered
• Delivery periods, conditions (contract of carriage?!);
• Where exactly the goods will be delivered to the Buyer;
• Transfer of risk (Insurance?);
• Reservation of title and passing of property rights;

Contract of sale also should cover:

❑ Who will be responsible for export clearance and who for
import clearance and the cost (duty, VAT);
❑ Who will pay what in relation to the delivery of the
goods;
❑ How the payment is to be done by the Buyer;
❑ What documents must be surrended by the Seller;
❑ Seller´s warranties and buyer´s complains;
❑ Assignment of rights;
❑ Force majeure clause;
❑ Requirements amendments or modifications;
❑ Controlling language of the contract;
❑ Choice of law and dispute resolution mechanism.

Commodity
The goods should be SIMPLE and EXACTLY described.
We should write the name of the commodity with:
• The commercial and technical name
Ex: Printing machines laser Epson EPL 6100
• The origin country
• The manufacturer name
Ex: Fax machine Panasonic KXFP-152
• The feature of the product
Ex: Long grain White Rice 5% broken

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Quality
Methods to describe the quality of the commodity:
• The sample
• The standards
• The trade mark
• The technical documents
• The amount of a substance
• The natural weight
• The inspected and approved
• The present value of the product
• The description
• The familiar norms

Quantity

Identify Method of Types of

Units of identifying weight
Measures quantity
and
Weights

Price
Method of
identifying price
Currency of Price
(Fixed/Deferred/
Revisable Price)

Terms of sale

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Delivery

Term of Delivery Place of Delivery

Notification of
Delivery

Payment
Currency of payment Time of payment
• Currency of importer’s • Prepayment/ Payment in
country advance
• Currency of exporter’s • Sight payment
country • Deferred Payment
• Another country

Methods of payment Payment documents

United Nations Convention on Contracts for the

International Sale of Goods (CISG)

Part 1: Sphere of application and general provisions

Part 2: Formation of the contract
Part 3: Sale of goods:
Chapter I: General provisions
Chapter II: Obligations of the seller
- Delivery of the goods and handing over of
documents
- Conformity of the goods and third-party claims
- Remedies for breach of contract by the seller

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United Nations Convention on Contracts for the

International Sale of Goods (CISG)
Chapter III: Obligations of the buyer
- Payment of the price
- Taking delivery
- Remedies for breach of contract by the buyer
Chapter IV: Passing of risk
Chapter V: Provisions common to the obligations of the
seller and of the buyer
- Anticipatory breach and instalment contracts
- Damages - Effects of avoidance
- Interest - Preservation of the goods
- Exemptions
Part IV. Final provisions

United Nations Convention on Contracts for the

International Sale of Goods (CISG)
Chapter III: Obligations of the buyer
- Payment of the price
- Taking delivery
- Remedies for breach of contract by the buyer
Chapter IV: Passing of risk
Chapter V: Provisions common to the obligations of the
seller and of the buyer
- Anticipatory breach and instalment contracts
- Damages - Effects of avoidance
- Interest - Preservation of the goods
- Exemptions
Part IV. Final provisions

Questions
◼ What is a sale contract?
◼ How is a valid sale contract?
◼ What are the terms and conditions in Sale contract?

◼ What are the things need to be considered in sale

contract, in terms of commodity, quality, quantity,
price and terms of payment?
◼ What is The 1980 United Nation Convention on
Contracts for International Sale of Goods (CISG) about?

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Documents be used international

trade finance
FINANCIAL DOCUMENTS

Objectives
By the end of this topic, you should have an understanding
of:
◼ Which documents be used international trade finance.

◼ The financial documents (Bill of exchange, promissory

note, cheque) and trade finance solution.
◼ The commercial documents including Bill of lading,
AWB, Commercial invoice, C/O, Insurance Cert,
Inspection Cert, P/L,,,

Content

◼ Financial documents and trade finance

solutions

◼ Commercial documents

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Major of documents in International Trade

◼ Financial documents:
- Bill of exchange
- Check
- Promissory note
◼ Commercial documents:
o Invoice
o Insurance
o Bill of lading or other
document evidencing
transport of goods

Financial Documents/ Negotiable Instruments

Bill of exchange
Bill of Exchange = Document of demand issued by
seller to buyer .
“An unconditional order in writing, addressed by one
person to another, signed by the person giving it,
requiring person to whom it is addressed to be paid on
demand or at a fixed or determinable further time, a
sum certain in money to, or to the order of a specified
person or to the bearer.”
The tenor of the draft – On demand, at sight or After a
fix term or usance period

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Usance Draft
Term or usance draft is payable at the end of a fixed or
determinable period specified in number of days (30, 60, 90
days) after sight or from date of draft.
For example, a draft drawn on 15.2.07 is accepted by drawee
(buyer) on 1.3.07. Payment term is 30 days after sight.
Therefore, the draft will be payable on 31.3.07 i.e. 30 days
after sight.
Parties to the bill of exchange are:
▪ Drawer: Seller
▪ Drawee: Buyer
▪ Payee: The receiving party
▪ Acceptor: The person who accepts the bill of exchange
▪ Endorser: The one who endorses on reverse of bill of exchange.

© Kenneth A. Reinert,
Cambridge University Press 2021

N01-02-112(1) BILL OF EXCHANGE

For 100,000 USD Ha noi May.25.2022

At sight of this First Bill of Exchange (second of the same tenor

and date being unpaid) pay to the order of Bank for Foreign Trade of
Vietnam, Hanoi branch the sum of US dollars One hundred
thousand only.
Value received as Invoice number: EXNS 0011 dated 25 May 2022
Drawn under Sumitomo Bank, Japan as LC Number JP JP11026
dated 10 May 2022

To: Sumitomo Bank NSDS Company.

Tokyo Japan Hanoi

(signed)

Exercise – W2
You are working for export company (NSDS company) to sell
frozen chicken to Japan market with 105,000 USD, payment in at
sight LC. Assuming that issuing bank (Sumitomo Bank, Japan)
issued irrevocable LC number JP11026 dated 10 May 2022 in favor
of beneficiary (your company - NSDS) with amount not excess
105,000 USD.
25 May 2022, your company delivered the cargo with Invoice
number EXDS 0011, value 100,000 USD and made the documents
to receive payment

You please draw Bill of exchange (in LC transaction) to get cash

flow in this transaction.

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N01-02-112(1) BILL OF EXCHANGE

For 100,000 USD Ha noi May.25.2022

At sight of this First Bill of Exchange (second of the same tenor

and date being unpaid) pay to the order of Bank for Foreign Trade of
Vietnam, Hanoi branch the sum of US dollars One hundred
thousand only.
Value received as Invoice number: EXDS 0011 dated 25 May 2022
Drawn under Sumitomo Bank, Japan as LC Number JP11026
dated 10 May 2022

To: Sumitomo Bank NSDS Company.

Tokyo Japan Hanoi

(signed)

Bank’s acceptance (BA)

(Time draft used LC transaction)

This is time draft that is drawn on and accepted by a

bank (importer’s bank).The accepting bank is obliged
to pay the holder of the draft at maturity
◼ If exporter does not want to wait to payment, it can
request that BA be sold in the money market. Trade
financing is provided by the holder of the BA
◼ The bank accepting the draft charges an all in rate
(interest rate) that consists of the discount rate plus
acceptance commission
◼In general, all in rates are lower than bank loan rates

Bank’s acceptance (BA)

(Time draft used DA)

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Trade financing – Bank’s acceptance (bill of

exchange in LC transactions)
Bank’s acceptance: Financing for exporter base on time Draft
(time B/E)
Example:
B/E issued by exporter with face value $100,000 for 90days
Bank’s acceptance commission: 1.5% /annum
Discount rate for 90days: 1.14%/annum
Scenario 1: Exporter hold draft until maturity and then
collect money:
Face value of the acceptance: $100,000
Less 1.5% per annum commission for 90days =
0.015*3/12*$100,000 = 375
→ Amount received by exporter in 90days (three months) =
$99,625

Trade finance – Banker’s acceptance

Scenario 2: Exporter may ‘discount’ with its bank in
order to receive funds at once
Face value of the acceptance: $100,000
Less 1.5% per annum commission for 90days =
0.015*3/12*$100,000 = 375
Less 1.14% per annum discount rate for 90days =
0.0114*3/12*100,000 = 285
→ Amount received by exporter in 90days (three months) =
100,000 - 375 - 285 = $99,340
Therefore, the all in cost of finance this banker’s acceptance
is:
(commission+discount)/proceeds x (360/90) =
(375+285)/99,340 x (360/90) = 0.266 or 2.66%

Example 2

Assume the time from acceptance to maturity on a

$2,000,000 banker’s acceptance is 90 days. Further assume
that the importing bank’s acceptance commission is 1.25
percent and that the market rate for 90- day B/As is 7
percent. Determine the amount the exporter will receive if
he holds the B/A until maturity and also the amount the
exporter will receive if he discounts the B/A with the
importer’s bank.

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Solutions

◼ If holding the B/A to maturity, exporter will receive:

$1,993,750 = $2,000,000 x [1 - (.0125 x 90/360)]
The acceptance commission is $6,250
◼ If he discounts the B/A with the importer’s [Link]
exporter will receive:
$1,958,750 = $2,000,000 x [1 - ((.0700 + .0125) x 90/360)]

Exercise

The time from acceptance to maturity on a

$1,000,000 banker’s acceptance is 120 days. The
importer’s bank’s acceptance commission is 1.75% and
the market rate for 120-day B/As is 5.75%.
1. What amount will the exporter receive if he holds the
B/A until maturity?
2. If he discounts the B/A with the importer’s bank?
3. If the exporter’s opportunity cost of capital is 11%,
should he discount the B/A or hold it to maturity?

Exercise
The company ABC exports sells bar stool aluminium
stainless steel to XYZ imports in Australia. Two parties
signs a contract of total value 220,000 USD. The contract is
projected in two shipments with the same value . The term
of payment in the contract stipulates that the payment is
done by opening LC, the first shipment is going to be paid
at sight, while the second one is going to be paid by
acceptance (90 days after sight). The irrevocable LC No.
ANZ153165 dated 15 May 2024 is issued by ANZ Bank
Australia. The beneficiary is exporter and Vietcombank Ha
noi branch is bank of exporter.
You please draw Bill of exchange (in LC transaction) to
get cash flow in this transaction.

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No.1 BILL OF EXCHANGE

For 110,000 USD Ha noi, May.22.2024

At sight of this First Bill of Exchange (second of the same tenor and date being
unpaid) pay to the order of Vietcombank, Hanoi the sum of US dollars One
hundred and ten thousand only.
Value received as invoice number: ANZ01 dated 22 May 2024 No…. dated
…/ for the shipment …. Voy…..
Drawn under ANZ Bank Australia as LC Number ANZ153165 dated 15 May
2024

To: ANZ Bank Australia ABC Exports

(signed)

No.1 BILL OF EXCHANGE

For 110,000 USD Ha noi, May.22.2024

At sight of this First Bill of Exchange (second of the same tenor and date being
unpaid) pay to the order of Bank for Foreign Trade of Vietnam, Hanoi branch
the sum of US dollars One hundred and ten thousand only.
Value received as Invoice number: INV01 dated 22 May 2024/ Bill of lading
No…. dated …/ for the shipment …. Voy…..
Drawn under ANZ Bank Australia as LC Number ANZ153165 dated 15 May
2024

To: ANZ Bank Australia ABC Exports

(signed)

No.2 BILL OF EXCHANGE

For 110,000 USD Ha noi, May.30.2024

At 90 days after sight of this First Bill of Exchange (second of the same tenor
and date being unpaid) pay to the order of Bank for Foreign Trade of Vietnam,
Hanoi branch the sum of US dollars One hundred and ten thousand only.
Value received as Invoice number: INV02 dated 30 May 2024
Drawn under ANZ Bank Australia as LC Number ANZ153165 dated 15 May
2024

To: ANZ Bank Australia ABC Exports

(signed)

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Factoring - Example

◼ Factoring is conducted by independent firms where

main customers are small businesses.
▪ What factoring does is remove receivables from the
balance sheet and so, indirectly, it reduces the need
for financing.
◼ Firms financing their receivables through a
chartered bank may also use the services of a factor
to improve the receivables’ collateral value. This is
called maturity factoring with assignment of equity.

Trade finance – Factoring

Factor purchase receivable at discount on either a non-recourse or
recourse basic
Non-recourse: factor assumes the credit, political and forex risk of
receivables it purchase
Recourse: factor can give back receivable that are not collectable
All in cost of factoring non-recourse receivables is similar structure
acceptances. The factor charges commission cover the non-recourse
risk
+ interest as discount rate
Example:
US company wishes to factor its receivable it face amount 5,000,000
USD for 3 month, non-recourse fee 1.5% and factoring fee
(2.5%/,month x 3month)
→ Net proceed on sale (US company receives now) = 5,000,000 –
75,000- 375,000 = 4,550,000 USD (91% of face value receivable)

Exercise

Suppose Minnesota Machines (MM) is trying to price an export

order from Russia. Payment is due nine months after shipping.
Given the risks involved, MM would like to factor its receivable
without [Link] factor will charge a monthly discount of
2% plus a fee equal to 1.5% of the face value of the receivable
for the nonrecourse financing.
❑ If Minnesota Machines desires revenue of $2.5 million from
the sale, after paying all factoring charges, what is the
minimum acceptable price it should charge?
❑ Alternatively, CountyBank has offered to discount the
receivable, but with recourse, at an annual rate of 14% plus
a 1% [Link] price will net MM the $2.5 million it desires
to clear from the sale?

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Solution
◼ At a monthly discount of 2%, and an extra 1.5% fee for
nonrecourse financing, Minnesota Machines will pay a total
fee equal to 19.5% (9 x 2% + 1.5%) of the face amount of its
price for factoring its nine- month export receivable without
recourse.
In other words, after paying all factoring fees, MM will clear
80.5% of the price it sets. Thus, in order to net $2.5 million on
its export sale, MM must set a price P such that .805P =
$2,500,000. The solution to this equation is P = $3,105,590.
This is the minimum acceptable price to MM.

◼ If MM decides to discount the receivable with CountyBank, it

will pay a total fee equal to 11.5% (9/12 x 14% + 1%). Thus, in
order to net $2.5 million on its export sale, MM must now set
a price P* such that .885P* = $2,500,000, or P* = $2,824,859.

Exercises
Q1: Jackson Automotive Inc. of California agrees to sell specialized
automotive parts to Hidatsi of Korea. Because the two companies have
never done business with each other, Jackson requires a banker's
acceptance as payment for the $1,000,000 order. The banker's acceptance
carries a 1.4% commission per annum and payment is to be received in 6
months. If Jackson Inc. chooses to discount or sell the bankers acceptance
to its bank, the discount rate is 1.00% per annum.
1. What is the size of the commission Jackson Automotive will pay the bank
for the banker's acceptance?
2. What is the total Jackson Automotive can expect to receive if the firm
takes payment today?
3. What is the size of the discount (not including the commission fee)
Jackson must take for receiving the proceeds of the sale today rather
than waiting for six months?
Q2. Custom Granite Inc. has a Canadian receivables contract for $200,000
due in 270 days. The firm has been approached by a factoring firm that
offers to purchase the receivables at a 12% per annum discount plus a 1%
charge for a nonrecourse clause. What is the annualized percentage all-in-
cost of this factoring alternative?

Cheque/Check
A cheque or check is a document that orders
a bank, building society (or credit union) to pay a specific
amount of money from a person's account to the person in
whose name the cheque has been issued

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Promissory note
A promissory note is a written promise made by
the debtor to pay a certain sum of money to the
creditor at a future specified date.
❑ There are only two parties on promissory note
(Drawer and Drawee).
❑ The promissory note is drawn by the debtor

Commercial documents
Air waybill: A receipt from an airline company or its agent,
for goods accepted for carriage by air. It is not a document
of title.
Bill of Lading (B/L): A receipt issued by the carrier, or its
agent, to the shipper goods accepted for carriage by sea.
– Functions of B/L are:
❑ A receipt for goods,
❑ Evidence of a contract for the carriage,
❑ A document of title to goods, and
❑ A legal document in case of claims.
– The main parties to a B/L are: Shipper, Consignee, Notify
Party and Carrier

Commercial documents
◼ Multi-modal Transport Document (indicates)
– Place of receipt,
– Place of delivery; and
– Different modes of transport covered in the journey of
goods.
◼ Commercial Invoice
– A statement of goods shipped; and
– Payment due Pro-forma Invoice
– Invoice issued prior to sale of goods for purposes of import
license.
◼ Consular Invoice
– It is called for by importer’s country to ensure that the
price is fair.

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Commercial documents
◼ Insurance Policy/ Certificate
– Effective date of insurance is the most important factor
– It shows full details of risks covered
– Same currency as mentioned in credit
◼ Certificate of Origin
– Prepared by the exporter or the Chamber of Commerce
Reasons of requirement:
❑ Due to tax reasons
❑ Due to political or religious reasons
◼ Certificate of Inspection (Pre-Shipment Inspection Certificate)
– Issued by an independent inspection agency or surveyor after
inspecting the goods before shipment.
◼ Packing and Specification List
– A summary of number of boxes, crates shipped to buyer

© Kenneth A. Reinert, Cambridge University

Press 2021

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© Kenneth A. Reinert, Cambridge University

Press 2021

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Questions
1. What are major documents used in international trade?
2. How many types of financial documents? What are they? How
are they financed?
3. What are kinds of commercial documents used in international
trade? Describe in detail each kind of documents.

Terms of Payments

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Objectives
By the end of this topic, you should have an
understanding of:
◼ Terms of payment in international trade

◼ In which circumstances, those terms of payment are

used.
◼ The way each term of payment operate

◼ The Pros and Cons of each term of payment

Content

◼ Cash in advance

◼ Open Account

◼ Documentary Collection

Terms of payment

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Terms of payment

Questions
1. An importer wishes to have sufficient time to sell goods, before making payment,
whilst the exporter wishes to retain some control over the goods. Which method of
payment would be preferable to the importer?
A. Documentary collection payable at sight.
B. Documentary collection payable 60 days sight.
C. Documentary credit payable 60 days from shipment.
D. 50% payment in advance and the balance paid 60 days after shipment.
[Link] least secure method of payment for an importer is:
A. documentary collection.
B. documentary credit.
C. open account.
D. payment in advance.
3. A major exporter is embarking on its first transaction with an unknown buyer. On
which terms is the exporter most likely to insist?
A. Documentary collection.
B. Documentary credit.
C. Open account.
D. Payment in advance.

Terms of payments

◼ Advance payment: payment made before shipment

◼ Open account
◼ Documentary collection
◼ Documentary credit (L/C): issuing bank (buyer’s bank)
has undertaking payment to the seller’s
Standard rule:
- Uniform custom and practice for DC – UCP 600, 2007,
ICC
- Uniform rule for collection No 522 – URC 522, ICC 1995

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Global Trade Rules

International standard Rules
• UCP 600 - DCs
• ISBP 745- ICC 201
• URC 522 - Collection
• ISP98: stand-by L/C
• URDG 758 – L/G
• URR 725- DCs

Payment in advance (Cash in advance)

Characteristic of Cash in advance:

- - Full or % amount payment is required, usually through
wire transfer via bank before the receipt of the good
- - Cash in advance, most secure and favourable for
exporters and least secure for importers
◼ Pros: payment before shipment and eliminates risk of
non- payment
◼ Cons: May loss customers to competitors over payment
terms
- No additional earning through financing operations

T/T pre – shipment /cash in advance

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Cash in advance

◼ When use Cash in advance term?

❑ Importers is a new customer and/or has a less-
established operating history
❑ Importer’s credit worthiness is doubtful,
unsatisfactory or unverifiable
❑ The political and commercial risks of the importer’s
home country are very high
❑ Exporter’s product is unique, not available elsewhere
or in heavy demand
❑ Exporters operate an Internet-base business where
the acceptance of credit card payment is a must to
remain competitive

Risk for Importer when Seller not to deliver

the goods ???

◼ The Buyer has to make advance payment

In the event that the Seller not to deliver the goods,
The Seller has to request the bank to issue
Performance L/G in favor of the Buyer

Bank Guarantee for Advance Payment

❑At the request of the Supplier, we hereby irrevocably

undertake to pay you any sum or sums not exceeding
USD10,000.00 upon receipt of your first demand in writing
declaring that the Supplier is in breach of its obligation under
the Contract because the Supplier used the advance payment
for purpose other than toward delivery of the Goods.
❑This Guarantee shall remain valid and in full effect from
the date of the advance payment received by the Supplier
under the Contract until… (insert date)
❑This guarantee is subject to Uniform Rules for Demand
Guarantees, ICC Publication No 758 – URDG, 2010.

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PERFORMANCE GUARANTEE No:

• we understand that according to the conditions of the
Contract, a Performance Guarantee is required.
• At the request of the Supplier, we hereby irrevocably
undertake to pay you any sum(s) not exceeding
USD1,000,000.00 upon receipt by us of your first
demand in writing declaring the Supplier to be in
default under the Contract., without argument, or
your needing to prove or to show reasons for your
demand or sum specified therein.
• This guarantee is subject to Uniform Rules for Demand
Guarantees, ICC Publication No 758, ICC 2010

Open Account

▪ Under this method, this is absolute trust bw exporter

and importer built up over many years of trading
relationship
▪ Exporter provides credit for importer by honour at
future date
▪ Open account trade is a generous credit facility
extended by exporter to the importer to enable him to
find buyers for the products
▪ Role of banks: - providing the services for transfer
payment at the due date
- financing for exporter by factoring...

Open Account

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Open Account
◼ Less risk for the buyer and the greatest risks for the seller that
the buyer will not comply with the terms of the contract and pay
as promised.
◼ The seller should always consider whether any other
alternatives are available before agreeing to open account
terms.
◼ The buyer has to pay for the goods within a designated time
after the shipment, usually 30, 60, 90 days, no longer that 180
days.
◼ Time to: receive the goods, check it, market them in his domestic
market, receive payment for it and make payment to the seller.
◼ Made by: bank draft, check, wire payment to the bank account
specified by the seller
◼ If the buyer does not pay – the last chance is to take an legal
action on the basis of sales contract.

Open Account

Used when:

◼ Not much common in international trade

◼ goods are shipped to the foreign branch or subsidiary of a
multinational company
◼ High degree of trust between the persons
◼ The seller has significant faith in the buyer’s ability and
willingness to pay.

Open Account

◼ Questions for the buyer:

▪ Can I convince the seller of my ability and willingness to pay on
an open account terms?
▪ Is my marketing or distribution strength and reputation in my
domestic market attractive enough to the seller to justify
open account terms?
◼ Questions for the seller:
▪ Are open account terms the only option available?
▪ Does the buyer have the ability and willingness to make
payment?
▪ Will economic, political, and social instability in the buyer’s
country hinder the buyer’s ability to pay?

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Risk for Exporter when Importer fails to pay

◼ In the event that the Buyer fails to pay the Seller any
payment by its due date or within the period set forth in the
Contract, the Buyer will pay interest to the Seller on the
amount of such delayed payment at the rate (insert number)
%.
◼ This interest rate that shall be applied is (insert number %)
for delay of payment
◼ The Buyer has to request the bank to issue L/G in favor of the
seller

Open account Terms in Competitive Markets

Open account terms may be offered in competitive

◼
markets in the use of one or more trade finance:
1. Export Working capital Financing
2. Government-guaranteed Export Working capital program
3. Export credit insurance
4. Export factoring
5. Forfaiting

Documentary collection

- URC 522 (Uniform Rule for Collection), ICC 1995

- Art 2, URC define:
‘Collection means the handling by banks of documents as
defined in sub-article 2(b) in accordance with instructions
received, in order to obtain payment and/or acceptance or
deliver documents against payment or documents against
acceptance or deliver documents on the other terms and
conditions’
▪ Documentary collection included:
- D/P: Documents against Payment

- D/A: Documents against Acceptance

- D/TC: Documents against other Terms & Conditions

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Documents
(URC 522, ICC 1995)
◼Financial documents: bill of exchange, promissory
notes, cheques or other similar instruments used for
obtaining the payment of money

◼Commercial documents: Invoices, transport

documents, documents of title or other similar
documents or any other documents whatsoever not
being financial documents

Parties involve in Documentary Collection

• The Principal (Seller/Exporter/Drawer) who is the party

entrusting the handling of the collection to a bank
• The Remitting (Principal's/Seller's/Exporter's Bank) which
is the bank to which the principal has entrusted the handling
of a collection
• The Collecting or Presenting (Buyer's) Bank which any
bank other than remitting bank involved in processing the
collection and making presentation the documents to the
Drawee
• The Drawee (Buyer/Importer): makes cash payment or
signs a draft according to the terms of the collection
instruction/ collection order in exchange for the documents
from the presenting/collecting bank

Documentary collection

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Benefits and Problems of Collection

* Benefits to the Exporter
(1) Collection provide better security than open account trading as
long as the credit status of the importer is confirmed positive
(2) Documentary collection can be used raise finance with the
following ways
- Export factoring
- Invoice discounting
- Overdraft or loan
...etc...
* Disadvantages to the Exporter
Exporter effectively loses control of the goods from that point
onwards and runs following risks: (i) buyer might refuse payment
saying goods not to satisfaction or (ii) cheat or (iii) become insolvent

Benefits and Problems of Collection

* Benefits to the Importer
(1) In case of D/A: Importer is granted credit facility in
accordance with the tenor
(2) Collections are cheaper in term of bank charges than L/C

(3) In term of safety, Collections are better than payment in

advance.
(4) D/A is good chance for importer to boost his turnover and
profit if he honours all accepted bills at maturity
(5) Importer can arrange finance with several ways

- Overdraft or loan
- D/A
- ...etc...

Documentary collection
• D/A Riskier than D/P
❑ Under DP, Seller keep control of goods until buyer pays. If buyer
refuse to pay, seller can”
- take the buyer to court, or
- find another buyer in the importer’s country, or
- arrange for sales by auction
- ship back to sellers' country.
❑ Under DA:
• Buyer signs, promising to pay the bill at a fixed future date.
Documents released
• Seller effectively loses control of the goods from that point
onwards and runs following risks: (i) buyer might refuse payment
saying goods not to satisfaction or (ii) cheat or (iii) become
insolvent

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Documentary collection
What if the Buyer Refuses the Documents?
Protest Store
Find another buyer
Auction
Conclusion
A seller should only agree to payment under documentary
collection if:
• Seller does not have doubt on the buyer’s ability and
willingness to pay
• Buyer’s country is politically and economically stable;
• There is no foreign exchange restriction in the buyer’s country;
• The shipped goods are easily marketable or alternate buyers
can be easily found.

Questions

(1) What are the responsibilities of banks in a

Documentary collections transaction?

(2) State the pros and cons of documentary collection

transaction to an importer and exporter

(3) State the documents under URC 522, ICC 1995

Documentary Credit

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Objectives
By the end of this topic, you should have an
understanding of:
◼ Nature of L/C

◼ The structure of a L/C

◼ The process of L/C

Content

◼ Documentary Credit Overview

◼ Nature of L/C

◼ The process of L/C

◼ Types of L/C

Documentary credits – UCP 600

◼ Documentary Credit is a written undertaking of the Bank towards
Beneficiary issued on the instructions of the Applicant to provide
settlement as per terms and conditions of the DC for specified time
against presentation of the documents, which strictly comply with
DC terms and conditions.
◼ Article 2, UCP 600: “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”.
Honour means:
[Link] pay at sight if the credit is available by sight payment.
[Link] incur a deferred payment undertaking and pay at maturity
if the credit is available by deferred payment.
[Link] accept a bill of exchange ("draft") drawn by the beneficiary
and pay at maturity if the credit is available by acceptance

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Documentary credits -Characteristics

❑ A DC is the written promise of a bank, undertaken on behalf

of a buyer, to pay a seller the amount specified in the credit
provided the seller complies with the terms and conditions
set forth in the credit.
❑ Fundamental principle of documentary credits is that banks
deal in documents and not goods. Banks are responsible for
issues relating to documents and the specific wording of the
documentary credit as opposed to issues relating to the
goods themselves.
→ Banks are not concerned if a shipment is in conformity
with the documents, only that the documents are in
conformity to the wording of the credit

Nature of L/C?

Nature of L/C?

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Parties to the Credit

❑ Applicant (Importer): initiates the issuing of LC after signing
the contract of LC terms
❑ Issuing Bank: an institution that is required to set the terms
and conditions and specify the obligations in letters of credit
(LCs)
❑ Advising Bank: the correspondent bank of the issuing bank
❑ Nominated Bank: the bank with which credit is available or
any bank in the case of a credit available with any bank’ à
Art (2) – UCP 600
❑ Confirming Bank: a bank that, at the request of the issuing
bank, agrees to perform the principal duties of the issuing bank
❑ Beneficiary: the person or company who will be paid in
accordance with the LC. This will normally be the seller,
supplier or exporter

Security provided by L/C

❑ The Issuing Bank is always liable

❑ Bank risk instead of Importer´s risk
❑ Export´s Bank not liable unless it is a Confirming Bank
❑ Confirmed L/C - two separate payment bank
undertakings
❑ Removal of the country risk (confirmed L/C)!

Advantages of Documentary
Exporter
• Exporters receive a non-accessory and conditional promise from a
bank that payment will be made. This serves to ensure that the goods
delivered will be paid once the complying documents have been
presented, irrespective of the importer's interests.

• The bank's irrevocable promise to pay eliminates the risk that the
goods might be rejected or that the importer be unwilling or unable
to pay. In the case of a confirmed letter of credit, the promise to pay
is provided by two banks.

• Letters of credit can be used for financing purposes.

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Advantages of Documentary
Importer

• Globally accepted guidelines provide legal certainty.

• Payment will only be made upon presentation of

complying documents.

• A bank's promise to pay strengthens the importer's

position in negotiations

Disadvantages of Documentary
Exporter Importer
❑ Cost ❑ Cost
❑ Make ensure that all ❑ Credit facility
documents compliance with ❑ Security provided to the Bank
the terms and conditions of ❑ Risk of fraud, non-compliance
LC under the contract of sale by the
❑ be exposed the risk of Exporter
documents being rejected ❑ Once in irrevocable LC has been
due to discrepancies issued, it cannot be cancelled or
❑ If not confirmed by local amended without the consent of
banks, the risk of non- the seller or others any claim
payment will be happen in
case of issuing bank becomes
insolvent or other problems
associated with issuing
bank...

Documentary Credit Process in Vietnam

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Types of Documentary credits

1. Revocable Letter of Credit
Revocable LC can be modified or revoked independently by the issuing
bank or the buyer without any notice. This type of LC works entirely in
favour of the buyer. It is rarely practiced in modern-day international
trade as it does not provide any protection to the beneficiary or the
seller.
2. Irrevocable Letter of Credit
Irrevocable LC is more commonly used as compared to a revocable LC.
Irrevocable LC cannot be revoked or modified without the consent of
the issuing bank, the beneficiary, and the confirming bank. It is a safer
option for the seller or exporter as it assures that the amount
mentioned in the LC will be paid if the submitted papers fulfill the
terms and conditions of the agreement. Irrevocable LC further has 2
types - Confirmed and Unconfirmed LC.

Types of Documentary credits

3. Confirmed Letter of Credit
Confirmed LC is an arrangement where another bank or financial
institution adds its guarantee to the LC. It is used when the seller does
not trust the buyer’s bank or the issuing bank. It gives added assurance
to the seller, but the cost of the LC also escalates.

4. Unconfirmed Letter of Credit

Here, there is no added guarantee from another bank or financial
institution. An unconfirmed letter of credit only involves the buyer, the
seller and the issuing bank or buyer’s bank. Mostly all letters of credit
that are commonly used are unconfirmed letters of credit.

Types of Documentary credits

5. LC at Sight
Sight Credit LC requires the advising bank or seller’s bank to make the
payment at sight, on-demand, or upon presentation of documents.
The seller submits documents as per terms and conditions of the sight
LC. Upon verification, the advising bank immediately releases the due
payment to the supplier.

6. Usance Letter of Credit or Deferred Payment LC

Usance LC or Deferred Payment LC is where the draft is drawn on the
issuing or corresponding bank at the end of the agreed usance period.
The bank may receive the documents early upon completion of
shipment of goods, but the payment is processed only after the
usance period is over. This gives a grace period to the buyer who can
make the payment after a certain period of time from when he
receives the goods.

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Types of Documentary credits

7. Back to Back LC
Back-to-back Letter of Credit is where a second LC is opened with another
LC as security. This second LC finances both sides of a transaction through
credit and counter-credit. A middleman buying from one party and selling to
another is a typical case of back-to-back LC.
8. Transferable Letter of Credit
Transferable LC is used when there is a middleman involved or where a
company sells the product of another company/producer. The first
beneficiary requests the bank to transfer the entire payment or part thereof
to the second beneficiary. In this arrangement, the first beneficiary is
generally the middlemen or a company who sells another’s products.
9. Un-transferable Letter of Credit
An un-transferable letter of credit cannot be transferred to another
beneficiary. The beneficiary as per the original letter of credit is the sole
beneficiary and the document cannot be further used to pay any other
party.

Types of Documentary credits

10. Standby Letter of Credit
Standby Letter of credit also known as SBLC is similar to a bank
guarantee and is more popular in the US. The seller can obtain
payment from the bank even in the case of the buyer’s failure to
perform as per the agreement.
11. Freely Negotiable Letter of Credit
Freely Negotiable LC allows any bank to become a nominated bank as
long as it is willing to pay, accept, incur deferred payment
undertaking, or negotiate the LC. The LC has to indicate that it is not
restricted to any bank for negotiation or that it can be negotiated in
any bank.

Types of Documentary credits

12. Revolving Letter of Credit
Revolving LC is one where the amount mentioned gets reinstated after
payment, reducing the need to create a new LC. It is used in case of
shipments with a diverse set of goods or a repeated set of the same
goods, which are traded within a specific period.
13. Red Clause LC
In a Red Clause LC the seller or beneficiary is partly paid or is paid an
advance before the goods are shipped and after receipt of documents
and a written confirmation from the seller to the bank. This type of LC
acts as an aid to the seller for his working capital requirements for
purchase of raw materials, packaging and processing of goods.
14. Green Clause LC
Green Clause LC is another type of Red Clause LC with some additional
features. In a green clause LC the seller receives advance payment not
only for purchasing raw material, packaging and processing of goods but
also for the cost incurred for pre-shipment warehousing and insurance.

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Questions

1. What is Documentary Credit?

2. How is the process of L/C?
3. What are the types of L/C?

Risks related to parties in DC?

• What are risks/problems for each party in steps?
- Applicant
- Beneficiary
- Banks
• What is Solution?
• Example:
- Problem/Risk for importer when open L/C in step 1?
- Problem/Risk for issuing bank in step 2, step 6,7,8
- Problem/risk for beneficiary in step 5?

SWIFT format MT700

(Society for Worldwide Interbank
Financial Telecommunication)

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Objectives
By the end of this topic, you should have an
understanding of:
◼ The format of MT700

◼ How to fill in Application of LC issuance

Content

◼ Form of MT700
◼ Application of LC issuance

Letter of credit issued by SWIFT – MT700

27: Sequence of total: 1/1
40A: Form of Documentary Credit: IRREVOCABLE
20: Documentary Credit Number: LA0154N409DG
31C: Date of Issue: 150305
31D: Date and Place Expiry: 150520 AT NEGO BANK IN SINGAPORE
51D:Applicant Bank – Name & Address:
50: Applicant - Name & Address:
59: Beneficiary – Name & Address:
32B: Currency Code, Amount: USD 412,000.00
39B: Maximum Credit Amount:
41D:Available with Any Bank By Negotiation
42C: Draft at Sight for 100% of INVOICEVALUE in duplicate
42D: Drawee – Name & Address: EASTERN ASIA COMMERCIAL
BANK,VN

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Letter of credit issued by SWIFT – MT700

43P: Partial Shipments: Not Allowed
43T:Transhipment: Not Allowed
44A: On Board/Disp /Taking Charge at: ANY PORT OF SINGAPORE
44B: For Transportation to: HAIPHONG PORT,VIETNAM
44C: Latest Date of Shippment: 150420
45A: Description of goods &/or Services:
+ Rice …, Quantity… Quality…., Unit Price
+ PRICE TERMS : CIF HAIPHONG PORT (INCOTERMS 2010)
46A: Documents Required:
1. Commercial invoice in three copies/ one original and three copies
2. Full set Clean Bill of lading, mark Freight Prepaid, consigned to
buyer
3. Insurance Cert showing…
4. Certificate of Origin issued by Chamber of Commerce
5. USDA Inspection Certificate showing….

Letter of credit issued by SWIFT – MT700

47A: Additional Conditions:
- ALL DOCS MUST BE SHOWN IN ENGLISH
- Third party documents are acceptable
- Docs issued prior to the LC issuance date are acceptable
- All documents should be sent in one cover by courier service to the
issuing bank address:
71B: Charges: All bank charges are for the account of Applicant/
Beneficiary
48: Period for Presentation: within…days after the shipment date, but
within the validity of the Credit
49: Confirmation Instructions: Without
53A: Reimbursing bank Name n address
78: Instruction to Pay/Accept/Negot Bank: Payments are made against
the complying docs with the LC terms and conditions
57A: Advising bank name n address:
72: THIS IS THE OPERATIVE CREDIT INSTRUMENT SUBJECT TO UCP
600 2007 ICC

Case study – Documentary credit

Question 1: A DC subject to UCP 600 has the

following stipulation:
"Purchase Contract No. 123456 dated 24 July 2017
attached herewith forms an integral part of this
documentary credit."
Is this stipulation acceptable for issuing bank and what
are the risks?

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Article 4- UCP 600 Credits v. Contracts

a. A credit by its nature is a separate transaction from the sale or
other contract on which it may be based. Banks are in no way
concerned with or bound by such contract, even if any reference
whatsoever to it is included in the credit. Consequently, the
undertaking of a bank to honour, to negotiate or to fulfil any other
obligation under the credit is not subject to claims or defences by the
applicant resulting from its relationships with the issuing bank or the
beneficiary.
b. An issuing bank should discourage any attempt by the applicant
to include, as an integral part of the credit, copies of the underlying
contract, proforma invoice and the like.
Art. 5 - Documents v. Goods, Services or Performance
Banks deal with documents and not with goods, services or
performance to which the documents may relate

Question: A documentary credit expiring on 10 June

requires the following documents:

◼ Signed commercial invoice indicating goods of German

origin
◼ Bill of lading evidencing shipment in the middle of May

◼ Detailed packing list

◼ The beneficiary presents documents on 11 June because
the bank was closed on 10 June to a national holiday with
the following documents including: Commercial invoice
dated 11 June, Bill of lading indicating on board notation
of 21 May and detailed packing list without beneficiary’s
signature.
◼ Should the issuing bank honour the presentation under
such circumstance?

Question: Under a documentary credit calling for a bill of

lading and requiring shipment from a Korean port to a UK
port, which of the following would be acceptable to
honour?

Place of Place of Place of Final

receipt loading discharge destination
B/L 27890 Busan Osaka Hamburg Southampton
B/L NK2907 Osaka Busan Southampton Hamburg

B/L 98670BL Busan Osaka Southampton Hamburg

B/L 12230899 Osaka Busan Hamburg Southampton

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Case study 2
Letter of credit A subject to UCP 600 states:
+1 original and 2 copies of beneficiary's certificate certifying that 1
set of copies of shipping documents has been sent to the applicant
within 2 days from date of shipment.
Letter of credit B subject to UCP 600 with other identical terms and
conditions states:
+1 original and 2 copies of beneficiary's certificate certifying that 1
set of copies of shipping documents has been sent to the applicant
within 2 days after date of shipment.
The shipment date for the presentation is 3 May 2014.
1 original and 2 copies of a signed beneficiary's certificate are
presented, certifying that 1 set of copies of shipping documents has
been sent to the applicant on date of shipment. It follows that its
issuance or signature date is also 3 May 2014.
Is this beneficiary's certificate compliant under both letter of
credit A and B? - Article 3- UCP 600

Case study 3
◼ A credit subject to UCP 600 calling for 2,000 MT of chemicals does not
allow partial shipments or drawings. Two bills of lading are
presented. Bill of lading 1 of voyage No. 666 shows carriage by MV
Good Luck with 1,000 MT of chemicals to be discharged at Singapore
and bill of lading 2 of voyage No. 666 showing carriage by the same
vessel MV Good Luck with 1,000 MT of chemicals to be discharged at
Hong Kong.
◼ The issuing bank refuses the presentation stating:

◼ “According to article 31 (b) of UCP 600, shipments to two different

destinations are partial shipments that the credit does not allow”.
◼ The beneficiary argues that Singapore and Hong Kong are only ports
of discharge, not destinations, that are the exact words used in article
31 (b) of UCP 600. Hence there is no discrepancy.
Questions:
Q1 Who is correct?

Questions
◼Describe article of a L/C

◼ How to fill in application of LC issuance

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Contract & LC application

◼ Buyer & Seller information (name n add, tel…).
Buyer: Tên doanh nghiệp đề nghị mở LC/ Applicant
Seller: Beneficiary
◼ Currency, Amount: Price (on the contract) (in number n
words)
◼ Percentage Credit amount tolerance: Price

◼ Terms of shipment: Price

◼ Port of loading, Port of discharge: Shipment period, Price

◼ Latest shipment:

◼ Partial shipment

◼ Transhipment:

◼ 42C: Draft at

◼ Drawee code and name

◼ Description of goods: Commodity, Paking,
Origin, Quality (Specifications), Quantity,
Price, Payment
◼ Required Documents: Payment documents
◼ Charges:
◼ Advising bank
◼ Additional conditions: (optional)

Offical LC & LC Application

◼ Receiver bank: Advising bank

◼ D/C (LC) No n date
◼ Date n place of expiry
◼ Applicant bank: issuing bank
◼ Applicant, Bene
◼ Currency code, amount
◼ Available with:
◼ Draft:

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◼ Partial shipment
◼ Transhipment
◼ Port of loading, Port of discharge
◼ Latest shipment date
◼ Description of goods: Commercial invoice
often shows full of description of goods, the
others only need to show the commodity
name and quantity.

◼ Document required
◼ Additional conditions

Check Documents & L/C

◼ Read the LC terms and conditions

◼ Check the documents as the order in the 46A
◼ 1st: check draft (41D, 42A, 42C)
- signature: Bene
- Amount in Number n words
- Other inf matchs with the other documents

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Check Documents & L/C

◼ Invoice:
- Signed or not
- Signed by beneficiary
- Check the No of originals and copies as
required
- Check description of goods as 45A
- Check the other information stipulated in the
invoice matching with L/C and the remaining
documents

Check Documents & L/C

◼ Bill of lading:
- Check B/L complied with the requirement of
L/C
- Showing “shipped on board” or “clean on
board”??? (On board notation)
- Made out = consignee
- Port of loading, Port of discharge, issuing
date, carrier name, sign, No of originals,
Name of goods, vessel name,

Check Documents & L/C

◼ Packing list:
- Check with LC terms and conditions (No of
originals and copies, issuer….)
- Showing Packing type/conditions
- Check with the other documents

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