Risks and Limitations in Applying International Payment Methods

payment to WAVIN. The Accounting Department is responsible for monitoring payments to exporters according to signed foreign trade contracts.

On March 14, 2009, at the time of payment according to the contract, the Company wrote a Money Transfer Application with a Foreign Currency Payment Order, a Foreign Trade Contract; a set of shipping documents sent by the exporter; and an Import-Export Business License (if necessary) to request the bank to make the payment transfer to WAVIN.

After receiving the remittance application and the approved documents signed by the Director of TSC Company (March 16, 2009), Techcombank will check that the documents are complete and valid and that the Company's account limit is sufficient for payment. The bank will deduct money from the Company's account to transfer money to ABN-AMRO Bank Zwolle, and send a Debit Notice to the Company.

ABN-AMRO Bank, upon receiving the telegraphic transfer order from Techcombank, will transfer the money to WAVIN and simultaneously send a Credit Notice to the company.

2.3.2. Method of collection with documents at the Company

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Below is an example of applying the Documents at Sight (D/P) payment method:

On October 31, 2008, the Company signed foreign trade contract No. 001/TSC- Giessdorf with Giessdorf Inc. of China to import floor drain materials GC-0996-XX-HT, with a quantity of 2,000 pieces, for an amount of 4,740.00 USD.

The contract stipulates payment by D/P (D/P at sight). Delivery in two installments: the first installment is no later than November 20, 2008, the second installment is no later than December 31, 2008.

Payment documents include: Commercial invoice, Packing list, Certificate of origin, Certificate of quality and quantity, Insurance certificate.

The selected collecting and presenting bank is Techcombank, Ba Dinh branch. The transmitting bank (the bank serving the exporter) is Chang Hwa Commercial Bank Ltd, China.

After delivering all the goods to the Company, the exporter will prepare a set of documents to ask Chang Hwa Bank to collect the money. The set of collection documents includes: Importer's bill of exchange and accompanying shipping documents.

Chang Hwa Bank, upon receiving the set of documents, will forward the collection authorization letter with the draft and the set of goods documents to Techcombank for collection from the Company. The banks will not check the accuracy, authenticity or falsity or legal validity of the documents, but will only check whether the received documents are fully listed in the collection instruction. If there are any deficiencies, the banks will immediately notify the exporter to supplement them.

Immediately after receiving the instructions, Techcombank will present the set of goods documents to the Company for payment (because the exporter requires immediate payment). At this time, the Company's import-export staff must check whether the contents of the set of documents are consistent with the signed contract or not. After checking that the set of documents is completely complete and consistent, the Company will request Techcombank to immediately transfer the money to the exporter because the contract clearly states that payment must be made within 5 days after receiving the set of goods documents.

If the documents are found to be inconsistent with what was agreed upon in the contract, the Company may request the exporter to correct them before making payment.

The payment process using the Documents Against Acceptance (D/A) method is similar to the D/P method, except that after checking the set of goods documents presented by the bank, instead of paying, the Company will accept to pay the bill of exchange within a certain period specified in the contract.

2.3.3. Documentary credit method at the Company

Payment by letter of credit is a form of payment with complex operations. Below is an example of the payment process for imported goods using the documentary credit method.

On December 15, 2008, the Company signed contract No. 04/TSC-AVK with the Danish company AVK INTERNATIONAL A/S to import valves and joints with a total contract value of 63,520.55 EUR.

The contract stipulates payment by irrevocable L/C at sight, delivery after 16 - 18 weeks from the date of opening the L/C.

Payment documents include: Bill of lading, Commercial invoice, Bill of lading, Certificate of origin, Certificate of quality, insurance contract and a set of payment documents sent by international express delivery.

The L/C opening bank chosen by the Company is Techcombank, Ba Dinh branch. The exporter's bank is DANSKE BANK of Denmark.

Step 1: Open L/C

The Company's import-export staff will review all foreign trade contracts, paying attention to important terms such as payment and delivery. Then, the import-export staff will contact the Accounting Department to review the Company's financial situation and relationship with the bank. Before opening an L/C, the Company needs to check the capital source to ensure payment for the L/C opened at the bank.

L/C can be issued with own capital or bank loan with different margin levels .

Based on the contract, on January 15, 2009, the Company's import-export staff filled out the Letter of Credit Opening Request form at the issuing bank - Techcombank. Some terms need special attention when opening an L/C to avoid losses due to inability to pay or deliver goods such as: name and address of the opener, beneficiary; date of issue; date and place of expiry; amount; whether or not to allow transshipment, partial delivery; loading and unloading ports; latest delivery date; documents to be presented... To reduce unnecessary changes and adjustments and shorten the time as well as increase the accuracy of the L/C, the Company faxes the L/C Opening Request form to the supplier for checking. If there are any changes or additions, the supplier will fax it back for the Company to edit before opening the L/C at the bank.

Step 2: Check L/C

On January 19, 2009, the Company will receive a fax copy of the L/C from the bank with the content, but without the stamp and signature of the authorized person. The import-export staff must check whether the content of the L/C is consistent with the terms and conditions of the sales contract or not.

After checking the conditions and regulations stated in the L/C, if any conditions are found to be inconsistent with the Contract or the conditions are incomplete, the Company will request the L/C opening bank to revise the content or supplement the L/C accordingly.

After the Company accepted the conditions stated in the L/C, on January 20, 2009, Techcombank opened L/C No. TF0908901003/BDN. Through the advising bank in the supplier's country, DANSKE BANK, to notify about that L/C and request AVK Company to check. Because Techcombank will not be responsible for errors in the L/C and only

Payment to AVK upon presentation of valid documents with L/C, so AVK will have to check L/C very carefully. If there are any errors, AVK will request to amend or supplement L/C.

On January 30, 2009, AVK sent a Telex message to TSC to extend the latest delivery time and correspondingly the expiry date of the L/C.

On February 5, 2009, the Company's import-export staff submitted a request to adjust the letter of credit along with a written agreement between the two parties on these changes.

Step 3: Check the goods documents

After agreeing to the L/C and delivering the goods (usually the supplier contacts and notifies the delivery date and time so that the Company can prepare the warehouse to receive the goods or organize the output business plan when the goods arrive at the port), within 10 working days, AVK will send a copy of the goods documents to the Company by DHL. This is a set of documents that cannot be paid, it is only a notification from the exporter to the Company.

After receiving the set of documents, the import-export staff must check the contents of those documents against the L/C and the contract. In case the documents are in accordance, the import-export staff will proceed with the confirmation procedures with the Bank and accept payment to receive the original set of documents. In case of any discrepancy, the import-export staff will immediately notify the supplier to re-check the documents. If the errors are major, the Company will refuse to pay, if the errors are minor, they will request adjustment and accept payment after the correction from the supplier.

Step 4: Payment at the bank

After delivery on April 30, 2009, AVK company quickly presented the documents to its bank, DANSKE BANK, for approval.

then quickly transfer to the L/C opening bank for inspection. Techcombank will carefully inspect and if there are no errors or major changes, it will pay AVK company. At this time, Techcombank will notify TSC to pay with its own money or borrow from the bank to pay the exporter. This can also be stipulated from the beginning in the bank's Letter of Credit Request. If the Company accepts payment with money in the account, the bank will credit account 112 and foreign currency account 007. If the Company currently does not have money to pay the exporter, Techcombank will issue credit to pay the Danish company AVK. On the other hand, the bill of lading clearly states that the consignee is "Made out to order of Techcombank", so if the Company wants to have a set of documents to receive the goods, it must request the bank to endorse the back of the bill of lading.

Above is the practical application of international payment methods of the Company. Through analysis, we can clearly see that in each international payment method, besides the advantages, there are limitations. It is important to clearly understand those limitations in order to have solutions to overcome them, in order to avoid risks that may occur in international payments.

2.4. Risks and limitations in applying international payment methods

The Company's international payment activities through import contracts are gradually being improved. The Company has a good relationship with Vietnam Technological and Commercial Bank (Techcombank) and Vietnam Industrial and Commercial Bank (Vietcombank). Through import payment operations, the Company's staff in the professional department have a clear understanding of the payment procedures, and coordinate with the bank to make payments quickly and in accordance with procedures.

In recent years, the import contracts signed by the Company have increased and the application of payment methods has become more and more effective. The documentary credit payment method used by the Company accounts for a large proportion of payment methods. This shows that the Company has gradually had large markets and many new partners such as Siemens (Germany) - 2004, Maxxus (Singapore) - 2005, Phoongnam (Korea) - 2006, Hydro one (Malaysia) - 2007 and Fuji (Japan) - 2008, so payment work must be ensured to be extremely safe and careful, creating trust for new customers and contributing to creating long-term relationships in the future. In addition, the Company continues to apply payment methods of money transfer and collection with trusted and long-term partners such as AVK, Cotco and WAVIN because of the speed and efficiency of these methods.

However, in international trade, regardless of the form, there is always a conflict: the buyer wants to have the goods before paying, while the seller wants to receive the money before delivering the goods to the buyer. This conflict is even more difficult to resolve when the parties in the contract are far apart, making communication inconvenient. No matter how perfect any payment method is, it still has limitations and potential risks. Therefore, as an importer applying all three payment methods mentioned above, the Company may encounter the following risks and limitations:

2.4.1. For money transfer method

The company only uses the method of wire transfer (T/T). This is the simplest payment method in terms of procedures and payment process. This method is only applied to truly trustworthy partners who have long-term business relationships such as Wavin (supplier of PPR plastic pipes and accessories). Moreover, due to the relationship between the supplier and the customer,

manufacturer - distributor of Wavin - TSC, the Company has priority in payment time: in contracts, the payment time is usually stipulated after 45 days from the date of commercial invoice. Therefore, the Company does not face the risk of having paid but not receiving the goods. However, because there is no binding between the two parties exporting and importing, the Company still faces the following risks:

Delivery of goods is later than expected: Contract No. 0309/TSC-WAVIN established on March 6, 2009 stipulates delivery time within 4 weeks from the date of signing the contract and the expected loading date is at the end of March. However, it was not until April 10, 2009 that the goods were loaded onto the means of transport (ship).

Delivered goods are not of the correct quantity and quality: Contract No. 0508/TSC-WAVIN attached to order No. 0508/TSC-WAVIN established on August 11, 2008 stipulates the quantity of PPR PN10 - D90 pipes is 400M (equivalent to 40 pipes). For some reasons, the company cannot produce enough for this quantity (only 372M). Due to the small quantity of delivered goods and the long-term relationship between the two parties, the Company still receives the goods and pays according to the contract.

The consequences of the above risks affect delivery progress as well as timely response to domestic customer needs and slow down the Company's business process.

2.4.2. For collection method

Collection is also a payment method that the Company applies to its familiar customers. The security of this method is higher than the money transfer method, but the risk is still quite high, so the rate of using collection in the Company's import activities is not high. To ensure safety, the Company mainly uses

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