Download Documentary Credit Procedures: A Comprehensive Guide for International Trade and more Essays (university) Payment Systems in PDF only on Docsity!
VIETNAM MARITIME UNIVERSITY
ECONOMIC FACULITY
INTERNATIONAL BUSINESS DIVISION
DISSERTATION
INTERNATIONAL PAYMENT
TEACHER INSTRUCTIONS PHAM THI PHUONG MAI
CLASS N
GROUP N
FULL NAME NGUYEN THI DU – 92220
VU THI NGOC TRANG – 90885
HAI PHONG - 2024
ii
ECONOMICS FACULTY
INTERNATIONAL BUSINESS DIVISION
DISERTATION
INTERNATIONAL PAYMENT
CONTENTS
INTRODUCTION
ABBREVIATION
CHAPTER 1. APPLICATION FOR LETTER OF CREDIT ISSUEANCE
1.1. Fundamental theory on documentary credit 1.2 Procedure to open a letter of credit 1.3. Filling in the application for letter of credit issuance CHAPTER 2. PREPARATION THE DOCUMENT PACKAGE AS L/C REQUEST 2.1. Introduction to documents used in documentary credit 2.2. Standards for issuance and examination of documents under UCP 600 2.3. Preparing the documents package base on the given L/C CONCLUSION REFERENCES Assignment start date: 15/10/2024 Assignment due date: 5/12/ Student Lecturer Nguyen Thi Du Pham Thi Phuong Mai Vu Thi Ngoc Trang
iv
ABBREVIATION
No Figure name Page number 1.1 Documentary credit procedure 3 1.2 The application form for opening an LC at Vietcombank
No Table name Page number 1.1 Letter of Credit service fee schedule 6
INTRODUCTION
Throughout the process of completing the project on international payments, I
have received invaluable help from Ms. Pham Thi Phuong Mai, the lecturer for
the International Payments course at VMU. I would like to express my sincere
and deep gratitude to her for her enthusiasm and dedication in guiding and
mentoring me throughout this time.
Ms. Phuong Mai not only helped me grasp important theoretical knowledge but
also took the time to answer my questions and provide valuable suggestions for
applying them in practice while working on the project. Her patience,
thoroughness, and dedication have helped me overcome difficulties during my
research, enabling me to complete the project to the best of my ability.
Furthermore, Ms. Phuong Mai created a comfortable and encouraging learning
environment, allowing me to develop my ideas and think independently while
working. The lessons and advice from her have not only helped me complete this
project but also provided valuable guidance for my future studies and career.
Once again, I would like to extend my heartfelt thanks to Ms. Pham Thi Phuong
Mai for all her help and guidance throughout the project. Her contributions will
always be a source of motivation for me to continue striving in my future work
and studies.
1.1.3. Documentary credit procedure Figure 1.1: Documentary credit procedure (1) The buyer applies to his bank (issuing bank) and opens a letter of credit naming the seller as beneficiary based on specific terms and conditions that are listed in the credit. (2) Issuing bank acting on the request and issues a letter of credit in favour of the seller and sends it to the advising bank named in the credit. (3) The advising bank informs (advises) the seller of the letter credit (4) The seller on receipt of LC, examines LC to make sure that he or she is satisfied that it meets the terms and conditions of the sales contract and the seller can meets the LC terms and conditions, then the seller ships the goods to the buyer. (5) One shipment is made, the seller will present the relevant documents called for in the credit to his bank (advising bank) or to the bank where LC is made available. (6) The advising bank forwards the documents package to issuing bank for payment. (7) The issuing bank forwards the documents to ensure that it complies with the credit terms and conditions and make payment to the advising bank. (8) The issuing bank presents documents to the buyer. (9) The buyer makes payment to the bank and bank releases the document to the buyer to enable him to receive the goods.
1.2. Procedure to open a letter of credit at Vietcombank 1.2.1. Required documents for opening a Letter of Credit The documents required to be submitted when visiting the Bank to open an L/C:
- Application form for opening an L/C (as per the template) clearly stating the relevant Sales Contract number;
- Contract or legally equivalent documents such as confirmed purchase orders, confirmed quotations, etc.; entrusted import contract (in case of entrusted import);
- Approval document from the managing sector if the goods are subject to sectoral management.
- Establishment decision of the enterprise (for first-time transactions);
- Business registration certificate (for first-time transactions);
- Tax registration certificate (for first-time transactions);
- Import license from the Ministry of Trade (if the imported goods are under the management list specified in the annual export-import management decision by the Prime Minister);
- Foreign exchange sales contract (if any);
- Commitment to payment by the customer's own capital;
- Forward foreign exchange purchase contract or the customer's commitment to supplement the margin deposit, collateral/pledge if the exchange rate increases (in case of payment by own capital), credit contract (in case of borrowing funds);
- Confirmation document from the State Bank for registration of foreign borrowing and debt repayment (for deferred, medium, and long-term L/Cs);
- Project/plan in case of deferred L/Cs, project/plan related to goods and services under deferred L/Cs must have detailed and specific content regarding the use of funds during the deferment period, depreciation plan, and payment transfer plan. For customers purchasing goods for fixed asset investment, there must be a fixed asset investment plan and a depreciation plan in accordance with the current legal regulations;
- Payment order (in case of margin deposit);
- In case of blocking the deposit account or pledging valuable papers, there must be a collateral contract for the deposit balance or a collateral contract for valuable papers
1.2.3. Related fees Table 1.1: Letter of Credit service fee schedule Fee Code No. Service Fee Rate VND Foreign Currency I Import Letter of Credit (L/C) 1 Issuance of Letter of Credit Minimum 50 USD F001 1. Portion of L/C value secured in cash (VND/foreign currency) in Demand Deposit Account or Security Account at VCB, or back-to-back L/C (in cases where the L/C stipulates that payment for the import L/C will only be made after receiving payment from the export L/C) 0.05% Maximum 500 USD F006 1.2 Other amendments 20 USD per occurrence F007 1.3 Cancellation of L/C upon request 20 USD per occurrence + foreign bank charges, if any F008 1.4 Fee for discrepancies in document set 90 USD F009 1.5 Payment of L/C (per document set) 0.2% of the document set value Minimum 20 USD Maximum 500 USD F020 1. Authorization for goods release / Endorsement on bill of lading (before documents reach the bank) 15 USD per bill of lading or authorization II L/C Confirmation F035 2. L/C Confirmation: Fee calculation starts from the confirmation date until the L/C expiry date As per Correspondent Bank’s Fee Schedule
1.2.4. Letter of Credit application form
Figure 1.2. The application form for opening an LC at Vietcombank Notes When Completing the Letter of Credit Application Form
- The basis for writing the application is the signed foreign trade contract, but the importer may add certain terms favorable to themselves.
- The application must bear the signatures of the Director and Chief Accountant of the importing entity. If acting as a commissioned importer, the L/C application must have all four signatures: those of the Director and Chief Accountant of the commissioned importing entity, as well as the Director and Chief Accountant of the commissioning entity.
- To avoid multiple amendments to the L/C, which can be time-consuming and costly, the importer may fax the L/C application to the exporter for review and feedback.
- The importer should review the original L/C and request amendments if necessary to protect their own interests.
1.3. Filling in the application for letter of credit issuance
a) Financial Documents b) Commercial Documents
- Bill of Lading
- Air Waybill
- Road Waybill
- Rail Waybill Transportation Documents
- Commercial Invoice
- Certificate of Origin
- Import-Export License
- Packing List
- Phytosanitary Certificate
- Quality Certificate Import-Export Documents
- Warehouse Receipt
- Delivery Order
- Inventory Report Warehouse Documents
- Cargo Insurance Certificate
- Claim Application
- Loss Assessment Report Insurance Documents
- Check / Draft
- Money Transfer Order
- Payment Order
- Credit/ Debit Advice Payment Documents
- Loan Agreement
- Letter of Credit (L/C)
- Acknowledgment of Debt
- Loan Contract
- Loan Invoice Loan and Credit Documents
- Share Certificate
- Bond
- Fund Certificate
- Securities Investment Documents
2.1.2. Bill of Exchange a) Definition A bill of exchange is an unconditional order in writing, address by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain of money to or to the order of a specified person, or to bearer. b) Classification
- Sight Bill of Exchange: This is payable on demand or on a set date after the bill is presented.
- Time Bill of Exchange: This is payable on a set date and not on demand.
- Usance Bill of Exchange: This is payable after a set period of time, typically several months.
- Trade Acceptance Bill of Exchange: This is used in international trade and is generally accepted by the seller of goods to the purchaser.
- Accommodation Bill of Exchange: This is created for the purpose of providing financial accommodation to a third party such as a family member or friend. c) Scope of use
- Commercial Transactions: Used in buying and selling goods as a means of payment, facilitating trade between parties.
- Financing: Serves as a tool for obtaining credit, allowing businesses to delay payments while securing necessary goods.
- International Trade: Commonly used in international transactions to provide security and assurance for both exporters and importers.
- Negotiable Instrument: Can be transferred or endorsed to others, allowing flexibility in payment and settlement.
- Debt Settlement: Used as a formal method to settle debts, ensuring clear terms and conditions for payment. 2.1.3. Commercial Invoice a) Definition
are crucial for protecting goods during transportation. They ensure that the goods are covered against risks like damage, theft, or loss during transit. b) Classification The most common types of insurance documents include:
- Insurance Policy: a detailed contract that outlines the terms and conditions of the insurance coverage such as principles, insurance conditions, fees, deduction …
- Insurance Certificate: a summary of the insurance policy, primarily covering insurance agreements such as statute of limitations, forms, insurance value,... which are not as complete as Insurance policy. c) Scope of use The uses of insurance documents in various contexts, particularly in international trade, include:
- Proof of Insurance: Demonstrates that goods in transit are protected against risks such as damage, loss, or theft, safeguarding the interests of both the buyer and seller during transportation.
- Compliance with Contractual Obligations: Provides insurance documents under CIF and CIP terms to fulfill contractual obligations to the buyer.
- Facilitation of Trade Finance: In documentary credit transactions (such as letters of credit), insurance documents are often required to ensure that the goods are insured before payment is released. This helps build trust between parties in international trade.
- Evidence for Claims: Uses insurance documents to file claims with the provider for compensation when goods are damaged or lost during transit.
- Legal Protection: Provides information on compensation conditions, helping both the buyer and seller understand their rights and responsibilities.
- Required for Customs Clearance: Some customs authorities require insurance documents to verify that the goods are insured. 2.1.5. Bill of Lading a) Definition A bill of lading is a legal document that’s issued by a transportation company to a shipper. It details the types, quantity, and destination of the goods being carried. A bill
of lading also serves as a shipment receipt when the carrier delivers the goods at a predetermined destination. b) Classification Bills of Lading can be of various types, depending on the terms and conditions and circumstantial requirements that it signifies. Here are some classification methods:
- By Condition of the Bill of Lading
- Clean B/L: Indicates no notes regarding defects in the goods or packaging.
- Unclean B/L: Contains notes on defects in the goods or packaging, such as torn packaging, signs of moisture, etc.
- By Issuing Entity
- Master Bill (MBL): Issued by the shipping line. The shipper and consignee may be the owner of the goods or a forwarding company (or an agent).
- House Bill (HBL): Issued by a forwarding company. The shipper and consignee are usually the owners of the goods (import-export companies).
- By Ownership Type
- Straight Bill: A bill of lading that specifies the consignee’s name and address, requiring the carrier to deliver the goods only to the specified consignee.
- To Order Bill: Generally, the original bill does not display the consignee's name but instead states "To Order" in the consignee section. This type of bill allows anyone holding the original bill, with the endorsement of the shipper, to receive the goods.
- To Bearer Bill: Contains no name or information in the consignee section or is issued "to order" without specifying the order holder. Therefore, anyone holding this bill may receive the goods.
- By Legal Status of the Goods
- Original Bill: A bill marked as "Original," bearing an original seal and handwritten signature. The original bill conveys ownership of the goods.
- Copy B/L: A copy of the original bill, with the same information, but lacking a seal or handwritten signature. Marked with "COPY-NON NEGOTIABLE," indicating it is non-transferable.
- By Charter Type
