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Consultancy On International Payment Methods

When negotiating international payment methods, the parties always have the desire to choose the most beneficial payment method for themselves because payment is the basic right and obligation of the two buyers (importers) and the seller (exporter) in the international sale and purchase of goods. If you have wondering about legal issues relating to international payment procedures, do not hesitate to contact Apolo Lawyers - Solicitors & Litigators (Hotline: +84 903 419 479) for the best answer and advice.

International payment includes conditions such as: currency, location, international payment method conditions, time conditions.

1. What are the international payment methods? 

International payment is a payment between parties to an international goods sale and purchase contract or a service contract with foreign elements.

This payment is made mainly by banks and is associated with the exchange of money at the foreign exchange market rate.

Thus, International payment method is a way to make payment for an import-export contract through a bank intermediary by deducting money from the account of the importer and transferring it to the account of the exporter based on the commercial contract. and documents provided by both parties to the bank.

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2. Types of international payment methods 

In a contract of sale of goods, the buyer can pay the seller by various methods (direct money transfer (T/T), letter of credit (L/C), collection, etc.) …vv) is subject to the agreement of the parties and has been recorded in the contract. In fact, the contracting parties often agree to pay through the following methods: 

2.1 Remittance Payment: 

In international payment methods, this method causes many risks for both parties. In fact, there are many cases where the importer will not transfer money to the exporter until the goods are fully received. This is an advantage for the importer but is a risk for the exporter when the goods have been delivered but the payment is not paid, payment is delayed or payment is incomplete. However, the importer can also bear the risk, especially in the case of money transfer before delivery such as: receiving the full amount of goods before delivery, deposit, advance, ...

To prevent the risk of party should:

  • Develop a clear money transfer route

  • Agree on the time of money transfer to coincide with the time of delivery.

  • Clear regulations on means of money transfer, who will bear the cost of money transfer?

2.2 Documentary credit method (Letter of Credit – L/C)

Among international payment methods, payment via letter of credit (L/C) is used quite commonly. To a certain extent, L/C is a payment method that balances the interests of both exporters and importers and resolves conflicts of distrust of both parties. However, in the process of applying, the parties should pay attention to the following legal characteristics of the letter of credit to avoid misapplication, and causing damage to themselves. 

  • L/C is formed on the basis of the underlying contract (goods sale and purchase contract, service contract…) but when it is issued it is completely independent of the underlying contract. The bank opening the letter of credit and other banks participating in the letter of credit operation only follow the provisions of the letter of credit.

  • A letter of credit is a type of sale of documents. According to Article 5 of UPC 600: Banks transact on the basis of documents and not with goods, services or other performance to which the documents relate.

As such, the bank is obligated to pay the exporter when he/she presents documents in accordance with the terms and conditions specified in the L/C. The bank is not allowed to use the reason that the buyer has not received the goods to refuse to pay if the documents presented by the seller are in accordance with the terms and conditions specified in the L/C.

2.3 Collection method

Collection method is a payment method in which the party with the funds from the payment instrument (the creditor) entrusts the bank to collect the money written on that payment instrument from the debtor. There are two methods of collection, namely, by clean collection and documentary collection:

2.3.1 Clean collection

Clean collection is one of the international payment methods applied in the case of foreign goods purchase and sale. in which the exporter entrusts the bank to collect the money stated on the payment instrument without any conditions on the delivery of the documents. This can be a disadvantage for the exporter, the importer has not yet paid for the goods but already holds the documents to receive the goods from the carrier. 

Therefore, in international goods trading activities, it is necessary to limit the application of this method. If this payment method is applied, it should be applied only when both parties are reliable partners of each other, and in international goods sale and purchase contracts, there should be strict sanctions to ensure the importer pay.

>>> Read more: Risks in entering a contract for the sale of goods

>>> Read more: Procedure for signing contracts for the international sale of goods

2.3.2 Documentary collection: 

Documentary collection is one of the international payment methods applied in the international contract of sale of goods in which the exporter entrusts the bank to collect the money stated on the payment instrument. The condition will deliver the documents if the importer pays, accepts payment, or fulfills other specified conditions.

In the business process of this payment method, there is one point to note:

The exporter does not deliver the documents directly to the importer. The importer must pay the new bank to deliver the documents to bring the documents to receive the goods. Thus, this method protects the interests of the exporter, avoiding the situation of capital appropriation by the importer, late payment, incomplete payment or refusal of payment.

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3. How can Apolo Lawyers support our clients? 

Apolo Lawyers with an experienced lawyers team in the field of international trade, regularly performing the profession, has a lot of experience, we are confident that we can bring the best quality of services to customers. We can help our clients the following tasks: 

  • Drafting and reviewing the contract 

  • Consulting in choosing payment methods 

  • Give advice on benefits and risks for clients to consider in choosing payment methods. 

For in-depth advice on payment in international trade, please contact us via email at contact@apolo.com.vn or Hotline - (+84) 903 419 479

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