Topic: The Five Steps in Negotiating Payments I THE PROBLEM II.IN MORE DEPTH III EXERCISES I THE PROBLEM Negotiate about payment in the contract METHODS OF PAYMENT etc ????? “PRICE TRAP” II IN MORE DEPTH What delay in payment is excusable? What is the date of the payment? Step Mode of Payment How will payment be made? Step Timing Step Place of Payment Where must the money be before payment is considered complete? Step Step Delay Results of delay What are the results of non-excusable delay in payment? Step 1: Mode of payment Methods of payment Remittance Collection Letter of Credit 1.1 Remittance A bank (the remitting bank), the request of its customer (the remitter), transfers a certain sum of money to its overseas branch or correspondent bank instructing it to pay a named person domiciled in that country • Payment in advance (cash in advance) • Open account (The opposite of payment in advance) 1.1 Remittance -Advantage Simple, quick payment, Low cost Based on trader’s credit -Disadvantage High reliability between two parties 1.2 Collection Collection means the handling by banks of documents, in accordance with instructions received Clean collection CLASSIFICATIONS OF COLLECTION D/A Documentary Collection D/P 1.2 Collection • Clean collection: The collection on financial instruments alone without being accompanied by commercial documents • Documentary collection: The collection on financial instruments being accompanied by commercial documents 1.2 Collection Further classification of documentary collection  Documents against payment (D/P) The documents are released against the importer’s payment to the draft Documents against acceptance (D/A) The documents are released against the importer’s acceptance to the draft 1.3 Letter of credit Classifications of LC At sight L/C; Usance L/C Confirmed/ Unconfirmed L/C Revocable/ Irrevocable L/C Back to back L/C Reciprocal L/C …… 1.3 Letter of credit Advantages For Exporter/ Seller -Be guaranteed payment -Eliminates risk of the Seller canceling the order => reduces production risk - Makes it easier for the Seller/Exporter to secure order/production financing-preexport financing For Importer/ Buyer -If the Exporter/Seller doesn't ship the goods they don't get paid -Certainty that payment will only be make to the Exporter/Seller upon presentation of documents in strict compliance with the L/C evidencing the shipment of goods 1.3 Letter of credit Disdvantages For Exporter/ Seller * Still subject to political risk of the country the L/C originates * Subject to the financial strength and stability of the Issuing bank * More cumbersome - requires a high level of expertise to successfully navigate the process * More expensive than other methods of payment For Importer/ Buyer * Costs involved with issuing, negotiating, and other fees (like amendments), can make L/C expensive * Seller's bank controls the shipping documents * The goods shipped may not conform (inferior quality for example) to the order 2 Step 2: Timing The date of payment may be regulated date or a chain of dates It is also • calendar dates ( for example: 16th April) • or interval times (for example, within 30 days of the date of invoce) Step 3: Place of Payment Payment shall be deemed to have been made only when the contract sum is paid into the seller’s bank account and is at the Seller’s full disposal This step determines where the money must be before payment is to be completed According to the Article 57 Vienna Sales Convention 1980 * If the buyer is not bound to pay the price at any other particular place, he must pay it to seller at the seller’s place of business; or if the payment is to be made against the handing over of the goods or of documents at the place where the handing over takes place * The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract 4 Step 4: Delay Delay in payment may be excused during a grace period (not common) or a force majeure event (more common) But most exporters not want to excuse these delays and any payment made after the agreed date of payment is in delay 5 Step 5: Results of Delay What happens when payment is late ??? A typical contract clause: Delay payment If payment of any sum payable is delay, the buyer shall be entitled to receive interest on amount unpaid during the period of delay The interest shall be at an annual rate three percentage point above the discount rate of the central bank in the selller’s country Let’s have funny with Game What are methods of payment?? • Remittance • Collection • L/C Compare D/P and D/A Which one is favorable to the Importer/ Exporter? D/P: Mostly in favour of the exporter, who retains control over the goods until payment is made D/A: Favour of the Importer Regarding “Payment in advance” Whom this method is favorable? Exporter or Importer? Why? “ Exporter” because: The exporter can make use of the funds before he makes the delivery of the physical goods or the provision of goods or the provision of services Translate into Vietnamese Payment shall be made by means of an irrevocable, confirmed letter of credit The Buyer shall be open the letter of credit on or before 8th March 20 on the terms agreed by the parties and annexed to this Contract as Appendix =>.Việc toán thực thư tín dụng hủy ngang, có xác nhận Người mua phải mở thư tín dụng vào trước ngày tháng Ba năm , theo điều khoản đươc thỏa thuận bên đính kèm phụ lục Hợp đồng Translate into Vietnamese In case of delayed delivery except for force majeure cases, the Seller shall pay to the Buyer for every week of delay penalty amounting to 0.5% of the total value of the goods whose delivery has been delayed Any fractional part of a week is to be considered a full week The Seller grants a grace period of four weeks from the delivery date before penalties shall be applied => Trường hợp hàng hóa bị giao chậm không nằm trường hợp bất khả kháng, người Bán phải trả cho người mua khoản tiền phạt với tuần giao chậm lên tới 0.5% tổng giá trị hàng hóa bị giao chậm Bất kì phần lẻ tuần tính tuần Người Bán hưởng khoảng thời gian miễn phạt tuần từ ngày giao hàng trước án phạt thi hành Thank you! Name Student code Trần Thị Kiều Oanh 1314160088 Công Thị Hải Hiền 1314160048 Đỗ Thị Loan 1312160077 Nguyễn Thị Hảo 1315160046 Bùi Thị Ngọc Hằng 1311160039 Phạm Thị Phương Thảo 1311110622