5 Factors that determine the methods of

payment
1. Relationship between importers and
exporters
The relationship between the exporter and the importer will directly affect the
level of trust between the two parties. Thus, it will directly affect the selection
of method of payments. Three major international methods of payment can be
applied depending on the level of trust of clients
(1): If the level of trust is high, businesses often apply the payment method of
money transfer
(2): if the level of trust is moderate, apply the payment method for Documentary
Collections
(3): If the levels of trust is low, Methods of payment are usually applied by
Letter of Credit
In the trading relationship, the money transfer method is often selected for
customers who have close relationships, trust each other. Because this payment
stage is easy to raise the occupation of the seller 's capital, if the buyer
deliberately delays, prolonging the payment order even though the money
transfer method, especially electricity money transfer, is rapid payment most
current.
For documentary collections, the bank only participates as an intermediary to
collect money, although the bank is responsible for controlling documents (in
the collection of documents) but the bank is not bound by responsibility on
checking documents as well as whether the exporter is obliged to pay by the
importer. This methods of payment also relies entirely on mutual trust between
exporters and importers, although it is safer to transfer money but the risk to
exporters is still great. Therefore, when the level of trust between exporters and
importers is not high, methods of payment should be used with letter of credit.
In this paymant, on behalf of the importer, it is committed to pay the exporter
and the bank is also responsible for checking the documents sent by the exporter
to decide the payment to the exporter.
 2. Ability of customers to meet regulations set
by commercial banks in payment procedures

Ability of customers to meet regulations set by commercial banks in payment

procedures of customers. In terms of commercial banks, the choice of customer
payment plans is not always met because customers do not fully comply with
specific regulations for each contributor. The bank based on the assessment of
the reputation and financial capacity of customers to determine an appropriate
payment methods. When the bank appreciates the financial capacity and
reputation of the importer, the bank can apply letter of credit. Because applying
this method means that the bank has made a commitment to pay the exporter on
behalf of the importer. Therefore, banks may encounter certain risks. In case the
importer does not deposit 100% of the value of L / C, accepting the issuance of
the letter of credit means that the bank may face risks of not recovering money
from the importer after the bank pays the exporter. Although the selection of
payment method is decided by importers and exporters, it is not always
accepted by banks because customers do not meet certain bank regulations.

3. Transaction fee regulated by the bank

The transaction fee also affects the selection of payment method. In most case,
banks always set a fee proportional to the risk that the bank may face and the
bank's responsibility. Customers always tend to choose the lowest cost payment
methods. In the three forms of methods that Vietnamese commercial banks
often apply, the money transfer has the lowest fee.
However, it is not always possible to apply this method. Customers must always
consider the transaction fee with the risk that they may encounter. In general,
the method of money transfer brings more risks to exporters. As for payment
with L / C, the transaction fee is often high because the bank's responsibility in
this market is very large, the bank will make a commitment to pay the exporter
as well as check the documents for importer.

4. Characteristics of the trading market

One of the important factors affecting the selection of methods of payment

through the bank is the specificity of the customer market. If the market of
customers is a country with a lot of political instability or is the country that has
many changes in management mechanism then the risk of facing political risks
or risk of management mechanism will be very high. Risks due to the
management mechanism are common when the legal environment and economy
of a country are not stable, and this is often adjusted.
When a country changes its policies on foreign exchange, tax on import and
export, it will directly affect international payment activities (International
Settlement) for the parties involved. In fact, these changes often prevent banks
and stakeholders from fulfilling their commitments, making the payment
process stalled, even canceled, causing damage to the parties. . Another example
of risk management mechanisms, such as the risk of a change in the country's
monetary policy, it is a change in interest rates and exchange rates. When
interest rates and exchange rates change, the financial capacity of this business
increases and the others business declines.
The cause of the economy's risk often changes the value of each country's
currency and is the main cause of the exchange rate among the currencies being
changed. When the risk of facing these risks is high, all parties should apply
payment methods with high safety level such as payment by L / C instead of
money transfer and documentary collection.

5. Characteristics of goods

The goods should apply the method which is appropriate to its specific
characteristics. For example, for goods that are used (second-hand), it is
recommended to apply money transfer or collection order because for this kind
of goods, the valuation of the remaining value of the goods is very complicated.
Priority should be given to the buyer the right to review the goods before
making a payment decision. Or for those goods that are experiencing strong
fluctuations in prices in the market, they are often discounted or in cases such
goods tend to be inconsistent with consumer tastes, exporters should apply
payment method by L / C because in this case, if collection or transfer is
applied, the exporter may face risks because the buyer refuses to pay, refuses to
receive the goods.