Chapter 2: Negotiating Payment

What points should be

mentioned in a Payment
clause of an IBC ?
Negotiating Payment
Structure and goals
1. Negotiating Price
 To establish the relationship between quoted price
and that the complete set of conditions led to the
formation of price
 To simplify the price clause by removing traces of
other provisions
 Negotiating Payment
2. The Five Steps in Negotiating Payment
 To suggest a clear structure for payment negotiations
 To introduce the main considerations in payment
provisions
Negotiating Payment
3. The Letter of Credit
 To establish the principles of the letter of credit

 To review the mechanisms of the letter of credit

 To suggest a technique for negotiating the terms of a

letter of credit
 To offer an overview of the documentation commonly
required by letters of credit
 To stress that a letter of credit will not be paid unless
the documentation is correct
1. Negotiating Price
List all changes which must affect price of
goods?
2. 5 steps in negotiating Payment
 Mode of payment: How will payment be made?
 Timing: What is the date of payment ?
 Place of payment: Where must the money be before
payment is considered complete?
 Delay: What delay in payment is excusable?
 Result of delay: what is result of non-excusable delay
in payment?
2. 5 steps in negotiating Payment
1. Mode of payment: How will payment be
made?
2. 5 steps in negotiating Payment
2. Timing: What is the date of payment
2. 5 steps in negotiating Payment
3. Where can payment take place?
2. 5 steps in negotiating Payment
4. Delay: What delay in payment is excusable?
5. Result of delay: what is result of non-excusable
delay in payment?
2. 5 steps in negotiating Payment
Specimen clause
If payment of any sum payable is delayed, the seller is
entitled to receive interest on the amount unpaid during
the period of delay. The interest shall be at an annual
rate three percentage points above the discount rate of
the central bank in the seller’s country.
2. 5 steps in negotiating Payment
The Price for the Goods to be delivered under this
Contract is <CURRENCY SYMBOL> <FIGURE>
(<CURRENCY IN WORDS> <FIGURE IN WORDS>).
Payment shall be made by means of an irrevocable,
confirmed letter of credit. The BUYER shall open the
letter of credit on or before <DATE OF OPENING OF
LETTER OF CREDIT> on the terms agreed by the
parties and annexed to this Contract as Appendix
<NUMBER>.
2. 5 steps in negotiating Payment
This Contract shall not come into force under Clause 16
below until the SELLER has received advice that the
letter of credit has been opened in his favor and has
ascertained that the terms are in accordance with those
agreed between the parties.
Any discrepancy between the terms agreed by the
parties and the letter of credit as issued shall be notified
by the SELLER to the BUYER immediately.
3. Gap-filling
1. For the seller, the most favorable method ofpayment
is the ....1 .......2............3.................4;
2. For the importer, …....5 …………6 …... ............7 is
most favorable.
3.Terms of payment are a key factor in
setting………………8 .
4. Delay in payment is always ........9 for the seller.
 3. Gap-filling
5. A …..... 10 for .......11 settlement can speed up
payment.
6. Dates may be fixed as ............12 dates
7. More common in export contracts are ............... 13
……..14 .
8. Payment can be said to .....15 when the importer
pays.......... 16 to his bank for ...........17 to the seller.
3. Gap-filling
9. Payment can be said to occur when the seller
has .........18 of the money in his bank account.
Normally any late payment is legally in ...........19."
10. Force majeure can ………..20 payment to be
late, but a force majeure ……..21 does not
normally allow the buyer to ………22 the result of
delay. He must pay ................23.
11. If payment is late, the buyer must normally pay
..............24 on all sums ......25 to the exporter.
12. The ................26 of interest should be
...............27 in the contract.
4. Q & A
1. What is payment by open account? What are the risks
for the exporter if he accepts payment by open account?
2. What is Export credit insurance?
3. What is a bank guarantee?
4. Distinguish Export credit insurance and Bank
Guarantee?
5. What are some limitations of Export Credit
Insurance?
6. What should be noted on a marine Bill of Lading for it
to be acceptable as a shipping document under a Letter
of Credit?
4. Q & A
7. What method of payment makes late payment
impossible?
8. Distinguish Irrevocable and Revocable Letter of
Credit?
9. Distinguish the Confirmed and Unconfirmed L/C.
10. If a letter of Credit requires “a full set of original air
waybills” to be submitted, what will be the problem for
the exporter?
11. Why do exporters greatly prefer confirmation of
credit from their bank?
12. Distinguish Partial shipments and Shipment in
installments.
4. Q & A
18. Why do exporters prefer Letter of Credit as a
security for payment to asking for a payment guarantee
from the buyer?
19. What is a Letter of Credit? Why it is also called
Documentary Credits?
20. About the expiry date of a Letter of Credit, why does
buyer wants an early date while exporter wants a later
date?
4. Q & A
13. Explain the two principles that make letters of credit
safe for both exporter and buyer: Autonomy and Strict
compliance.
14. Why do people ask for a Prepayment Guarantee?
15. In terms of guarantee, what does it mean by
“without demur or objection”?
16. What are some common guarantees in business?
Explain each of them briefly.
17. What is a Conditional Guarantee?
5. Translation(E-V)
1. If Buyer fails to pay for the Goods in accordance with
this Contract, Buyer shall pay to Seller as liquidated
damages and not as a penalty overdue interest at the
rate of the lower of eighteen percent (18%) per annum
or the maximum interest rate permitted by the laws of
Buyer's country, calculated from the due date for such
payment until the actual date of payment calculated on
the 360 day a year basis for the actual number of days
elapsed.
5. Translation(E-V)
2. If the Buyer's failure to make payment, to establish a
letter of credit or otherwise to perform its obligations
hereunder is reasonably anticipated, the Seller may
demand that Buyer provide, within a reasonable time,
adequate assurance satisfactory to Seller of the due
performance of this Contract and may withhold shipment
or delivery of the undelivered Goods until such
assurance is given.
5. Translation(E-V)
3. If payment for the Goods shall be made by a letter of
credit, the Buyer shall establish in favor of Seller an
irrevocable letter of credit through a prime bank of
good international repute immediately after the
conclusion of this Contract in a form and upon terms
satisfactory to Seller.
5. Translation(E-V)
4. Any new, additional or increased freight rates,
surcharges (bunker, currency, congestion or other
surcharges), taxes, customs duties, export or import
surcharges or other governmental charges, or insurance
premiums, which may be incurred by Seller with respect
to the Goods after the conclusion of this Contract shall
be for the account of Buyer and shall be reimbursed to
Seller by Buyer on demand.
5. Translation(E-V)
5. The oil price indicated in this contract agreed upon
and mentioned in Clause Three of this Contract shall be
obtained by Petrobras with the deduction of the
following charges as indicated below.
5. Translation(E-V)
6. We request you to issue your irrevocable
documentary credit for our account in accordance with
the above instructions (marked with an X where
appropriate). The credit will be subject to the Uniform
Customs and Practice for Documetary Credits (1993
Revision, Publication No. 500 of the International
Chamber of Commerce, Paris, France) insofar as these
are applicable
5. Translation(E-V)
7. If payment of any sum payable is delayed, the Seller
shall be entitled to receive interest on the amount unpaid
during the period of delay. The interest shall be at an
annual rate three percentage points above the discount
rate of the central bank in the Seller's country.
5. Translation(E-V)
8. If there has been unreasonable delay in any payment,
interest appropriate to the currency involved shall be
charged. If such charge is not mutually agreed, a
dispute shall be deemed to exist which shall be
settled by arbitration.
5. Translation(E-VN)
9. Please check the credit terms carefully. In the event
that you do not agree with the terms and conditions or if
you feel unable to comply with any of the terms and
conditions, please arrange an amendment of the
credit through your contracting party (the applicant
for the credit)
 5. Translation(E-V)
10. The Buyer, on receipt of the Confirmation of Order from the
Seller, shall at least 20 days prior to the date of delivery open a
confirmed, irrevocable letter of credit. 20% of the credit shall be
available against the Seller's draft accompanied by invoice;
the remaining 80% shall be available against the Seller's draft
accompanied by the shipping documents
6. Translation(V-E)
1. Tất cả các loại thuế, thuế xuất khẩu, phí, phí ngân
hàng và các loại phí khác phát sinh từ hàng hóa, các vật
chứa đựng và/ hoặc bất kỳ chứng từ ( bao gồm nhưng
không giới hạn ở những giấy chứng nhận xuất xứ từ
nước xuất khẩu) sẽ do người bán thanh toán/chịu trách
nhiệm.
6. Translation(V-E)
2. Người mua có nghĩa vụ thanh toán phần giá trị hàng
hóa thể hiện trên bề mặt hợp đồng mà không được
khấu trừ, khởi kiện ngược/ phản tố, đòi tiền lại hoặc đòi
những quyền lợi liên quan khác mà người mua có thể
đòi hỏi từ người bán, những quyền lợi như vậy sẽ được
thực hiện trong một thủ tục pháp lý riêng giữa người
mua và người bán.
6. Translation(V-E)
3. Việc người bán thanh toán tiền bồi thường thiệt hại
ước tính sẽ không cản trở người mua trong việc đòi các
khoản tiền bồi thường thực tế từ người bán cho bất kỳ
những tổn thất, hư hại hoặc thiệt hại phát sinh từ hoặc
có liên quan đến việc giao hàng hóa trễ.
 6. Translation(V-E)
4. Cụ thể, như người mua được quyền hưởng tiền bồi thường từ
người bán cho bất kỳ những thiệt hại, tổn thất gián tiếp hay phát
sinh bao gồm nhưng không giới hạn ở việc tổn thât lợi nhuận,
không sử dụng được hàng hóa , không thực thi được hợp đồng,
phát sinh từ hoặc có liên quan đến việc giao hàng trễ. Tuy nhiên,
những khoản thanh toán như là tiền bồi thường thiệt hại ước tính
phải được khấu trừ vào tiền bồi thường thiệt hại thực tế đòi được
từ người bán cho việc giao hàng hóa trễ
7. Translation(V-E)
5. Mức giá thể hiện trên bề mặt của hợp đồng sẽ cố định
và có giá trị cuối cùng và sẽ không bị ảnh hưởng bởi bất
kỳ điều chỉnh nào vì bất kì lí do gì. Việc thanh toán ngay
giá trị tín dụng thư phụ thuộc vào việc nhà xuất khẩu
xuất trình đúng chứng từ. Có tới 90% những hồ sơ nộp
lần đầu tiên để được thanh toán đều bị từ chối do chứng
từ không tương thích.
6. Translation(V-E)
6. Giá hợp đồng vẫn giữ nguyên trong suốt quá trình
thực hiện hợp đồng này và sẽ không bị ảnh hưởng bởi
bất kỳ sự thay đổi nào vì bất kỳ lí do gì bao gồm nhưng
không giới hạn ở sự tăng lên của chi phí hoặc biến động
tiền tệ.
6. Translation(V-E)
7. Việc thanh toán chỉ được xem là hoàn thành khi số
tiền hàng theo hợp đồng được trả vào tài khoản ngân
hàng người bán và người bán được toàn quyền sử
dụng nó.
6. Translation(V-E)
8. Các khoản phí ngân hàng có liên quan đến
việc nhờ thu sẽ được thanh toán bởi người bán
mà ngân hàng đang thu hộ. Các khoản phí do
ngân hàng người mua tính, sẽ được người mua
chi trả.
6. Translation(V-E)
9. Trong trường hợp mà việc thanh toán sẽ phải được
thực hiện bằng một tín dụng thư, thì tín dụng phải được
mở, tuân thủ chặt chẽ theo các điều khoản của hơp
đồng, và với phương thức thanh toán như vậy, bên
hưởng lợi sẽ có thể sử dụng số tiền trên kể từ ngày sớm
nhất trong khoảng thời gian được quy định cho việc giao
hàng.
6. Translation(V-E)
10. Nếu các chứng từ xuất trình không trọn bộ hoặc có
những chứng từ khác còn thiếu, việc thanh toán vẫn
được thực hiện miễn là việc cung cấp những chứng từ
con thiếu đó được cam kết và sự bảo đảm như thế phải
được ký xác nhận của một ngân hàng có uy tín nếu
người mua yêu cầu.
Negotiating Payment (Part 2)
3. Export credit insuarance
3.1. What is Export credit insurance:
3.2. What is Export credit insurance used for ? ....
Negotiating Payment (Part 2)
3.3. What is Payment guarantee ?
3.4. What is Payment guarantee used for
Negotiating Payment (Part 2)
3.5. State 4 kinds of guarantee
Negotiating Payment (Part 2)
4. L/C: What is a Letter of Credit?
4.1.Principles
State the principles of Letter of Credit ?
Negotiating Payment
V. Case 1.
Stand and Deliver
Below is the first part of a payment guarantee issued in standard
bank form. Study it, and then answer the questions.
 Payment Guarantee No. 76542/92
 Reference is made to the order No. WEX 344 K placed with you as suppliers
by Multi-Import for the supply of integrated circuits. According to the
conditions of this order, the Buyer has to furnish a payment guarantee in the
amount of USD 600,000. By order of the Buyer, we, Big Bank of Euroland,
hereby establish this guarantee and undertake irrevocably to pay to you
without demur or objection any outstanding amount not exceeding USD
600,000 say United States Dollar six hundred thousand only upon your first
written demand stating that the Buyer has failed to effect the outstanding
payment at maturity. Our liability under this guarantee will expire as soon as
this document is returned to us, latest however, by 31st December 20...
Negotiating Payment
V. Case 1.
1. Who is the principal?
2. Who is the guarantor?
3. Who is the beneficiary?
4. Is this a "demand" guarantee?
5. If the buyer fails to pay, is payment secure?
Negotiating Payment
V. Case 2
Read the clauses in a contract for sale of coffee below, find
out the mistakes and correct them
1. Commodity: Coffee
2. Quality: As per the catalogue agreed by both parties attached
herein, being an integral part of this contract.
3. Price
Unit price: $100/ bag
Total amount: $5,000
In words: Five thousand dollars only
4. Delivery
- Term of delivery: CIF London port
- Delivery shall be made on or about May 10th, 201-
Negotiating Payment
V. Case 2
5. Payment
The buyer shall apply for an irrevocable L/C at sight in USD
through London commercial bank in the Seller’s favor for the total
value of the goods to be shipped, and advise the seller through
the Bank for Foreign Trade of Vietnam, 7 days before the date of
shipment and valid for 20 days, against the following documents:
- Time draft
- Full set of clean shipped on board B/L, marked “freight to collect”
- Signed commercial invoice in quadruplicate
- Certificate of Origin
Negotiating Payment
5. L/C?
5.1. Letter of Credit: How to issue?
5.2. Letter of Credit: How to present?
5.3. Letter of Credit: How to notify?
5.4. Letter of Credit: Methods of payment?
5.5. Letter of Credit: Negotiating Terms?
5.6. Letter of Credit: Associated documents?
Negotiating Payment
6. Commom discrepancies reported by banks
6.1. Problems with the letter of credit ?
6.2. Problems with the bill of lading ?
6.3. Problems with insurance ?
6.4. Inconsistencies among the Documents?
6.5. Problems with the bill of lading ?
Negotiating Payment
7. METHOD OF PAYMENT
7.1. SETTLEMENT BY SIGHT PAYMENT
7.2. SETTLEMENT BY DEFERRED PAYMENT
7.3. SETTLEMENT BY ACCEPTANCE
7.4. SETTLEMENT BY NEGOTIATION
Negotiating Payment
8. Read the sentences below and decide whether they are
true (T) or false (F)
1. Delay in payment might be excused during a grace
period.
2. All international trade is conducted on a cash basis –
goods against cash.
3. Payment against an invoice is usually made
immediately.
4. To the exporter cash does not usually mean coins
and notes; it means checks (cheques) or bank
transfers.
5. In private life, small purchases (in a supermarket, for
example) are sold cash against invoice.
Negotiating Payment
8. Read the sentences below and decide whether they are
true (T) or false (F)
6. The term guarantee, in strict legal usage, means a promise
about your own performance.
7. In most contracts nothing, not even force majeure, excuses late
payment.
8. There are some serious, objective conditions the beneficiary
must meet before claiming payment of the demand guarantee