UNIVERSITY OF FINANCE - MARKETING

INTERNATIONAL TRADE
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INTERNATIONAL SETTLEMENTS

Group Member:
Vo Ngoc Hang
Mai Khanh Linh
Bui Van Yen
Duong Van Truong

Lecturer: Dr. NONG THI NHU MAI

 Popular Payment Methods In VietNam
Introduction

In the current trend of globalization of the economy and international trade, the international

payment activities of commercial banks are a vital component in the process of concluding a

foreign trade agreement, relationships, increase its competitiveness. Business are always on the

lookout to provide maximum flexibility to their customers in collection payments. This is

especially true for Global Business as local preferences and payments may vary significantly

depending on the geography. Choosing the right payment method augments reach improves

conversion rates and eventually leads to the higher sales.

The essay will explore the practical usage situation of Remittance, its benefits and shortcomings

for stakeholders. Since then, proposing solutions and recommendations in order to create

conditions for import-export enterprises in Vietnam to make better and more effective decisions.

CHAPTER 1: LITERATURE REVIEW OF REMITTANCE

1.1. What is An Remittance?

“Remittance is a method in which a customer (payer) requires his/her bank to transfer a certain

amount to another person (beneficiary) in a certain location by means of transfer choosen by

him/her.”

(Kwai Wing Luk ,2011, International Trade Finance – A practical guide City university of Hong

Kong pres)

1.2. Parties

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Payer (buyer) or remitter (investor, overseas compatriots sending remittance home, person sending

expenditure abroad) a person who requires a bank to transfer a sum of money abroad.

Beneficiary: seller, lender, invested capital reciever, or someone who is assigned by the remitter.

Remitting bank: a bank at the remitter’s country.

Paying bank/Intermediary bank (Correspondent bank of the remitting bank): a bank in the

beneficiary’s country.

1.3. Form of remittance

There are two types of Foreign Exchange Remittances as followings T/T Telegraphic Transfer

remittance and M/T Mail Transfer.

IN CASE M/T MAIL TRANSFER, Bank transfers money by sending a letter to its correspondent

bank in a foreign country to request payment for the beneficiary. This method is less expensive

than T/T settlement, but its disadvantage is that it takes longer, so easy to be affected by the

exchange rate fluctuations.

IN CASE T/T TELEGRAPHIC TRANSFER, Bank transfers money by ordering its

correspondent bank in a foreign country to pay for the beneficiary by telegraph. This method gets

money quickly, speedily, and promptly, so it is rarely affected by the fluctuations in foreign

exchange. Today, it is the cheapest, safest, promptest, and most accurate method of transfer

through SWIFT system.

Remittance is performed in 2 forms: advance remittance and deferred remittance.

Advance remittance

The prepayment method in ensures that the supplier has the assurance that the importer have made

a partial payment before they ship the goods. For importer, making a prepayment ensures that

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importer can receive the goods and inspect their quality before making the final payment, thereby

minimizing risks during the transaction.

Deferred remittance is that the imorter pays the exporter after receiving goods.

With this type of remittance, banks just play intermediate roles to remit money, and don't have

any responsibilities of supervising and speeding up the importer in payment. Thus, payment will

be depended on the importer's goodwill. The exporter can ensure his rights by negotiating to

apply advance remittance.

1.4. Process of Remittance

Diagram of remittance

(1) Goods and Docs

Importer Exporter
(Remitter) (Beneficiary)

(2) (3) debit (5) credit

Remittance
order

(4) Payment order

Bank of Importer Bank of Exporter
(Remmiting bank) (Paying bank)

(5) Bank arrange transfer

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Remittance process is as follows

(1) The exporter supplies goods or services together with full set of document to the importer to

receive the goods and services

(2) The remitter (importer) issues a money transfer order along with the necessary documents to

the bank requesting the transfer of funds abroad. The remittance order includes:

• Value date,Name, address of ordering customer.

• Name, address of beneficiary.

• Account number, emitter’s bank, and beneficiary.

• Amount in words and in figures.

• Details of payment.

• Relerant documents.

• Sign and stamp.

(3) The remitting bank verifies the money transfer documents and debits the account of the

remitter.

(4) Based on the payment order from the customer, the remitting bank issues a payment instruction

to the correspondent bank in the beneficiary's country.

(5) The bank of exporter credits the account of the remitting bank and reports the beneficiary's

account.

CHAPTER 2: PRACTICAL USAGE SITUATION OF REMITTANCE IN VIETNAM

AND THE BENEFITS AS WELL AS SHORTCOMINGS OF REMITTANCE FOR

STAKEHOLDERS

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 2.1. The situation of using international payment methods by import-export

enterprises in Vietnam

In recent years, the growth rate of IP methods at Vietnamese commercial banks has changed

a lot. Specifically, there are several main forms of payment: international remittance, trade finance

(mainly including L/C and collection) and border payment. From the two charts below, it can be

seen that international remittances and trade finance account for a high proportion. However, there

has been a marked change, while the share of trade finance decreased from 42% (2018) to 37%

(2019), the share of remittances increased slightly from 52% (2018) to 56 % (2019). Meanwhile,

the lowest percentage of payment methods is border payment, still at 6-7%. Most customers prefer

to use international money transfer because it is fast and convenient, especially with close partners.

International
Remittance
6% 7%
L/C and
Document
42% 52% 37% Cpllection
56%
Border
Payment

2018 2019

Chart: BIDV’s proportion of payment methods in 2018 & 2019

(Source: BIDV Trade Finance and International Remittance report)

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 2.2. The relationship between remittances and economic growth in Vietnam in the
period of international integration.
(Image sourch: World Bank)
Vietnam received nearly US$13.8 billion in

remittances in 2017, making it the eighth

highest recipient of remittances in the world.

After two years of decline, remittances in

2017 grew by 16 percent compared to 2016,

accounting for 6.7 percent of the country’s

GDP. Ho Chi Minh City continues to remain

the highest recipient in the country, with total

inflows at US$5.2 billion, an annual increase

of 4.5 percent.

2.3. The practice usage

Thinh Nam Corp signed a contract to buy electronic components from Taiwan Semiconductor

Manufacturing c.o. Payment term of an international sales of goods contract as followed: 100%

contract value should bepaid by T/T through Changwha Commercial Bank LTD., Chungho

Branch, Taiwan within 10 days after contract signing.

Beneficiary: Taiwan Semiconductor Manufacturing CO

Beneficiany’s Account: 563867900

(1) Thinh Nam Corporation write a request to transfer the deposit to Changwha Commercial Bank

LTD.

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(2) The correspondent bank will check the solvency of Thinh Nam corporation, specifically check

if the foreign currency account of Thinh Nam corporation at the bank has enough money to pay.

(3) After sending payment order to the bank of Taiwan Semiconductor Manufacturing company,

the bank of Thinh Nam corporation will send debit not to Thinh Nam corporation.

(4) The bank of Taiwan Semiconductor Manufacturing will credit the Taiwan company’s account

and send a credit not to Taiwan company.

(5) Taiwan company supplies goods or services together with full set of document to Thinh Nam

corporation to receive the goods and services.

2.4. The benefits as well as shortcomings of remittance for stakeholders

WITH ADVANCE REMITTANCE

Benefits

For exporter

• The exporter guaranteed to have received the funds prior to the performance of the duty or

delivery.

• The exporter is not exposed to the risk of bad debt, meaning they don't need to hear about

buyers not paying on time or not paying in full.

For importer

• The importer can have greater control over their financial spending because they only have

to pay before receiving goods or services, helping to avoid liabilities later.

• Some exporter may offer special offers, discounts or conditions to customers who pay in

advance, thereby benefiting the exporter.

Shortcomings

The exporter

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 • After signing the contract,if the importer doesn’t make a payment, the exporter also at risk.

• In cases the importer cancels the contract, the exporter suffers a substantial loss.

• The exporter must undertake that they will complete the project or deliver the goods

requested after receiving the advance payment. Failure to meet deadlines or failure to meet

customer requirements may result in loss of reputation and customer compensation.

The importer

• If the exporter fails to deliver the goods or provide services after receiving the money in

advance, the importer may lose money and face difficulty in recovering the transferred

amount.

• The importer cannot refund money after prepayment, if not satisfied with the product or

service, they may have to accept and have no right to claim a refund.

WITH DEFERRED REMITTANCE

Benefits:

Exporters:

• Keep money for a longer period of time

• Increasing profitability and using the money to invest or pay down debt.

• Creates more time for exporters to complete the necessary procedures or documents to

ensure their interests.

Importer:

• Don’t need to pay immediately, use the money to pay other costs.

• Increase their accruals if they invest their late payments in other ways to make money.

• Shoppers can request an adjustment to their checkout if they are experiencing financial.

Shortcomings:

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 The exporter:

• Can be difficult for exporters, especially if they need money urgently to pay other costs.

• Can cause limitations including late payment, high costs and risk of loss of funds.

• May lose credibility in businesses and foreign currency markets.

• Incur higher costs for the transportation of goods.

The importer:

• Wait a certain amount of time before the money from the exporter.

• Pay higher interest charges if they have to borrow money to meet other payment needs

while waiting for the money to arrive.

2.1. Strengths and Drawbacks of Remittance

Strengths and drawbacks of M/T – Mail Transfers method

• Stengths: This method provides low cost.

• Drawbacks: This method is quite slow, so it is easily affected by the exchange rate

fluctuations.

Strengths and drawbacks of T/T – Telegram Transfer method

Compared to many traditional methods, the telegraphic transfer can be completed in any

place without going to a bank in person. Many service providers like banks and other financial

institutions can transfer money to anyone in any place you want but charge certain fees as well.

Therefore, it has been widely used with many advantages:

• Wide range of applications around the world

• Easy and simple process to operate

• To take the initiative in the trade

• Multifaceted protection for money transfer, safe and reliable

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 • Rapid process to finish transferring

• Influenced less by the fluctuation of exchange rates and the international market

• Service fees lower than other payment methods

For many businesses, the telegraphic transfer is a good choice. But every coin has two sides. It

also has some disadvantages:

• The speed of transfer influenced by many factors

• No uniform standard for charging fees, which depends on different banks

• Require much information to confirm and it may cause unnecessary steps

• Not suitable for small transfer from small businesses

CHAPTER 4: RECOMMENDATION AND SOLLUTION TO MAKE USE OF

REMITTANCE

3.1. Recommendation

The choice of payment method depends on each specific situation and the transaction's objectives.

If the transaction involves a reliable partner or a long-term relationship, "Deferred Remittance"

might be suitable. If the transaction requires payment in advance to ensure goods or service

provision, then "Advance Remittance" is a reasonable choice. Always consider financial

capabilities and risk assessment when selecting the appropriate payment method.

Businesses also need to be wary of deals that are too attractive. In the process of negotiating and

implementing the contract, enterprises need to come up with strict terms to avoid being pressured

by partners. To avoid risks, when signing import and export contracts, domestic enterprises should

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apply T/T Remittance with confirmation and ask customers to pay at least 40-50% of the shipment

value in advance.

3.1. Solution for Businesses

To prevent risks, the parties should

• Develop a clear money transfer schedule: For example, how much % in advance at what

time? Pay the rest at what time?…

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

• Specify clearly about the means of money transfer, who will bear the cost of money

transfer?

• Both sender and receiver should agree on the terms and conditions of the transaction before

making a money transfer.

• Make sure the recipient account information is correct and verified before making the

transfer. Businesses need to learn enough information about partners, markets, export

policies, and actively participate in trade promotion activities such as market, survey, trade

fairs,…

• Check the exchange rate before transferring to avoid losing money due to foreign currency

and exchange rate.

• Make your account transfers as fast as possible to avoid time-limited transfers and

deadline-related fees.

• Monitor and check your transfers regularly to detect possible problems early.

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 • Be careful when transacting via email. Businesses must pay special attention to the

recipient's address, especially letters sending important information of the transaction such

as a copy of the delivery documents and the account receiving money via wire transfer.

3.2. Solutions for international payment services of banks

As well as wishing to contribute to the development of international trade, SHB bank has

improved the International Remittance Fee Package with more attractive incentives (SHB, 2021).

Businesses have the flexibility to choose 07 packages suitable for their needs with incentives

• Flexible line of credit: packages with remittance limit from 50,000 USD to 5,000,000 USD

• Preferential, competitive price, suitable for business needs

• Package use period: (up to) 12 months

• FREE money transfer and electricity fee when transferring money in the package.

• REDUCTION FEES for modification and inspection

• FREE consultation on remittance documents and make quick remittance at SHB.

One of the measures to help businesses improve efficiency in using international payment methods

is to combine international payment methods with several international trade finance products.

• T/T advance 40%, 60% T/T paid 15 days afters receiving goods or issuing drafts by the

pretigious bank form the importer.

• T/T advance 30%, the other 70% using the payment method of immediate L/C and non-

cancellation.

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 • T/T advance 30% for the first pay, second L/C 30% immediate payment, third T/T deferred

after 30 days receiving goods.

Conclusion

In conclusion, remittances are one of the most important sources of foreign currency in

ensuring balance of payments, foreign currency reserves increase, stabilize exchange market and

financial market in Vietnam over nearly three decades. Despite its limitations, this study has

provided an overview of the factors influencing the choice of IP methods especially Remittance

by import-export businesses across Vietnam's territory. Timely gives some recommendations for

businesses to minimize the risks that are not present in the payment process. Hopefully, these

measure will be a valueble tool for Vietnam's import-export industry in general and Vietnam's

international payment services in particular in the near future, particularly in the context of

globalization and the Industrial Revolution Globally 4.0 is gaining traction.

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[1] Dr. Nong Thi Nhu Mai (2023), International Settlements, Ho Chi Minh city.

[2] ICC (2013). Uniform Rules for Bank Payment Obligations – URBPO, Paris

[3] BIDV (2021) Joint Stock Commercial Bank for Investment and Development of Vietnam, BIDV

official website. Available at: https://www.bidv.com.vn/ (Accessed: 20 August 2021).

[4] Thuy, P. T. N. (2014) Risk management for international payments at Joint Stock Commercial

Bank for Investment and Development of Vietnam.

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