Midterm (60m): 20 MCQs (scenario, which date to present, pay, cuối tuần thì phải cộng
thêm), 2 essay questions (process of L/C, L/C types, fill in L/C, B/E, which transaction
for which method (2 loại thu hộ, open account, L/C) etc.). Quy trình của từng loại L/C thì
khỏi
I. Case study 1:
VinaSilk (Vietnam), a producer of premium, custom-woven silk, has received an order
valued at EUR 150,000 from "Elegancia Paris," a prestigious French fashion house. The
two parties have had a few small, successful transactions in the past. However, this latest
order is of significant value and is considered critical for their long-term partnership.
During negotiations, they hit a serious impasse regarding the payment method:
VinaSilk's Position (The Exporter): VinaSilk's management is extremely cautious.
A few years prior, they suffered a significant loss when a client in another market
refused to accept a shipment and defaulted on the payment. Therefore, they are
proposing the most secure method: an Irrevocable Letter of Credit (L/C) at
sight. Furthermore, they require stable cash flow to pay their local sericulture
(silk) farmers.
Elegancia Paris's Position (The Importer): They vehemently oppose using an L/C.
They argue that:
As a major brand with a strong reputation and excellent credit, requiring an
L/C demonstrates a lack of trust.
The costs and administrative procedures for an L/C are high and
cumbersome, which could delay their fashion collection's production
timeline.
They propose Open Account (O/A) terms, with payment 60 days after
receiving the goods. This is because they need to incorporate the silk into
their production cycle before generating sales revenue to pay for it.
QUESTIONS:
As a Trade Finance Advisor trusted by both parties, please:
1. Briefly analyze the risks and disadvantages of the two options (L/C at sight and
Open Account) for both VinaSilk and Elegancia Paris in this situation.
2. Propose the most viable intermediary payment method to resolve the deadlock.
3. Argue and convince both parties that your solution is optimal, protecting VinaSilk
from total loss while meeting Elegancia Paris's needs for cost and flexibility.
Answer:
1.
VinaSilk Elegancia
L/C at sight Discrepancies in the document => Costly (Must pay bank fees:
opening, confirmation, amendment
potential delay or rejection. fees).
Lose customers Complex process
Negative impact on their working
capital (as they need to deposit at the
bank)
Open Account Risk of default No risk
(60 days after Tied-up working capital for 60 days
receipt)
2. Documentary collection – D/A combined with B/E 60 days.
3.
- Reduce risk in document discrepancies
- Reduce fees and the complex process for the Importer
- Help the Exporter to maintain a good relationship with the Importer
- B/E can be discounted or used as collateral for borrowing solve the working
capital problem for the two parties.
II. ✅ Clean Collection – Pros & Cons
A clean collection means the exporter sends only financial documents (e.g., Bill of Exchange)
for collection without accompanying commercial documents. The importer already receives
commercial documents directly, so goods are not “held” by the bank.
III. 🟦 Exporter’s Viewpoint
a. ✔ Advantages
1. Lower cost than Documentary Collection or L/C
Bank charges are minimal because only financial documents are handled.
2. Simpler and faster process
No need to route commercial documents through banks → quicker dispatch.
3. Useful when importer is highly trusted
Works well in long-term relationships with minimal payment risk concerns.
b. ✘ Disadvantages
1. High payment risk (no control over goods)
Since the buyer already has the commercial documents, they can take the goods even if
they refuse to pay.
→ Exporter has almost no leverage.
2. No bank guarantee of payment
Banks only act as agents; they do not promise or ensure payment.
3. Possible cash-flow uncertainty
Payment may be delayed or rejected; the exporter faces uncertainty.
4. Weak legal enforceability across borders
If the importer dishonors the Bill of Exchange, the exporter must pursue legal action
abroad.
→ Exporter bears significant risk.
IV. 🟩 Importer’s Viewpoint
c. ✔ Advantages
1. Strong position (receives goods/documents first)
The importer obtains commercial documents directly → can take delivery before
payment.
2. Very low cost
Minimal banking fees compared to L/Cs.
3. Flexible payment timing
If it's a usance draft, the importer gets additional credit time.
4. Simple paperwork
No strict banking rules, no need to prepare complex L/C compliance documents.
d. ✘ Disadvantages
1. Credit reputation must be strong
Exporters only accept clean collection with reliable buyers.
Small or new importers may struggle to secure this term.
2. Potential legal liability if dishonoring the draft
Refusing to pay can lead to credit damage or legal consequences.
3. Importer may face interest charges on late payment
Depending on the agreed terms and draft conditions.
→ Importer benefits the most, but must maintain good creditworthiness.
XYZ Electronics Joint Stock Company signed a contract to export high-tech equipment worth
USD 3
million to the Brazilian market. The contract terms require deferred payment over three years (3
years). The company's management is considering two international long-term trade finance
methods: Factoring or Forfaiting Questions:
1. Clearly distinguish between Factoring and Forfaiting in this specific situation.
2. Analyze and propose the most optimal method for Company XYZ based on the following
criteria:
Credit risk and risk management
Financing costs (service fees, interest rates)
Implementation process, documentary, and legal complexity
Cash flow management efficiency
3. Select the optimal method and clearly explain the reasoning.
