third - party security for payment

7/26/2019 Third - Party Security for Payment

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VThMinh Tm Bi ThAnh

NguynNgcLinh

SnThy

LngThu Tr

Gingvin hngdn:PhmNguynMinh Chu


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ThirdParty Security for Payment

Overview

Types of Third

Party Security forPayment

Conclusion and Practice


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I. Overview

What is ThirdParty? ThirdParty is an individual or entity(organization) that involves in a transaction,

but is not one of the Principals.

ThirdParty has less interest in thetransaction than the Principals

What is ThirdParty Security for

Payment? ThirdParty Security for Payment is an

insurance policy that is set up for protection

against the risk of non - payment


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I. Overview

Benefits of ThirdParty Security forPayment

Efficiencyin Business performance

Promote Business relationship and boostcooperation

Competitivenessin Business

Profitabilityin trading Two types:

Export Credit Insurance

Payment Guarantee


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II. Types of ThirdParty Securityfor Payment

Distinguish between Insurance andGuarantee

Insurance: Exporter (Seller) pays money to an

Insurance Company to insure its contract Guarantee: Importer (Buyer) pays money to a

bank to guarantee for its payment obligation

related to the contract

1. Export Credit Insurance

2. Payment Guarantee


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What is it? Insurance policy and risk management

product

Offered by insurance companies orgovernmental export credit agencies to

Exporter

To protect exporter from non-payment risk

What does it cover? Business risk: bankruptcy, default,

insolvency,

Political risk: war, strikes, riots,


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How does it work? Exporter explains situation to the insurance

company

Insurance company evaluates credit rating ofthe Importer

Insurance company sends quotation toexporter

Exporter accept and sign the insurancecontract

If credit risk happens, the Insurer pays

compensationto the Exporter


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Export insurance premium: Is a sum of money the Exporter has to pay to

sign the insurance contract.

Vary different according to: Types of Goods exported

Creditworthinessof the Importer

Political stability of the Importers country

Normally between 0.5% and 1% of the invoiceprice


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Limitations: Long wait between time the Importer fails to

pay and the Insurance company compensates

Normally 6 months Not cover 100% of the original invoice price

Importer engages in bad faith behavior


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Type of Guarantee and Case related: Payment Guarantee: NonPayment of

Importer (Buyer)

Tender Guarantee: Revocation, i.e. Exporter(Tender) withdrawsin Procurement contracts

Performance Guarantee: NonPerformance,i.e. Exporter work badly or not at all

Prepayment Guarantee: Losing Prepayment


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What is it?A financial commitment between the

Guarantor (Bank) and the Principal (Importer)

The Guarantor promises to pay money to theBeneficiary (Exporter) if the Principal fails to

make payment

Usually for 100%of the contract price

May be required when the credit ratings of theImporteris considered insufficient


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PRINCIPAL

(BUYERIMPORTER)

GUARANTOR

BANK

BENEFICIARY

(SELLER -

EXPORTER)

PROMISE

The Principal

makes a promise to

pay the contract

price

GUARANTEE

The Guarantor promises to pay

money to the Beneficiary if the

Principal breaks its promise

The Principal asks

the Guarantor to

issue a Guarantee


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Limitations: Demand Guarantee: The Bank agree to pay

on first demand and without demur ofobjection

Naturally, Bank also withdraw the money paid fromthe account of the Principal

Quickly lead to abuse and court arise

Conditional Guarantee: serious, objectiveconditions must be met before payment byBank

E.g.: Decision of court; Arbitral award; Approval of

the Principal (Importer)


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CounterGuarantee: When Exporter demand payment of

guarantee, it at the same time post a counter

guarantee in favor of the Importer If Importer prove that Exporter collect money

improperly, it can collect money back from

counterguarantee

=> Reduce the risk of demand payment


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III. Conclusion and Practice

EXPORT CREDITINSURANCE

PAYMENT GUARANTEE

Purpose Cover the risk of non - payment

Fee Depend on Types of Goods; Creditworthiness of Buyer; Political

stability

Normally between 0.5% and 1%Fee paid by Exporter Importer

ThirdPartyinvolved

Normally Insurance

companies or Governmental

export credit agencies

Commercial Bank

Cover Not 100% of contract price Normally 100% of contractprice

Limitation Long wait for compensation Not 100% contract price Bad faith from Buyer

Demand Guarantee: abuseand court arise

Conditional Guarantee:

harsh conditions


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1. A bank guarantee which gives theexporter an acceptable level of security

in terms of payment shall be paid by:

A. The BuyerB. The Exporter

C. A Bank

D. A Third - Party


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2. Export credit insurance which gives theExporter an acceptable level of security

in terms of payment shall be paid by:

A. The BuyerB. The Exporter

C. A Bank

D. An Insurance company


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3. Who issues Export Credit Insurance?

A. The Buyer

B. The Exporter

C. An Insurance company

D. The Importer


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4. We, the Guarantor Bank hereby agreesunequivocally, irrevocably and

unconditionally to pay to the Seller

forthwith on demand in writing from theSeller or any Officer authorized by it in

this behalf , without any demur,

reservation and contest and/or withoutany reference to the Buyer, any amount

up to and not exceeding USD. 1,000,000


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Chng ti, Ngn hng bolnh, bnghpngny, ng mtcch r rng, khngthhyngang v v iukin, trcho Bn

bn ngay lptckhi cnghbngvnbnbiBn bn hocbtkidinno cBn bn yquyntia

1,000,000 USD m khng do d, hnchv tranh ci v/hockhng cntham kho kinBn mua.


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5. Ph bohimctnh datrn gi trcbohimv tlph bohimtngng. Tlph bohimcxc

nhdatrn tnh hnh qucgia xutkhu, cc iukhonthanh ton thnglng, phngthcgiao hng,

mcriro caBn mua ncngoi v lnhvckinh doanh caBnmua .


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The sum of insurance premium iscalculated from the insured value and the

respective premium rate. The premium

rate is set depending on the country ofexport, agreed payment terms, delivery

methods, the rate of riskrepresented by

the foreign buyer and on the sector inwhich he runs his business activities


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Thank you for your listening

third - party security for payment

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