BANKING ACADEMY FACULTY OF INTERNATIONAL BUSINESS ----- 🕮 ----- GRADUATION THESIS CHOOSING INTERNATIONAL PAYMENT METHODS FOR IMPORT-EXPORT ENTERPRISES IN VIETNAM Student : Tran Thi Huyen Trang Class : K22KDQTA Course : 2019-2023 Student ID : 22A4050178 Supervisor : Dr. Tran Ngoc Mai Ha Noi, May 2023 BANKING ACADEMY FACULTY OF INTERNATIONAL BUSINESS ----- 🕮 ----- GRADUATION THESIS CHOOSING INTERNATIONAL PAYMENT METHODS FOR IMPORT-EXPORT ENTERPRISES IN VIETNAM Student : Tran Thi Huyen Trang Class : K22KDQTA Course : 2019-2023 Student ID : 22A4050178 Supervisor : Dr. Tran Ngoc Mai Ha Noi, May 2023 DECLARATION I assure that my graduation thesis "Choosing international payment methods for import-export enterprises in Vietnam" is my personal research with the guidance of Dr Tran Ngoc Mai. Data sources and documents used in this study are collected and fully cited in accordance with regulations.
I take all responsibility for my thesis. Ha Noi, May 14th 2023 Student Trang Tran Thi Huyen Trang ACKNOWLEDGEMENTS First of all, I would like to give my sincere thank to my supervisor, Dr Tran Ngoc Mai, who has directly supported me throughout my study process. Thereby, I am likely to complete my graduation thesis in a timely manner. Besides, I also want to say thanks to all of lecturers of Faculty of International Business at Banking Academy for their devoted guidance.
However, due to limitations in terms of knowledge, experience, as well as time, it is difficult for the essay to avoid shortcomings. Therefore, I hope to receive comments from lecturers so that I can improve the quality of my thesis. Thank you sincerely! TABLE OF CONTENTS DECLARATION. ii TABLE OF CONTENTS.
vi LIST OF TABLES. vii LIST OF CHARTS. viii LIST OF FIGURES. The urgency of the topic.
Subject and scope. OVERVIEW OF INTERNATIONAL PAYMENT METHODS. OVERVIEW OF INTERNATIONAL PAYMENTS. The definition of international payments.
Characteristics of international payment. The role of international payments. Legal basis for regulating international payments. OVERVIEW OF THE MAIN INTERNATIONAL PAYMENT METHODS.
Definition and process of international payment methods. Risk level of international payment methods. ROLE OF CHOOSING INTERNATIONAL PAYMENT METHODS. FACTORS AFFECTING THE CHOICE OF INTERNATIONAL PAYMENT METHODS.
Relationship between exporter and importer. Characteristics of international payment methods. Characteristics of goods. Situation of partner markets.
Opinions of external parties. THE CURRENT SITUATION OF CHOOSING INTERNATIONAL PAYMENT METHODS FOR IMPORT-EXPORT ENTERPRISES IN VIETNAM. OVERVIEW OF IMPORT AND EXPORT ACTIVITIES IN VIETNAM. CHOOSING INTERNATIONAL PAYMENT METHODS FOR IMPORT- EXPORT ENTERPRISES IN VIETNAM.
Choosing international payment methods of import-export enterprises in Vietnam. Factors affecting the choice of international payment methods of import- export enterprises in Vietnam. LIMITATIONS IN CHOOSING INTERNATIONAL PAYMENT METHODS FOR IMPORT-EXPORT ENTERPRISES IN VIETNAM. SOLUTIONS TO IMPROVE LIMITATIONS IN CHOOSING INTERNATIONAL PAYMENT METHODS FOR IMPORT-EXPORT ENTERPRISES IN VIETNAM.
Check and verify partner information. Study and understand transaction contracts. Coordinate with Vietnam Trade Office and related agencies. For State agencies.
For import-export enterprises. 61 ABBREVIATIONS Abbreviation Full meaning D/A Documents Against Acceptance D/P Documents Against Payment FTA Free Trade Area GDP Gross domestic product IFC International Finance Corporation IMF International Monetary Fund ISBP International Standard Banking Practice L/C Letter of Credit SWIFT Society for Worldwide Interbank Financial Telecommunications UCP Uniform Custom and Practice for Documentary Credits URC Uniform Rules for Collections WTO World Trade Organization LIST OF TABLES Table Page Table 1. Summary of popular international payment 24 methods Table 2. Export value of some main markets of Vietnam 31 Table 2.2: Import value of some main markets of Vietnam 33 Table 2.
Compare the costs of remittance, export 41 collection and import letter credits by some activities Table 2. International payment products of some banks 46 in Vietnam LIST OF CHARTS Chart Page Chart 2. Vietnam's export value in 2020, 2021 and 2022 30 Chart 2.2: Export value of the five largest commodity 32 groups in 2022 Chart 2. Vietnam's import value in 2020, 2021 and 2022 33 Chart 2.
Import value of the five largest commodity 34 groups in 2022 Chart 2. Vietnam's trade balance in 2022 35 Chart 2. Proportion of payment methods in some 38 import-export enterprises LIST OF FIGURES Figure Page Figure 1. International activities of commercial banks 9 Figure 1.
The process of clean collection 14 Figure 1. Documentary collection process 15 Figure 1. L/C payment process in importing countries 16 Figure 1. L/C payment process in the exporting country 18 Figure 1.
Risk level by international payment methods 19 Figure 1. Corporate credit rating system of Standard & Poor's, 23 Moody's and Fitch Figure 2. GDP by method of use in the first six months of 2022 36 Figure 2. Proportion of payment methods in export payments at 37 some commercial banks in Vietnam Figure 2.
Proportion of payment methods in import payments at 38 some commercial banks in Vietnam Figure 2. Transaction processing time of L/C method at BIDV 40 1 INTRODUCTION 1. The urgency of the topic In the context of international economic integration, foreign trade plays a key role and directly affects each country's economic growth rate. Many studies have clarified the correlation between import and export activities and economic growth such as Thornton (1996), Feder (1982).
Unlike domestic trade, international trade is the activity of exchange of goods on the market between countries. Therefore, it is not only an individual activity but also an interconnection of the entire foreign trade mechanism, involving a lot of complex intertwined partners. This activity mainly serves import and export traders to meet the payment needs of import and export goods and services. Foreign trade activities contain more risks, especially risks in international payments stemming from the relationship between the participating parties.
When exchanging economies, the need for payment will arise between entities in different countries that create international payment. The decision to use international payment method plays a critical position in international payments that affects the rights and relationships of the parties. The exporter wants to be paid on time and the importer wants to receive the goods in full. Therefore, choosing the right international payment method is one of the activities that import-export enterprises are always interested in.
In particular, with the accession to the WTO and the signing of FTAs, it has opened up opportunities for Vietnamese import-export enterprises to enter new markets. However, this also makes it difficult for Vietnamese businesses when they need a deep understanding of partners or markets, leading to the use of unreasonable payment methods. For the above reasons, the topic "Choosing international payment methods for import- export enterprises in Vietnam" was chosen to research and analyze this issue. From there, propose solutions and recommendations to facilitate import-export enterprises to have a basis for applying international payment methods effectively.
Foreign studies Many articles have described about international payment methods; however, the observational research and analysis of the choice of payment method are quite modest. According to Petersen (2009), the aspect of an exporter's relationship with his customers, whether a recent or long-term relationship with a customer, must be evaluated. This factor is also considered by Agbonika (2015), Becker (2014) and Candemir et al. When advising exporters about the appropriate payment method to use, Agbonika (2015) points out that exporters may choose to use advanced payment or L/C when the importer is a new customer with low reliability.
Advanced payment is the least risky option for exporters because they will be paid in full before exporting the product. Similarly, in an article by Becker (2014), when referring to the relationship and level of trust between importers and exporters, the author suggested that if the trust level is low and the partner is a new enterprise, the enterprise should use advanced payment or L/C. On the contrary, collection and open account should be used for high reliability. In addition, the authors have emphasized another essential aspect: the characteristics of goods.
In Becker's article (2014), after evaluating and analyzing, he said that for custom-made items that are specialized goods, businesses should consider carefully when choosing payment methods. For example, suppose this is one of the unique items, not for everyone. In that case, it is difficult for businesses to find replacement partners when the importer refuses to receive the goods in case of using collection. On the other hand, when analyzing the payment methods that can be applied to importers, Laurel Delaney (2019) points out that for this factor, enterprises should consider more about the ability to consume products in the exporting country, whether customer demand is great or not.
As such, exporters may be willing to be more flexible with payment terms. In particular, the exporter may allow the importer to partially pay, or extend the payment period in case the potential partner needs time to recover capital when processing a large shipment. Besides, a new aspect outlined 3 is the value of the transaction. Petersen (2009) suggests that this is an independent factor that influences selection of an enterprise.
Specially, for medium to high-value transactions, for example, the author recommends that importers and exporters need to use highly secure international payment methods, typically L/C. In fact, high-value shipments always pose financial risks for businesses. Therefore, if L/C is chosen, a third party, the issuing bank, will participate to protect the interests of the parties in the transaction. Furthermore, when referring to the volatility of political and economic situation, Becker (2014) recommends using advanced payment and L/C.
In cross- border transactions, it is crucial to understand the risks that companies may face, especially cash flow and interest. In Becker's article (2014), exporters are not exposed to the risk of price and cash flow changes when using collection and open account. However, when evaluating this factor, Petersen (2009) has shown that it still has a low level of impact. In general, most of the factors outlined in the above articles represent the authors' views on international trade.
Domestic studies At present, there are many different research articles on the factors affecting the choice of international payment methods in Vietnam. Qualitative analysis is Vietnam's most widely used research technique for this research topic. It is an analytical method that has gained popularity in many studies and focuses on theoretical analysis based on the experience and qualifications of the researcher. And in the majority of research papers in Vietnam on this topic, the authors make decisions based on the theory, personal understanding and experience of their predecessors to identify the factors that influence the decision to choose the appropriate payment method.
Chau (2018) has shown that transaction costs also affect the choice of international payment methods. Customers always tend to choose the payment methods with the lowest cost. Among the three payment methods that Vietnamese commercial banks often apply, remittance has the lowest fee. However, this payment method is not always possible.
Clients must always consider between the transaction 4 fees and the risks they may face. In addition, the bank bases on the assessment of the reputation as well as financial ability of customers to decide on the appropriate payment method. Specifically, the author hypothesizes that when banks appreciate the financial ability and reputation of importers, banks can apply L/C payment methods and conversely. Because when applying this method, it means that the bank has committed to paying on behalf of the importer to the exporter as well as being responsible for checking documents and documents for the importer before payment.
Hung (2022) used a two-stage analysis model AHP-G and COPRAS-G to understand the important factors affecting the choice of international payment methods for small and medium-sized enterprises (SMEs) importing and exporting from new countries and ranking them according to their relevance. In the research of a group of students from FPT University, the group of students Binh, Lien, Linh, Thao, Trang (2021) also built a research model of regression analysis and had similar results.