V Th Minh Tm

Bi Th Anh
Nguyn Ngc Linh
Sn Thy
Lng Thu Tr

Ging vin hng dn: Phm Nguyn Minh Chu

Third Party Security for Payment

Overview
Types of Third Party Security for
Payment
Conclusion and Practice

I. Overview
What is Third Party?
Third Party is an individual or entity
(organization) that involves in a transaction,
but is not one of the Principals.
Third Party has less interest in the
transaction than the Principals

What is Third Party Security for

Payment?
Third Party Security for Payment is an
insurance policy that is set up for protection
against the risk of non - payment

I. Overview
Benefits of Third Party Security for
Payment
Efficiency in Business performance
Promote Business relationship and boost
cooperation
Competitiveness in Business
Profitability in trading

Two types:
Export Credit Insurance
Payment Guarantee

II. Types of Third Party Security

for Payment
Distinguish between Insurance and
Guarantee
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

1. Export Credit Insurance

What is it?
Insurance policy and risk management
product
Offered by insurance companies or
governmental 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,

1. Export Credit Insurance

How does it work?
Exporter explains situation to the insurance
company
Insurance company evaluates credit rating of
the Importer
Insurance company sends quotation to
exporter
Exporter accept and sign the insurance
contract
If credit risk happens, the Insurer pays
compensation to the Exporter

1. Export Credit Insurance

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

Creditworthiness of the Importer
Political stability of the Importers country
Normally between 0.5% and 1% of the invoice
price

1. Export Credit Insurance

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

2. Payment Guarantee
Type of Guarantee and Case related:
Payment Guarantee: Non Payment of
Importer (Buyer)
Tender Guarantee: Revocation, i.e. Exporter
(Tender) withdraws in Procurement contracts
Performance Guarantee: Non Performance,
i.e. Exporter work badly or not at all
Prepayment Guarantee: Losing Prepayment

2. Payment Guarantee
What is it?
A financial commitment between the
Guarantor (Bank) and the Principal (Importer)
The Guarantor promises to pay money to the
Beneficiary (Exporter) if the Principal fails to
make payment
Usually for 100% of the contract price
May be required when the credit ratings of the
Importer is considered insufficient

2. Payment Guarantee
PRINCIPAL
(BUYER
IMPORTER)

The Principal asks

the Guarantor to
issue a Guarantee

GUARANTOR
BANK

PROMISE
The Principal
makes a promise to
pay the contract
price

BENEFICIARY
(SELLER EXPORTER)

GUARANTEE
The Guarantor promises to pay
money to the Beneficiary if the
Principal breaks its promise

2. Payment Guarantee
Limitations:
Demand Guarantee: The Bank agree to pay
on first demand and without demur of
objection
Naturally, Bank also withdraw the money paid from
the account of the Principal
Quickly lead to abuse and court arise

Conditional Guarantee: serious, objective

conditions must be met before payment by
Bank
E.g.: Decision of court; Arbitral award; Approval of
the Principal (Importer)

2. Payment Guarantee
Counter Guarantee:
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
counter guarantee
=> Reduce the risk of demand payment

III. Conclusion and Practice

EXPORT CREDIT
INSURANCE

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

Third Party
involved

Normally Insurance
companies or Governmental
export credit agencies

Commercial Bank

Cover

Not 100% of contract price

Normally 100% of contract

price

Limitation

Long wait for compensation Demand Guarantee: abuse

Not 100% contract price
and court arise
Bad faith from Buyer
Conditional Guarantee:
harsh conditions

III. Conclusion and Practice

1. A bank guarantee which gives the
exporter an acceptable level of security
in terms of payment shall be paid by:
A.
B.
C.
D.

The Buyer
The Exporter
A Bank
A Third - Party

III. Conclusion and Practice

2. Export credit insurance which gives the
Exporter an acceptable level of security
in terms of payment shall be paid by:
A.
B.
C.
D.

The Buyer
The Exporter
A Bank
An Insurance company

III. Conclusion and Practice

3. Who issues Export Credit Insurance?
A.
B.
C.
D.

The Buyer
The Exporter
An Insurance company
The Importer

III. Conclusion and Practice

4. We, the Guarantor Bank hereby agrees
unequivocally,
irrevocably
and
unconditionally to pay to the Seller
forthwith on demand in writing from the
Seller or any Officer authorized by it in
this behalf , without any demur,
reservation and contest and/or without
any reference to the Buyer, any amount
up to and not exceeding USD. 1,000,000

III. Conclusion and Practice

Chng ti, Ngn hng bo lnh, bng hp
ng ny, ng mt cch r rng, khng
th hy ngang v v iu kin, tr cho Bn
bn ngay lp tc khi c ngh bng
vn bn bi Bn bn hoc bt k i din
no c Bn bn y quyn ti a
1,000,000 USD m khng do d, hn ch
v tranh ci v/hoc khng cn tham kho
kin Bn mua.

III. Conclusion and Practice

5. Ph bo him c tnh da trn gi tr
c bo him v t l ph bo him
tng ng. T l ph bo him c xc
nh da trn tnh hnh quc gia xut
khu, cc iu khon thanh ton
thng lng, phng thc giao hng,
mc ri ro ca Bn mua nc
ngoi v lnh vc kinh doanh ca Bn
mua .

III. Conclusion and Practice

The sum of insurance premium is
calculated from the insured value and the
respective premium rate. The premium
rate is set depending on the country of
export, agreed payment terms, delivery
methods, the rate of risk represented by
the foreign buyer and on the sector in
which he runs his business activities

Thank you for your listening