A CASE OF CASH AGAINST DOCUMENTS TRANSACTION

QUESTION

Dear Mr. Old Man,

We own a shop specialized in selling stone statues and garden sculptures for domestic customers as well as foreign tourists.

We do not have problem with domestic buyers as they would agree to pay in advance part of the invoice value as a pledged amount and they will pay the remaining amount when the goods are shipped to their designated places of destination. Nor do we have problem with foreign tourists who agree to pay in advance by cash or credit card. However, we do have problem with foreign tourists who do not accept to pay in advance because they fear that we may fail to ship the goods.  For our part, we want to receive the payment before shipment because we fear that the buyer may refuse to take delivery the goods shipped, and therefore, will not pay, but we cannot ship the goods back or that they may not pay even they take delivery of the goods.

Can you tell us how to handle transactions with these customers?

Thank you in advance.

Ng.

————

ANSWER

Hi,

Our bank has ever come across deals similar to yours and our solution is as follows:

The foreign buyer (who is a tourist) and the seller are requested to provide the bank with a sales contract or a pro-forma invoice showing detailed description of the lion statutes, delivery terms…

The buyer is to open an escrow account with the bank for an amount equivalent to the contract value plus banking charges and courier fees for forwarding the documents to the buyer.

The buyer is to provide the bank with a letter of authorization authorizing the bank to debit the escrow account to pay the seller upon receipt from the seller of the following documents, e.g.

(i) Full set of original bills of lading consigned to the buyer;

(ii) Invoice

(iii) Packing list

…

The letter of authorization shall include information about the buyer’s address where the bank is instructed to forward the documents to enable the buyer to take possession of the goods and clear the customs.

The letter of authorization shall also include an expiry date and an instruction to the bank to transfer the amount in the escrow account to the buyer’s account with his bank in his country  in the event the seller fails to present the required documents by the expiry date.

This method of payment is, to extent, the same as CAD (Cash Against Documents) – one of the types of documentary collection. The difference is that there may be only one bank involved in this transaction instead of two banks in international documentary collections

I think your buyer will feel more comfortable to accept this type of payment.

Last but not least, this type of payment is not one of the common banking products/services offered by banks. I’m not sure if other banks in Vietnam are willing to provide you with this “special” type of payment service.  If you are in Da Nang, don’t hesitate to visit my bank (Vietcombank Da Nang) for further guidance. I think we can help you!

Kind regards,

Mr. Old Man