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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
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
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)
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
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
PAYMENT GUARANTEE
Purpose
Fee
Fee paid by
Exporter
Importer
Third Party
involved
Normally Insurance
companies or Governmental
export credit agencies
Commercial Bank
Cover
Limitation
The Buyer
The Exporter
A Bank
A Third - Party
The Buyer
The Exporter
A Bank
An Insurance company
The Buyer
The Exporter
An Insurance company
The Importer