Tiếng Việt
中文 (中国)
The D/P (Documents against Payment) payment method is one of the common payment methods in Vietnam and internationally, enabling parties involved in international trade to conduct transactions with transparency and accuracy, ensuring the interests of each party. However, due to its relatively recent introduction, there are some operational and personnel management gaps in implementing the payment methods.
In Vietnam, a significant nationwide issue arose in 2022 related to a cooperative export deal of 100 containers of cashew nuts from several Vietnamese enterprises to Italy, using the D/P payment method.
In principle, after completing the procedures and preparing the documents, the exporting company would submit the documents to the bank in Vietnam. Subsequently, the Vietnamese bank would expedite the delivery of these documents to the importing bank in the foreign country (Italy – EU). Upon payment by the buyer to the importing bank, the original documents would be released. The buyer could then go to the port, present the documents, and receive the goods. Finally, the importing bank would transfer the funds to the Vietnamese bank, which, in turn, would transfer the funds to the Vietnamese exporting company, completing the transaction.
Issues arose when the company sent the first batch of containers along with the documents. During the process, the SWIFT code (a unique code used in global interbank transactions) of the buyer’s bank in Turkey, as instructed by the Vietnamese bank, changed, indicating inconsistency in the buyer’s bank.
Later, after the bank believed to be the buyer’s bank received the original documents, they notified that the buyer was not their customer and returned the documents without specifying the return method. The Vietnamese bank tried contacting multiple times but received no response.
For the documents sent to Italy, the receiving bank informed that they had received a copy of the documents, not the originals. Vietnamese exporting companies faced the risk of losing some containers, as whoever possessed the original documents could claim the goods at the port.
At that time, Vietnamese businesses lost control over 36 containers of cashew nuts, valued at 163 billion VND. Thanks to the rapid actions of the involved banks and the support of the Vietnamese government, over three months later, Vietnamese enterprises regained control over 100 containers and incurred only minor expenses such as storage and transportation fees. They also sold the rescued cashews at a discounted price to recover some losses rather than losing everything.
Risks from the D/P Payment Method?
Following the incident, many experts pointed out that the risk of exporting 100 containers of cashew nuts stemmed from the use of the D/P (Documents against Payment) payment method. Compared to the Letter of Credit (L/C) payment method, which involves documentary credits, D/P is less complex but carries more inherent risks.
In the case of cashew nut exports, under the D/P method, Vietnamese exporting companies would send the documents to the shipping company after completing export procedures, and the documents would then be transferred to the selling bank in Vietnam. The Vietnamese bank was responsible for expeditiously delivering these documents to the importing bank in the destination country. Subsequently, the importing party would make payment to the importing bank and receive the documents, allowing them to claim the goods at the port. The importing bank would then transfer the funds to the Vietnamese bank, completing the transaction.
However, due to a lack of verification and strict monitoring of the identity and reputation of the importing party, Vietnamese companies lost control over 36 sets of documents for 36 containers of cashew nuts. This number could have increased if Vietnamese companies had not reacted promptly, leading to the suspension of the shipment of the remaining 64 batches.
Under the D/P payment method, losing control over the documents means that whoever possesses the lost documents can claim and take the goods without making any payment. If the entity possessing the lost documents is not the original buyer, the importing party in Italy would not make payment to Vietnamese companies without the documents, resulting in total losses for the Vietnamese companies.
In this case, the importing party is currently under suspicion of intentional fraud, and there may not be any genuine interest from any party in Italy to import the cashew nut shipment.
The D/P payment method, though widely applied in Vietnam before the cashew nut incident, carries relatively high risks as it does not mandate the buyer to deposit funds in the bank for the payment. For instance, if a 10% deposit is required, the buyer would need to deposit 10 billion VND when importing a batch worth 100 billion VND. This security deposit, coupled with other requirements such as providing tax identification numbers, bank account information, and representative details, would enhance verification and reduce risks for the seller.
Given the revealed shortcomings of the D/P method, experts suggest that the L/C payment method would help Vietnamese companies minimize risks to the maximum extent. When using L/C, banks act as intermediaries, thoroughly examining the presented documents and only releasing payment if all conditions are met. Without careful examination, the intermediary bank (which may include both the buyer’s and seller’s banks) assumes all risks and is responsible for compensating for any damages, thereby minimizing risks for both the exporting and importing parties.
The True Risks: Trust and Credibility
Although L/C (Letter of Credit) is considered more secure than D/P, the reality in Vietnam, as per information from the Vietnamese Ministry of Industry and Trade, is that international trade transactions using L/C account for less than 5% of the total transactions due to its complexity. One of the conditions deterring businesses from using L/C is the requirement for a deposit.
This is because when a deposit is made, the funds are immobilized in the bank and cannot be utilized by the business. Buyers, especially in cases where deposits are as high as 50% or the entire value of the transaction, exert pressure on sellers to avoid using L/C. If sellers do not comply, buyers may seek alternative sellers who have trust in the buyer’s credibility.
However, irrespective of the payment method used, risks exist for all parties involved in international trade. Currently, there is no payment method in the market that is entirely risk-free, including methods such as T/T (Telegraphic Transfer), D/P, or L/C.
The most crucial aspect of international cross-border payments in import-export is the trustworthiness of the parties involved. This trust should be verified through years of operation and confirmed by reputable international organizations. Vietnamese businesses need to proactively check the credibility of the importing party before signing contracts and choosing a payment method, avoiding excessive reliance on intermediaries.
In the cashew nut incident, Vietnamese companies had no direct contact or detailed information about the buyer, as all agreements were conducted through an intermediary company. After the incident, information about the Italian buyers revealed small, unclear, and even inactive businesses, raising suspicions of fraud.
Thus, the actual risk in international trade lies not in the payment method but in the trust between partners. The cashew nut incident will undoubtedly be a valuable lesson for Vietnamese businesses as Vietnam engages in increasingly high-value international transactions.
When a crisis occurs, what businesses need to pay more attention to is maintaining composure and considering how to resolve the situation with the support of experienced and highly skilled units. Vietnamese businesses were able to minimize the damage in the cashew nut crisis thanks to their timely response and assistance from various units. Swift actions, such as requesting shipping companies to halt transportation, redirecting shipments back to Vietnam, and involving relevant authorities in Vietnam to contact the embassy of the importing country, played a crucial role.
With the help of such units can the cashew nut crisis serves as a ‘profound’ but not ‘excessively costly’ lesson for Vietnamese businesses.
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