In today’s complex international trade environment, the letter of credit (L/C) is widely used in Vietnam’s import and export trade as an important payment security tool. For companies looking to expand into the Vietnamese market, mastering the operational processes and precautions of letters of credit is crucial. This article will delve into the application and use of letters of credit in Vietnam, covering basic knowledge, application processes, common pitfalls, and coping strategies, providing comprehensive guidance to help businesses succeed in their expansion into the Vietnamese market.

Basic Knowledge of Vietnamese Letters of Credit

A letter of credit is a bank payment commitment that ensures the seller receives payment on time after providing goods or services in accordance with the contract. Vietnam’s letter of credit operations generally follow the Uniform Customs and Practice for Documentary Credits (UCP 600) of the International Chamber of Commerce, but there are still some localized features and details to note in specific operations.

Types of Letters of Credit: In Vietnam, common types of letters of credit include Sight L/C, Usance L/C, as well as revocable and irrevocable letters of credit. Businesses need to choose the appropriate type of letter of credit based on their trade needs and risk tolerance.

Scope of Application: Letters of credit in Vietnam are mainly used in export trade, especially in situations where buyers and sellers are unfamiliar or lack trust. Letters of credit can effectively reduce transaction risks and protect the interests of both parties.

Vietnamese Letter of Credit Application Process

Applying for a letter of credit is a process that requires careful planning and strict execution. Here are the detailed steps for applying for a letter of credit in Vietnam:

Step One: Pre-selection of Cooperating Banks and Preparation

Before formally starting the letter of credit application, Vietnamese banks require comprehensive preliminary preparation work, which is more stringent than in many other countries:

1. SME Supervision In addition to basic business descriptions and financial statements, Vietnamese banks usually also require: Audit reports for the last three years (must be issued by an accounting firm recognized by Vietnam); detailed explanation of the shareholder structure, including information on actual controllers; personal resumes and credit records of board members. For enterprises established less than three years ago, banks may require personal guarantees from major shareholders.

2. Transaction Background Investigation: Provide a detailed business plan related to the transaction; for large transactions (usually referring to those exceeding $1 million), banks may require market research reports and cash flow analysis; if it’s the first transaction with a supplier, detailed background information and reasons for choosing the supplier need to be provided.

3. Proof of Foreign Exchange Source: Provide an explanation of the source of foreign exchange funds, such as export collections, overseas investments, etc.; for those using offshore loans as a source, the foreign exchange loan agreement and approval documents from the State Bank of Vietnam need to be provided.

Step Two: Prepare Application Documents, Precisely Aligning with Vietnamese Requirements

Vietnam’s letter of credit application document requirements are more stringent and detailed than international standard practices:

Budget Control Documents: Provide a detailed fund use plan, including the expected payment schedule and foreign exchange demand forecast. For large projects, a profit forecast for the entire project cycle may be required.

Standard Forms: Use the unified letter of credit application form formulated by Vietnamese banks, which usually contains more detail items than international common forms; all content must be filled in Vietnamese, and if the original contract is in English, a notarized Vietnamese translation needs to be provided.

Special Explanation Documents: Provide a detailed “Transaction Description” explaining how the transaction complies with Vietnam’s import policies and economic development strategies; for certain sensitive goods (such as high-tech products, commodities), additional explanations of import necessity may be required.

Step Three: Multi-level and Multi-angle Bank Review Process

The letter of credit review process by Vietnamese banks is usually divided into several levels, each with its own characteristics:

1. Preliminary Review (1-2 working days): Document file check; basic compliance review, with particular attention to the applicant’s qualifications and the legality of the transaction.

2. In-depth Review (3-5 working days): Detailed review of the transaction background and commercial reasonability; assessment of foreign exchange risk and credit risk; for large or complex transactions, interviews or on-site inspections may be arranged.

3. Foreign Exchange Management Review (2-3 working days): Assess the impact of the transaction on Vietnam’s foreign exchange reserves; ensure compliance with Vietnam’s current foreign exchange management policies.

4. Senior Level (for special cases, 1-2 working days): For transactions that exceed routine standards (such as particularly large amounts or involving sensitive industries), review by senior bank warehouse may be required. Sometimes, special approval from the State Bank of Vietnam may even be necessary.

Step Four: Issuance of Letter of Credit, Details Determine Success

Once approved, the issuance process of the letter of credit also has its unique aspects:

1. Clause Confirmation: The bank will arrange a special bond meeting to confirm the terms of the letter of credit with the applicant item by item; special attention is paid to clauses that may cause disputes, such as document requirements and shipping deadlines.

2. Margin Deposit: Vietnamese banks usually require a higher proportion of margin, generally between 30%-50% of the letter of credit amount; for customers with good credit, a combination of partial margin + partial asset custodian may be accepted.

3. Confirmation: The bank will provide a “Pre-issuance Final Confirmation Letter”, requiring the applicant to reconfirm all details; this is a practice unique to Vietnamese banks, aimed at minimizing subsequent disputes.

Step Five: Continuous Follow-up Management

After the letter of credit is issued, the applicant’s work includes:

1. Amendment Management: Any amendments need to go through a strict approval process, usually taking 3-5 working days; it is recommended to consider all aspects thoroughly in the original application to reduce the need for subsequent amendments.

2. Document Review: Vietnamese banks are very strict in document review, even minor discrepancies may lead to refusal of payment; it is recommended that applicants proactively request to participate in document pre-review to timely discover and resolve issues.

3. Foreign Exchange Settlement: Strictly settle according to Vietnamese foreign exchange management regulations, timely submit required settlement reports and documents to the bank and relevant departments.

4. Trade Compliance Tracking: Maintain complete transaction records for possible compliance checks; regularly submit necessary reports to Vietnamese customs and tax authorities.

Vietnamese Letter of Credit Regulations and Requirements

Strategic Considerations in Currency Selection

The State Bank of Vietnam (SBV) has different management policies for letters of credit in different currencies, so there are more considerations in actual operations. For example, for USD letters of credit, banks may require importers to provide a higher proportion of margin, usually between 30%-50% of the letter of credit amount. For letters of credit in Vietnamese dong or other Asian currencies (such as Japanese yen, Chinese yuan), the margin requirement may be relatively lower, about 20%-30%.

Moreover, the Vietnamese government is promoting direct settlement in local currencies with some trading partner countries. For instance, Vietnam and China have signed a currency swap agreement. This means that for Vietnam-China trade, letters of credit issued in Chinese yuan or Vietnamese dong may enjoy more convenient iteration processes and more favorable exchange rates. When choosing the currency for a letter of credit, enterprises should comprehensively consider factors such as exchange rate risk, financing cost, and iteration convenience.

Flexibility in Validity Period Management

The recent 30-day regulation for letters of credit has some flexibility in actual implementation. For certain special industries, such as large equipment manufacturing or agricultural product imports, Vietnamese banks may allow extensions to the present. However, applicants need to provide detailed transaction background explanations and risk control measures.

For example, if it involves equipment imports for large infrastructure projects, applicants can provide project contracts, phased delivery plans, and other documents to apply for extending the letter of credit to 90 days or longer. However, banks usually require increased margins or additional proportions.

Industry-specific Influences on Document Requirements

Vietnam’s document requirements vary greatly across different industries. Here are some special requirements for typical industries:

• Food Industry: In addition to regular documents, health and safety certificates and food origin traceability documents are required. Sometimes, pre-approval documents from the Vietnam Food Safety Authority may even be needed.
• Electronic Products: Provide certificates of compliance with Vietnamese national technical standards and electromagnetic compatibility (EMC) test reports.
• Textiles: Detailed fabric composition analysis reports are required, and sometimes dye safety certificates are also needed.

Understanding and preparing for these industry-specific document operation requirements can significantly improve the efficiency of letter of credit operations.

Time Management in Amendment Procedures

Due to the potentially brief time allowed by the State Bank of Vietnam for credit letter amendments (usually 3-5 working days, may exceed 10 days in complex cases), enterprises need to include sufficient buffer periods in their project time planning. A strategic amendment is to allow “partial shipment” and “allow partial shipment” clauses in the letter of credit, so that part of the transaction can continue to be executed while waiting for approval.

Strategic Use of Transferable Letters of Credit

Although Vietnam’s review of letter of credit transfers is quite strict, transferable letters of credit are still a common trade financing tool for certain industries, such as commodity trading. The key to successfully applying for a transfer is to fully explain the commercial necessity of the transfer. It can be explained that the transfer is to consolidate goods from multiple small suppliers to meet the requirements of large-amount letters of credit.

Compliance Operations in Foreign Exchange Settlement

Vietnam’s foreign exchange management policies are frequent, and enterprises need to remain vigilant. Currently, Vietnam requires all international trade settlements to be conducted through foreign exchange accounts opened by enterprises in local Vietnamese banks. It’s worth noting that enterprises can open foreign exchange accounts in multiple banks, but need to declare the main settlement account to the State Bank of Vietnam.

Additionally, Vietnam has special reporting requirements for large remittance transactions (usually referring to single transactions exceeding $100,000). Enterprises need to prepare detailed transaction background explanations and fund usage explanations in advance for the bank to report to the State Bank.

Letter of Credit Fraud Prevention

Although the Vietnamese market is full of opportunities, letter of credit fraud cases still occur from time to time. A typical case is a large steel import fraud case that occurred in 2019, involving an amount exceeding $50 million. To prevent similar risks, Vietnamese banks usually require importers to provide more due diligence materials, including background investigation reports on transaction counterparties and on-site investigation records.

Enterprises can consider hiring professional third-party verification agencies to conduct independent due diligence and document review on transactions to reduce fraud risks.

In summary, although Vietnam’s letter of credit regulations and requirements are complex, enterprises can better avoid risks and optimize trade by deeply understanding these detailed processes. The key is to maintain close communication with local Vietnamese banks, timely understand policy changes, and formulate flexible strategies based on specific transaction characteristics. In this way, enterprises can not only ensure compliance but also fully utilize the huge potential of the Vietnamese market.

Common Pitfalls and Precautions in Using Letters of Credit

Although letters of credit are a relatively safe payment method, there are still some common pitfalls in the process of using them that enterprises need to pay special attention to:

1. Unclear Letter of Credit Terms

Pitfall: Vague or incomplete terms in the letter of credit may lead to bank refusal of payment. For example, unclear descriptions of goods, ambiguous payment conditions, or inconsistent terms.

Precautions: Ensure that the terms of the letter of credit are clear, detailed, and unambiguous. The description of goods should be consistent with the contract, and payment conditions and time arrangements should be clearly specified. If any ambiguities are found, communicate immediately with the issuing bank or trading partner to ensure clear revision of terms.

2. Unreasonable Document Submission Deadline

Pitfall: The document submission deadline specified in the letter of credit is too tight, leading to inability to submit documents on time, thus affecting payment.

Precautions: Before the letter of credit is issued, carefully evaluate the time for production, transportation, and document preparation to ensure that the document submission deadline is reasonable and feasible. If the deadline is unreasonable, request modifications before the letter of credit is issued. Additionally, establish an internal process to ensure documents are prepared and submitted on time.

3. Mismatched Document Requirements

Pitfall: The documents required by the letter of credit are unreasonable or difficult to obtain, leading to submitted documents not complying with the letter of credit regulations, resulting in refusal of payment.

Precautions: Before issuing the letter of credit, carefully check all documents required by the letter of credit to ensure that each document can be obtained on time and is accurate. If there are unreasonable or difficult to obtain document requirements, negotiate with the issuing bank to revise the terms before the letter of credit is issued.

4. Documents Not Complying with Letter of Credit Terms

Pitfall: Due to mismatched or erroneous documents, the bank refuses payment. For example, the content of documents does not match the quantity, amount, date, etc. required by the letter of credit.

Precautions: Carefully check all documents to ensure they fully comply with the terms of the letter of credit. Before submitting documents, it’s best to have them reviewed by professionals or the bank to ensure the documents are error-free. If errors are found, correct them immediately before submission.

5. Hidden Fees and Costs

Pitfall: Fees or costs not explicitly mentioned in the letter of credit may arise later, increasing the financial burden on the enterprise. For example, bank fees, handling fees, or certain taxes.

Precautions: Before the letter of credit is issued, understand all related fees in detail, especially those related to banks and logistics. Ensure these fees are clearly listed in the contract and letter of credit terms to avoid unexpected expenses later.

6. Exchange Rate Risk

Pitfall: Letters of credit involving different currencies may result in actual received amounts lower than expected if settlement occurs during periods of significant exchange rate fluctuations.

Precautions: When using letters of credit involving foreign exchange, closely monitor exchange rate trends and consider using exchange rate locking or hedging tools to reduce risks brought by exchange rate fluctuations.

7. Fraud Risk

Pitfall: Trade fraud is a major risk in the use of letters of credit, especially when unfamiliar with trading partners, where forged documents or false contracts may be encountered.

Precautions: Conduct thorough background checks when selecting trading partners to ensure the credibility and capability of the other party. At the same time, have professional legal teams review contracts and include credit insurance when necessary to mitigate fraud risks.

8. Over-reliance on a Single Bank

Pitfall: Over-relying on a single bank to handle all letter of credit business may lead to reduced bargaining power or affect business operations due to bank issues.

Precautions: Establish cooperative relationships with multiple banks to diversify risks. Compare services and fees of different banks to choose the most suitable partners that meet the enterprise’s needs.

9. Neglecting Changes in National Regulations

Pitfall: Failure to timely pay attention to changes in Vietnamese laws and regulations may lead to violations of new rules or missed preferential policies, resulting in additional costs or legal risks.

Precautions: Keep abreast of relevant Vietnamese laws and regulations, especially the latest policy changes related to international trade and finance. Regularly consult legal advisors to ensure enterprise operations are compliant.

By strengthening the understanding of these pitfalls and taking corresponding preventive measures, enterprises can more effectively manage potential risks in Vietnamese letter of credit operations and ensure smooth trade.

Practical Case Sharing and Experience Summary

In international trade practices in Vietnam, letters of credit, as an important payment method, often encounter various complex situations during use. The following are some typical cases of enterprises using letters of credit in Vietnam. Through these cases, we can more clearly understand the challenges and coping strategies in actual operations. We also hope to provide practical guidance for other enterprises in their letter of credit operations in Vietnam.

Case One: Refusal of Payment Due to Goods Description Discrepancy

Background: A Chinese electronics exporter signed an export contract with a Vietnamese buyer, with payment to be made by letter of credit. The letter of credit required the goods description to be completely consistent with the contract terms. However, due to a translation error, the goods description on the letter of credit was slightly different from the actual shipped goods, leading to the Vietnamese issuing bank’s refusal to pay.

Challenge: In international trade, language and cultural differences can easily lead to subtle differences in documents, which can be fatal in letter of credit operations. Letters of credit are a strict payment method, and any discrepancy will lead to refusal of payment.

Solution: The exporter actively communicated with the buyer and the issuing bank, eventually corrected the letter of credit terms, and resubmitted documents that met the requirements, finally receivingthe payment successfully.

Experience Summary: When using letters of credit, it is crucial to ensure that all document descriptions are completely consistent with the contract and letter of credit terms, especially in cases involving different languages. Careful checking and confirmation should be conducted. To avoid similar issues, it is recommended that enterprises clarify the goods description with the buyer before the letter of credit is issued and include it as part of the letter of credit terms.

Case Two: Document Delay Leading to Late Submission

Background: A Chinese machinery equipment exporter, when exporting to Vietnam, could not submit documents to the bank within the time specified in the letter of credit due to a delay by the logistics company in delivering the bill of lading to the exporter. This ultimately led to the Vietnamese buyer’s refusal to pay.

Challenge: The document submission deadline specified in letters of credit is strict, and once missed, the bank has the right to refuse payment. Enterprises need high coordination in logistics, document preparation, and submission, but various unforeseen delays are often encountered in actual operations.

Solution: The exporter promptly communicated with the Vietnamese buyer and the issuing bank, explaining the reason for the delay and requesting an extension of the letter of credit validity. Through active communication and providing relevant supporting documents, the buyer agreed to extend the deadline, and the document submission and payment were finally completed smoothly.

Experience Summary: Time management is crucial in letter of credit operations. Enterprises should maintain close contact with logistics companies to ensure documents arrive on time. When possible, negotiate for longer document submission periods and reserve sufficient time to deal with potential delays. Additionally, it is recommended that enterprises establish internal emergency mechanisms to quickly take measures in case of delays.

Case Three: Fraud Risk and Letter of Credit Operations

Background: A Chinese textile exporter signed a contract with a Vietnamese company, agreeing to use a letter of credit for payment. However, after receiving the letter of credit, the exporter discovered that the issuing bank was a relatively small bank, and there were some unusual requirements in the letter of credit terms. Through further investigation, the exporter discovered that this Vietnamese company had a record of suspected trade fraud.

Challenge: In international trade, although letters of credit can reduce transaction risks, they are not completely immune to fraudulent behavior. The risk is especially high when dealing with unfamiliar trading partners and unknown banks.

Solution: The exporter promptly stopped the transaction and sought legal means to recover the costs already invested. At the same time, the exporter reported the incident to relevant industry organizations to prevent other enterprises from encountering similar risks.

Experience Summary: When using letters of credit, choosing reputable banks is crucial. Enterprises should conduct background checks before the letter of credit is issued to ensure the reliability of the counterpart company and bank. If suspicious circumstances are encountered, decisive measures should be taken to avoid greater losses. Additionally, it is recommended that enterprises use safer payment methods such as standby letters of credit or double guarantees for large transactions.

Case Four: Compliance Risks Due to Policy Changes

Background: A Chinese pharmaceutical company reached an agreement with a Vietnamese client to export a batch of pharmaceutical raw materials. Both parties agreed to use a letter of credit for payment. However, during the preparation of the goods, the Vietnamese government issued new pharmaceutical import regulations requiring additional compliance documents for all imported pharmaceutical raw materials, which were not listed in the letter of credit terms.

Challenge: Policy changes are a common risk in international trade, especially in highly regulated industries such as pharmaceuticals and food. In such cases, policy changes may affect or even interrupt originally smooth transactions.

Solution: The exporter quickly communicated with the buyer and the issuing bank, requesting modifications to the letter of credit terms to include the newly required documents. Meanwhile, the company quickly obtained the necessary compliance documents through its representative office in Vietnam, ensuring smooth customs clearance and document submission.

Experience Summary: When operating in the Vietnamese market, enterprises must constantly pay attention to local policy changes, especially in high-risk industries. It is recommended to include clauses in contracts and letter of credit terms to address policy changes, such as allowing modifications to letters of credit or additional document requirements based on policy changes. At the same time, enterprises should maintain close contact with local partners and government agencies to ensure timely information acquisition and response measures.

Case Five: Letter of Credit Misuse Due to Industry Differences

Background: A Chinese construction materials company exported a batch of cement to Vietnam using a letter of credit. However, the letter of credit terms had strict requirements for the quality and specifications of the goods, but due to differences in industry standards between China and Vietnam, the products provided by the exporter did not fully meet the requirements in the letter of credit, leading to refusal of payment by the issuing bank.

Challenge: Differences in industry standards and specifications are common issues in international trade, especially in fields such as construction materials and mechanical equipment. These differences may result in technical requirements in letter of credit terms that cannot be met, thereby affecting payment.

Solution: The exporter engaged in thorough communication with the buyer and the issuing bank, providing documentation proving that the product met Vietnamese standards. Eventually, the buyer accepted the goods, and the letter of credit terms were modified to ensure smooth payment.

Experience Summary: In cross-border trade, understanding and adapting to the industry standards and specifications of the target market is very important. Enterprises should clarify product specifications and quality standards with the buyer before the letter of credit is issued, ensuring that the technical requirements in the letter of credit terms can be met. When necessary, it is advisable to hire local technical experts or consultants for review to ensure all products meet local market requirements.

Through sharing these practical cases, it can be seen that enterprises face diverse challenges in Vietnamese letter of credit operations, often involving document management, time control, compliance risks, as well as market and industry differences. By summarizing lessons learned and taking corresponding preventive measures, enterprises can better manage and avoid these risks, ensuring smooth trade. In future operations, it is recommended that enterprises continuously optimize internal processes, enhance employee professional capabilities, and establish closer cooperative relationships with local partners to stand undefeated in the complex international trade environment.

Latest Policy Changes and Market Trends

Policy Changes

In recent years, the Vietnamese government has significantly increased its regulatory efforts on international trade payment tools, especially in anti-money laundering and counter-terrorism financing, which directly affects the application and use of letters of credit. Vietnam revised its Anti-Money Laundering Law in 2019, making transactions through letters of credit subject to stricter scrutiny regarding the source of funds and transaction background. Banks have become more stringent in reviewing the qualifications of transaction parties during the letter of credit application process, requiring enterprises to prepare more detailed materials to prove the legitimacy of transactions and the legal source of funds when submitting letter of credit applications.

At the same time, the State Bank of Vietnam (SBV) has been gradually promoting the electronification of letters of credit since 2020. Electronic letters of credit (e-L/C) are operated through specialized trade finance platforms, with the main purpose of improving trade efficiency, reducing transaction risks, and increasing trade transparency. According to the latest policies, electronic letters of credit have the same legal effect as traditional paper letters of credit, and banks must accept and process applications and related documents for electronic letters of credit. Furthermore, the Vietnamese government has strengthened supervision of sensitive industries, such as military equipment, pharmaceuticals, and chemical products. Letter of credit applications in these fields usually require additional government approval documents, which poses higher requirements for relevant enterprises.

Market Trends

With the acceleration of Vietnam’s digitalization process, letter of credit operations are facing significant market trend changes. Firstly, traditional paper letters of credit, due to their complex operation and time-consuming nature, are gradually being replaced by electronic letters of credit (e-L/C). Electronic letters of credit not only shorten transaction time but also greatly reduce the risk of document loss or tampering. It is expected that in the next few years, electronic letters of credit will become the mainstream payment tool in Vietnam’s international trade.

Secondly, Vietnam has signed and joined multiple free trade agreements (FTAs), such as the Regional Comprehensive Economic Partnership (RCEP) and the Vietnam-EU Free Trade Agreement (EVFTA). The implementation of these agreements has greatly promoted trade between Vietnam and other countries. Letters of credit, as one of the main payment methods, will play an increasingly important role in these trade activities.

Furthermore, Vietnamese commercial banks are actively advancing service digitalization, with many banks having launched online letter of credit application and management systems. This not only improves customer experience but also makes operations more convenient. In the future, competition among banks will not only be reflected in rates but also in the convenience and degree of digitalization of services, which will encourage more enterprises to choose more efficient digital letter of credit services.

Enterprise Response Strategies

Facing policy changes and market trends, enterprises need to take proactive response measures. Firstly, enterprises should understand and adapt to the operational mode of electronic letters of credit as early as possible, choosing to cooperate with banks that have electronic letter of credit systems to improve operational efficiency and reduce risks. At the same time, enterprises should strengthen compliance management, ensuring the legitimacy and completeness of all transaction materials, especially when submitting letter of credit applications, to ensure materials can smoothly pass the bank’s strict review.

In addition, enterprises need to closely monitor Vietnam’s financial regulatory policies and industry dynamics, adjusting letter of credit usage strategies in a timely manner. For transactions involving sensitive industries, enterprises should consult legal advisors in advance to ensure operations comply with Vietnamese laws and regulations, thereby avoiding unnecessary risks and delays.

Comparative Analysis with Chinese Letter of Credit Operations

Although there are many similarities between Vietnam and China in letter of credit operations, there are still quite a few differences in operational details and actual execution. A deep understanding of these differences will help enterprises better manage risks in cross-border trade.

Firstly, Vietnamese banks are stricter in reviewing letter of credit documents than Chinese banks. In Vietnam, if documents do not comply with letter of credit requirements, banks usually directly refuse payment, with almost no room for correction or compromise. In China, banks in some cases allow a certain degree of document correction, especially in long-term customer relationships, where Chinese banks are more inclined to negotiate with customers to resolve issues rather than immediately refusing payment.

Secondly, in terms of the development of electronic letters of credit, Vietnam has made rapid progress in recent years, with the state bank and commercial banks actively promoting the use of electronic letters of credit. In comparison, China’s electronic letter of credit system is relatively more mature, especially in large banks, where electronic letters of credit have become the norm. Although the two countries are gradually converging in the operational mode of electronic letters of credit, Vietnam still has some room for development in terms of popularization and user acceptance.

Language requirements are another significant difference. In China, letters of credit can use Chinese, which is extremely convenient especially in domestic transactions or transactions with other Chinese-speaking countries. However, in Vietnam, letters of credit mainly use English or Vietnamese, so enterprises need to pay special attention to language accuracy in cross-border operations to prevent transaction risks caused by language issues.

Furthermore, in terms of legal compliance, Vietnamese letter of credit operations need to strictly follow local import and export laws and regulations, especially in transactions involving sensitive goods. The import and export of these goods usually require additional government approval documents, and enterprises need to understand and prepare these documents in advance when applying for letters of credit. In comparison, China’s supervision in this regard is equally strict, but the operational methods may be different, especially in approval processes and types of required documents.

Finally, there are differences in the habits of using letters of credit. In Vietnam, letters of credit are mainly used for international trade and are less used in domestic trade. In contrast, in China, letters of credit are widely used in domestic trade, especially in large transactions. Understanding this difference helps enterprises better choose suitable payment methods in cross-border trade to ensure smooth transactions.

Letter of Credit Application Suggestions for Different Industries

When applying for letters of credit in Vietnam, different industries need to adopt corresponding strategies based on their respective industry characteristics to ensure smooth transactions and effectively prevent risks.

In the manufacturing industry, transactions usually involve commodities, with large transaction amounts and long delivery cycles. To ensure the safety and smooth progress of transactions, enterprises should clearly specify delivery periods and inspection standards in the letter of credit terms. For example, clear delivery times can be specified in the letter of credit, along with detailed inspection standards and acceptance procedures to avoid refusal of payment due to quality issues. In addition, for large orders, terms for batch delivery and installment payments can be set, which not only reduces the financial pressure of single transactions but also effectively controls risks.

[For the agriculture and food industry], these transactions usually have strong seasonality and time sensitivity, especially regarding the shelf life and storage conditions of agricultural products. Enterprises should clearly specify shelf life and storage conditions in the letter of credit to prevent quality problems during transportation and storage. Additionally, due to the seasonal changes of agricultural products, enterprises should specify delivery times and shelf life limits in the letter of credit to avoid losses caused by seasonal changes or transport delays. Compliance requirements are also crucial, and enterprises need to attach necessary quarantine, sanitary, and quality standards in the letter of credit to ensure goods can smoothly pass customs inspection.

The high-tech industry products usually involve sensitive information such as technical specifications and intellectual property. Enterprises should list detailed technical specifications, models, and performance parameters of products in the letter of credit terms to ensure that the products received by the buyer are consistent with the order, avoiding technical disputes. Moreover, intellectual property protection is an issue that cannot be ignored in the high-tech industry. Enterprises should clearly stipulate intellectual property-related clauses in the letter of credit, such as patents, trademarks, and technology licenses, to prevent intellectual property disputes during the transaction process. As high-tech products usually require after-sales service and technical support, enterprises should also attach specific requirements for these services in the letter of credit to ensure buyer satisfaction.

For the clothing and textile industry, orders in this industry usually involve large quantities and diverse styles, with high transaction complexity. Enterprises should describe product specifications in detail in the letter of credit terms, including the style, color, size, and material of each product, to ensure that the delivered goods are consistent with the order and avoid refusal of payment due to specification mismatch. In addition, enterprises can stipulate inspection methods and acceptance standards in the letter of credit to ensure quality meets the buyer’s requirements.

In the energy and resources industry, transactions in this industry usually involve commodities and long-term contracts. Enterprises should set installment payment terms in the letter of credit terms to reduce the financial pressure of one-time payments. In addition, enterprises should pay special attention to the long-term nature of contracts and price fluctuation risks, and can attach price adjustment clauses in the letter of credit to cope with market price changes.

Finally, after an in-depth discussion of Vietnam’s letter of credit application process, legal regulations, common pitfalls, practical cases, latest policy changes and market trends, as well as a comparative analysis with Chinese letter of credit operations and application suggestions for different industries, it can be seen that Vietnam’s letter of credit operations are gradually becoming more complex and diverse in global trade. With continuous policy updates and rapid market development, enterprises must handle letter of credit-related matters more cautiously and professionally when conducting trade in Vietnam.

In letter of credit operations in Vietnam, enterprises must both follow strict laws and regulations and flexibly respond to market trend changes. By understanding and applying Vietnam’s latest policies and market trends, enterprises can not only effectively avoid risks but also maintain advantages in fierce international market competition.

We are committed to providing enterprises with the most cutting-edge knowledge and most valuable advice to help them succeed in the Vietnamese market. We hope that through these in-depth analyses and detailed guidance, enterprises can be more confident in their letter of credit operations in Vietnam, calmly deal with various challenges, and achieve continuous business growth and prosperity.