Make it Easy with Documentary Collections

Collections do not provide any guarantee of payment, and are therefore more widely used where the Importer and Exporter have established a good trading relationship. The Importer agrees to pay for goods only upon receipt of documents evidencing the shipment of the goods by the Exporter.

It is important to note that the Importer’s bank is primarily responsible to the Exporter for the handling of the documents even though the Exporter is not a customer. Collections are subject to The Uniform Rules for Collections issued by the International Chamber of Commerce.


How does the process work?

The Exporter sends the documents through his bank to the Importer’s bank, which then collects the proceeds on behalf of the Exporter. The documents can be released to the Importer in either of the following ways:

 

  • Cash against documents (D/P Collections) -Where no credit terms have been agreed, i.e. immediate payment by the Importer.



  •  Cash against acceptance (D/A Collections) - Where a credit term (e.g. 60 days from shipment date) has been agreed. This is normally evidenced by the Importer accepting a Bill of Exchange (B/E) drawn on them by the Exporter or by issuing a Promissory Note in favour of the Exporter.

 

 

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    Benefits

    • Goods are dispatched to the Importer without any pre-payment or guarantee of payment. Payment or a commitment to pay is only effected against documentary evidence that the goods have been shipped

    • No payments are made unless requested through the Importer’s bank. This reduces the likelihood that an invoice will be paid in error by the Importer’s accounts department

    • D/A Collections can provide access to cheap trade credit as Exporters are often more willing to extend credit terms when the Importer is prepared to formally acknowledge the debt

    • The Importer retains control over the payment decision.

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    Restrictions/Disadvantages

    For the Exporter

    • The goods are shipped without a bank guaranteeing the payment

    • The buyer can decide not to accept or pay the collection

    • The buyer may get the goods without accepting or paying the collection.

     

    For the Importer

    • The buyer may have to pay before they can get access to the goods

    • Accepted bills of exchange or promissory notes may be protested if they have not been paid when they mature.

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