23/02/2022
A collection can be defined as - "The delivery of a draft, promissory note or cheque and/or documents by a bank to a third party (i.e., an importer), on behalf of the exporter, against fulfilment of certain conditions i.e., payment, acceptance or another specified consideration."
For the exporter, it bridges the gap between open account and documentary credits by providing a potentially higher level of security than open account, through the control of the documents by banks, without the often onerous terms and conditions of a documentary credit.
For importers and exporters, a documentary collection attracts cheaper bank costs than those associated with a documentary credit.
Types of collection:
- Clean Collection: A collection instruction containing only a financial document.
- Documentary Collection: A collection instruction containing commercial documents, that may be accompanied by a financial document.
Abbreviated terms:
- D/P (Documents against Payment): Documents are to be released upon payment by the importer.
- D/A (Documents against Acceptance): Documents are to be released upon the importer accepting a draft drawn on it. Payment of the draft at maturity is subject to the importer authorising payment at that time. With the growing use of deferred payment as an alternative to the acceptance of a draft, D/A can also refer to the release of documents upon the importer undertaking to pay on a specified due date.
Document types:
- Financial: A description given to bills of exchange (drafts), promissory notes, cheques, etc.
- Commercial: A description given to shipping documents such as invoices, transport documents, insurance documents, etc.
This subject is covered in far greater detail within our training module ‘documentary collections in practice which can be purchased at https://www.tradefinance.training/shop/
www.tradefinance.training
