Documentary collection - Finance

Documentary collection

There are two types of collection: clean and documentary. Clean collection is an encashment of financial documents not accompanied by commercial documents. Documentary collection is an encashment of financial documents accompanied by only commercial documents (bills, transport and insurance documents, title deeds).

In foreign trade, documentary encashment (ital incusso , collection of payment , encaissment ) , which is the bank's obligation on behalf of the exporter, receive from the importer the amount of payment under the contract against the transfer of the goods to the latter and transfer it to the exporter.

Payment processing conditions in collection form are included in the Payment terms foreign trade contract.

Sample text of the monetary and financial terms of the contract for payments for goods in the form of documentary collection (import)

Terms of payment

1. The payment for the goods delivered to the account of this contract must be made by the Buyer in _______________ (amount and name of the currency) within 30 days after the receipt by Vnesheconombank of the collection order from _______________ (foreign bank).

2. The payment is against the following documents:

a) accounts in 3 copies;

b) a complete set of clean airborne Bills of Lading

c) specifications specifying the number of seats in 3 copies;

d) certificate of quality in 3 copies;

e) copies of packing lists in 3 copies

3. The seller must submit the documents listed above to the Bank for payment not later than 10 days after the shipment of the goods.

4. All bank charges on the territory of the Buyer are paid by the Buyer. All bank charges outside the territory of the Buyer are paid by the Seller.

5. The procedure for making payments in the form of documentary collection is subject to the "Unified Rules for Collection" (edition of 1995, publication of the International Chamber of Commerce No. 522).

The following parties are involved in documentary collection operations:

principal (seller, exporter - The principal or Remitter) - the party that entrusts the bank with an encashment operation

remitting bank (The Remitting Bank) - the bank to which the principal entrusts the operation of processing the collection;

collection bank (The Collecting Bank) - any bank that is not a remitting bank participating in the processing of collection orders;

representing bank (The Presenting Bank) - an encashment bank making an introduction to the payer;

Payer (The Drawee) - the person to whom the presentation should be made in accordance with the collection order.

The collection operation is carried out in the following order.

1. The parties (the exporter and the importer) enter into a foreign trade contract in which, in the payment terms, the collection form of settlements is established. It is also stipulated, through which banks the calculations will be made.

2. The exporter makes the shipment of the goods in accordance with the terms of the foreign trade contract.

3. Having received transportation documents from the carrier, the exporter prepares a set of documents and, upon collection, sends them to his remitting bank for presentation to the buyer. The set of documents along with the transport documents includes: invoice, insurance certificate, certificate of origin, specifications, invoices, packing lists, etc., as well as bills of exchange issued by the exporter to the importer, if the latter is provided with a corporate loan.

4. In accordance with the instructions in the collection instruction of the principal (principal), the remitting bank verifies compliance of the submitted documents with the external documents listed in the collection order and with each other. After that, he sends the documents together with the collection order to his correspondent in the country of the importer-the collecting bank.

5. Having received the collection order and the set of documents, the collecting bank submits the documents to the importer-payer for verification in order to receive payment from it (in cash settlements) or acceptance of drafts (when granting a corporate loan). At the same time, the collecting bank can make the delivery directly by itself or through another bank.

6. The importer's bank receives payment from the importer.

7. The collecting bank transfers the proceeds to the remitting bank as specified in the payment terms.

8. Having received a notice of payment, the remitting bank transfers the proceeds to the account of the exporter.

The client's collection order should contain:

• date and number of collection;

• Details of the remitting bank, its full postal address, SWIFT code, telex number, telephone number, fax number;

• details and the name of the collecting/submitting bank (usually from the number of correspondent banks);

• list (by number and type) of the attached documents to be issued to the payer;

• name of the goods (type of services rendered);

• the name and full address of the payer, according to which the collecting/submitting bank must submit documents for payment or acceptance;

• amount of payment and (or) acceptance with indication of the name of the currency of payment and (or) acceptance;

• terms and terms of payment for collection, specified in accordance with the terms of the contract and the terms agreed by the contract;

• instructions on the possibility of accepting partial payments and issuing documents against partial payment (in accordance with the terms of the contract);

• instructions on which account should be attributed the costs associated with the collection (that is, the commission to be recovered must be clearly identified, indicating whether the waiver of the right to charge the commission is allowed);

• method of payment and form of payment notification;

• in the presence of a guarantee of a foreign bank ensuring the receipt of payments for goods shipped, the collection instruction should contain a full reference to such a guarantee of the bank and the demand for payment on the account of this guarantee (if the collection is not paid by the importer within the specified time limits); >

• instructions for non-payment, non-acceptance and (or) non-compliance with other instructions;

• Other data at the discretion of the client.

The collection procedure has advantages and disadvantages. Unlike a letter of credit, calculations in the form of collection are relatively simple and do not require preliminary action by either the exporter or the importer. Due to less formal strictness, documentary collection is associated with lower costs and is more flexible in comparison with a letter of credit.

For the importer, it is advantageous that the collection form of payment implies the payment for the goods actually delivered, and the costs for carrying out the collection operation are relatively small.

An exporter calculating by collection gives a guarantee that the goods will not go to the disposal of the importer until he makes a payment.

However, the collection form of payment has significant shortcomings for the exporter.

First, the gap in time between the shipment of goods, the transfer of documents to the bank and receipt of payment. It can be very long, which slows the turnover of the exporter's funds. And during this whole period of time, the exporter carries all the risks associated with unfavorable changes in the exchange rate of the price or payment currency, if the contract does not provide protective clauses.

Secondly, the lack of reliability in the payment of documents. The importer can refuse to pay documents or be insolvent by the time they arrive at the importer's bank. The liability of bikes in documentary collection operations is reduced and is limited mainly to the transfer and delivery of documents against payment or acceptance, but without its own obligation to make a payment if the buyer fails to fulfill or can not fulfill its obligations for collection.

The way out in this case may be the inclusion of bank guarantee conditions and telegraphic collection (where the exporter's bank sends, at the same time as the documents are sent to the collecting bank, by telegraph (telex or SWIFT system) a notice of the deportation of documents, which lists the main requisites collection order).

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