INTERNATIONAL TRADE
COLLECTIONS
Daniel Nuncio
Norma Pelayo
Omar Gonzlez
collection
Process through which the global banking
system acts on behalf of an exporter (or seller) to
collect cash payment or a time draft from
the importer (or buyer) in return for documents
required for taking delivery of the ordered goods.
Collections
do not give the exporter the security of
advance payment or the relative peace of
mind that comes from open account
transactions with long-term customers in
established relationships. They require both
exporter and buyer to exercise great care in
agreeing the detail of the sales contract.
Exporter
Bank
Buyer
There are three types of collection:
Clean
Collection
Documents against
acceptance (D/A)
Documents
against payment
(D/P)
Clean Collections
For a clean collection, the exporter dispatches the
goods and the related documents directly to the buyer
and then sends his/her bank the bill of exchange for the
value of the goods drawn according to the sales contract.
The bank can then set in train the collection of the due
amount from the buyer.
Clean Collections
The exporter
sends goods first to
the buyer.
The buyer pays the
money, which is
remitted to the
exporters bank.
The exporters bank sends
the bill of exchange to the
buyers bank for it to be
presented to the buyer.
The exporter sends
all documents except
the bill of exchange to
the buyer.
The exporter sends
the bill of exchange to
his/her own bank.
Clean Collections
ADVANTAGES
All in favour of the buyer.
DISADVANTAGES
All against the exporter. If
the buyer does not pay, or
if he does pay but his
country blocks remittance
of funds to exporter:
the exporter has neither
the goods nor the money,
and
the exporter may not get
his goods back.
Documents Against Acceptance (D/A)
The exporter
sends goods first
to the destination
country.
The buyer obtains
delivery of the
goods.
The buyers bank obtains the
buyers acceptance of the bill of
exchange, payable either at an
agreed period after sight or on
a fixed date in the future, and
releases the required
documents to the buyer.
The exporter
sends the
required
documents to his
own bank.
His bank sends
the required
documents to the
buyers bank.
Documents Against Acceptance (D/A)
The documents referred to in a documentary collection D/A usually
include:
a bill of exchange drawn payable at a future date
the transport documents needed to obtain delivery of the goods along
with other related documents.
For a documentary collection D/A, the exporter (through the bill of
exchange) does not authorize release of the transport documents until
the buyer accepts the bill of exchange for payment at a definite future
date. Once the buyer accepts the bill of exchange, the buyers bank
releases the transport documents needed to obtain delivery of the
goods and any other remaining documents. The buyer can then take
possession of the goods for which he has agreed to pay in terms of the
accepted bill at a definite date in the future.
Documents Against Acceptance (D/A)
ADVANTAGES
DISADVANTAGES
All in favour of the buyer
All against the exporter. If the buyer
does not pay on the due date, or if
they do pay but their country blocks
remittance of funds to exporter:
the exporter has neither the goods
nor the money, and
the exporter may not get the
goods back.
Documents Against Payment (D/P)
The documents referred to in a documentary collection D/P usually
include:
a bill of exchange drawn payable at sight, at an agreed period after
sight, or on a fixed date in the future;
the transport documents needed to obtain delivery of the goods;
together with other related documents.
The essential word in D/P collections is payment. There are two
types of D/P collection, according to when payment is made, but in
both types the documents that give title to the goods are released to
the buyer only upon payment. Unlike collections on D/A terms,
collections on D/P terms leave the exporter in effective control of the
goods until payment.
Payment at sight
The exporter sends
goods first to the
destination country
The buyer obtains
delivery of the
goods.
The buyers bank obtains
the buyers payment and
releases the required
documents to the buyer.
The exporter sends
the required
documents to
his/her own bank.
The bank sends the
required documents
to the buyers bank
Payment at sight
For a documentary collection D/P with
payment at sight, the terms of the sales
contract stipulate that the buyer must pay as
soon as the exporter presents the documents.
Upon such payment, the exporter releases
the transport documents (typically including
bills of lading that grant title to the goods) to
the buyer, who can then arrange for delivery
of the goods.
Payment at sight
Advantages
Disadvantages
Mostly in favour of the exporter,
who retains control over the goods
until payment is made.
the exporter has neither the goods
nor the money, and
the exporter may not get the
goods back.
If the buyer does not pay:
the exporter may not get the
goods back.
Payment at an agreed period after sight or
on a fixed date in the future
For a documentary collection D/P with payment at an
agreed period after sight, the terms of the sales
contract stipulate that the bills of exchange be drawn
at say 30, 60, 90 or 120 days (or another agreed
period) after sight.
Alternatively, the bill of exchange may be payable on
a fixed date in the future. The buyer is required to
accept the bill of exchange for payment at the
defined future date, but the exporter does not
immediately release the transport documents (which
give title to the goods). Thus, the buyer does not
immediately get delivery of the goods.
Payment at an agreed period after sight or
on a fixed date in the future
The exporter sends
goods first to the
destination country
On (or before) the defined
future date, the buyers bank
obtains the buyers payment
and releases the required
documents to the buyer.
The exporter sends
the required
documents to
his/her own bank
The bank sends
the required
documents to the
buyers bank.
The buyers bank obtains the
buyers acceptance of the bill
of exchange payable on a
defined future date, and
retains all documents in its
custody.
The buyer obtains
delivery of the
goods.
Payment at an agreed period after sight or
on a fixed date in the future
The buyer makes payment on the defined
future payment date. The exporter then
releases the documents to the buyer,
enabling the buyer to take delivery of the
goods. If the goods arrive before the defined
future payment date, and if the buyer then
wishes to take delivery of the goods, the
buyer must still make payment before
receiving the documents that enable them to
take delivery of the goods.
Payment at an agreed period after sight or
on a fixed date in the future
Advantages
Disadvantages
Mostly in favour of the exporter,
who retains control over the goods
until payment is made.
If the buyers country blocks
remittance of funds to the exporter:
the exporter has neither the goods
nor the money, and
the exporter may not get the
goods back.
If the buyer does not pay:
the exporter may not get the
goods back
