Other documentary operations

Other documentary operations

Collection / Documentary collection is the order used for the seller to order its bank to submit presented documents to its purchaser through the purchaser’s bank, under condition to pay or accept the bill of exchange that was drawn to the purchaser.

Collection is agreed as the form of payment in the situation when the Seller and the Purchaser know each other and when the Seller (exporter) is convinced that the Purchaser is highly confidential person and that its solvency and readiness to pay for agreed goods is unquestionable.

Advantages of using documentary collection are as follows:

• A simple and cheap manner of handling documents
• Payment is faster than open payments
• Protection of goods’ ownership and the possibility of its disposal, incomparably more favourable than open delivery of goods

There are three forms of documentary collection that are known in business practice. When concluding Agreement, the Purchaser and the Seller agree that the payment of goods or service is performed in the following manner:

Cash Against Documents – CAD In the case of CAD arrangement, commercial and dispatch documents of the exporter and delivered to the importer only upon collection of funds. Therefore, the importer cannot take over goods from the transporter until the payment is completed.

Documents against payment or D/P As well as in case of CAD transaction, commercial and dispatch documents of the exporter are sent through the importer’s Bank for the purpose of funds’ collection. In addition to importing documents, the exporter shall enclose “demand” bill of exchange.

Documents against acceptance or D/A Deferral of payment is offered to importers, under condition that they are ready to accept the bill of exchange that is drawn to exporters in a particular period, for some future period that is fixed. By accepting the bill of exchange, the importer is legally accepting the debt. The acceptance is achieved when the importer provides its signature to the bill of exchange.

Regulations prescribed by the International Chamber of Commerce in Paris (URC 522) are regulating collection operations.

After dispatch documents have been collected as evidence of goods’ dispatch, those documents will enable the export to collect the goods. The entire process of collecting documentary collection could be divided in three phases as follows:

• Issuance of the order for collection (collection instruction) by the exporter
• Forwarding order for collection with all necessary documents to the Bank
• Buying documents at the Purchaser’s Bank.