Collection

Collection, as a way of payment, represents the bank’s processing of the commercial documents (invoices, transportation documents) and/or financial documents (bills of exchange) according to the instructions received from the exporter, with the goal of:

  • receiving the payment and/or the acceptance;
  • handing over the documents for payment and/or the acceptance;
  • release of the documents in accordance with the other terms and conditions. 

Advantages:

  • it offers far greater security than selling on open account, thus giving a certain confidence to the partners regarding the execution  the obligations under commercial contract;
  • it is less expensive than the letter of credit;
  • in the case of collection with documents against acceptance, the drawee has the possibility to sell the products and to collect funds before the payment;
  • it does not require blocking of the buyer’s funds;

Characteristics:

  • The exporter always initiates the operation.
  • This way of payment is based upon the payment obligation of the buyer, stipulated in the commercial contract, without any payment obligation of the banks participating in the processing.
  • The aim of the operation is the transfer of the commercial and/or financial documents from exporter to importer against payment /acceptance or under other conditions.
  • Only drawee bears the payment obligation within the collection. The bank undertakes the payment obligation only in case of the availed collection.
  • The Collections are regulated by the Uniform Rules for Collections, Publication 522 (revised in 1995, effective as of 01.01.1996) of the International Chamber of Commerce, Paris.

The ways of transferring the documents:

  • The documents against acceptance (D/A): in this case, the commercial documents are accompanied by a bill of exchange (draft), the bank transfers the documents to the drawee upon his acceptance of the bill of exchange;
  • The documents against payment (D/P): the bank  transfers the documents to the drawee upon receiving of documents value;
  • In other conditions, in accordance with the instructions received from the issuer of the bill of exchange.

COLLECTION CYCLE

 

The 1 stage - The importer and the exporter agree in a contract on the terms of the operation and the payment of collection.

The 2 stage - The exporter sends the goods in accordance with the terms of the contract, gets the documents that certify the fulfillment of the delivery obligations and presents to his bank (the remitting bank) commercial and/or financial documents, accompanied by the collection instructions (documents against payment/acceptance/other conditions).

The 3 stage - The (exporter’s) remitting bank transfers the document to the (importer’s) collecting bank, accompanied by a remittance letter with the exporter’s instructions.

The 4 stage - The (importer’s) collecting bank advises the importer about the receiving of the documents.

The 5 stage - Depending upon the collection instruction, the collecting bank transfers the documents to the importer, either against payment, or against acceptance of a bill of exchange; on the basis of the delivery documents the importer gets the goods.

The 6 stage - Having received from the importer the counter value of the documents, the collecting bank transfers the funds to the remitting bank or, on a case-by-case basis, remits the accepted draft or confirms its acceptance.

The 7 stage - The remitting bank notifies the exporter about receiving the payment or about the acceptance of the bill of exchange, and credits its account or remits the accepted draft.