Collection is a fast, simple and effective way to receive payments and pay off debts.
Collection enables the exporter to receive the amount due through the submitted documents. In contrast to an L/C, the bank is not liable to receive the cost of the goods from the importer, and only acts as an intermediary in transferring the documents to the importer. The bank is not entitled to transfer the documents to the importer prior to the payment made against the documents by the importer. Therefore, the use of collection is more advisable when the importer and exporter are good old friends.
Below are types of collection
- Clean collection“Clean collection” – This is only a collection of financial documents (bills, checks) ex commercial documents.
- Factoring with regressClean collection is either a collection of commercial documents (invoices, certificates of freight service, insurance, etc.) excluding the financial documents or uniform collection of both commercial and financial documents.
By type of payment, collections are classed to:
- Documents Against Acceptance or D/AThis is a scheme of collection where the exporter’s bank authorizes the importer’s bank to deliver goods document to the importer against acceptance of a bill payable after a specified time from the date of submission or on a fixed day.
- Documents Against Payment or D/PThis is a scheme of collection where the exporter’s bank authorizes the importer’s bank to deliver goods document to the importer only after payment by the latter for the specified goods.
Updated 10.08.2023 16:14