International trade procedure in which a bank in the importer's country acts on behalf of an exporter for collecting and remitting payment for a shipment. The exporter presents the shipping and collection documents to his or her bank –remiting bank-(in his own country) which sends them to its correspondent bank in the importer's country. The foreign bank (called the collecting bank) hands over shipping and title documents (required for taking delivery of the shipment) to the importer in exchange for cash payment.
The basis on which documentary collections are executed is provided by the “Uniform Rules for Collections” (URC) drawn up by the International Chamber of Commerce in Paris (ICC) and approved by the banks. They set out the main rights and duties of the parties involved in the documentary collection. The URC rules and provisions, however, are only binding if they do not contradict any other agreements which have been expressly concluded, or any national, state or local legislation and / or stipulations which take precedence.
Terms of payment:
On the scheduale of documents that is sent to the bank, the terms of delivery documents to the buyer should be appear.
There are two terms as follows:
1-Documents against Acceptance (D/A)
A buyer is required to "accept" a seller’s time draft, thus acknowledging obligation to pay at the specific future date. The time of payment occurs at maturity of an accepted time draft, 30, 60 or 90 ,… days after date of acceptance or date of bill of lading.
2-Documents against Payment (D/P)
A buyer is required to pay a seller’s sight draft in order to obtain shipping documents. Payment is made on presentation of the sight draft by a bank to the buyer, usually one or two weeks after shipment. Under D/P terms, the seller, through a bank acting as an agent, is able to retain control of the goods until the buyer pays.
What are the specific advantages of the
– Inexpensive and straightforward processing
– Payment execution is usually quicker than against open account,
– It offers the option of releasing the documents, and hence
the goods, to the buyer immediately against payment of the
amount owed or acceptance of a draft. This does not apply
if the goods are consigned to the purchaser on the transport
document, since in that case, the buyer can obtain the goods
without presenting transport documents.
However, if the buyer refuses to honor the documents, the finding
of a substitute buyer or the return of the merchandise might
involve substantial losses for the seller.
The parties involved in a documentary collection:
There are generally four parties involved in a documentary collection:
This is usually the seller / exporter, who hands over the documents
to his bank together with a corresponding collection instruction.
_The remitting bank
The bank to which the principal entrusts the documents. This
bank forwards the documents in accordance with the collection
instruction to the collecting bank in the buyer’s country.
_ The collecting (or presenting) bank
The “collecting bank” is any bank, other than the remitting
bank, involved in processing the collection. The collecting bank
making presentation to the drawee is the “presenting bank”.
It is responsible for actually collecting payment or obtaining
acceptance from the drawee in accordance with the collection
instruction received from the remitting bank.
_ The drawee
The buyer or importer to whom the collection documents are
Bank pasargad is ready to handle all kinds of A/M collections at the frame of CBI’s regulations.