Document collection is a payment process where importers pay their local bank for shipping fees and the bank forwards the money to the exporter’s bank. Banks do not guarantee payment, but can sue importers for non-payment if requested by the exporter. It is cheaper than other credit documents but can be risky for new parties.
A documentary collection is a process by which importers and exporters facilitate payments. To start the process, exporters go to a bank in their country and present billing documents that represent shipping and other costs of exporting. Once the documents arrive at a bank where the importers live, the importers pay their bank and it returns the money to the first bank, which pays the exporters. During this process, banks are only responsible for sending the documents and collecting the money. If importers fail or refuse to pay a collection of documents, banks can sue on behalf of exporters if requested, although banks can also deny this request.
Typically, money is not transferred between importers and exporters until the items are shipped or arrived. One way to make this payment when the time comes is through document collection. Exporters visit a local bank and present a certificate of origin, bill of lading and other documents related to shipping and export costs. That bank forwards the documents to a local bank for importers.
After forwarding the documents, importers visit the local bank and pay the bank the shipping fees. The bank usually also has documents of title, which importers need to legally own the imported items. When importers pay shipping costs, the bank forwards the money to the exporters’ bank.
With some credit documents used between importers and exporters, the banks involved guarantee that the parties will pay. When a collection of documents is used, banks do not make this guarantee. Since the lack of collateral reduces the likelihood of losing money, this document is generally cheaper than other credit documents, leading to its common use among trusted parties. At the same time, using this form of payment between parties that are new to each other can be a bad idea, because the lack of guarantee can cause the exporter to lose money.
Although banks do not guarantee receipt of payment, they can sue importers for refusing to pay for document collection. Importers may refuse to pay because they don’t want to use their money or because they don’t want to accept the imported items; regardless of the cause, banks can sue them for not paying. This is only done on behalf of the exporters, who need to initiate this process. Banks will not process unless exporters request them, and even then some banks may refuse this request.
Asset Smart.
Protect your devices with Threat Protection by NordVPN
