Documentary Collections can provide the exporter and the importer with a compromise between open account trading (or payment in advance for the settlement of transactions) and documentary credits.
The supplier of goods will often be prepared to make an export sale without the protection of a documentary credit, however, rather than being entirely dependent on the integrity of the importer and shipping the goods on open account, the supplier may wish that the importer can only obtain possession of the documents of title (e.g. bills of lading, Insurance Certificate) after payment for the goods, or acceptance of a bill of exchange for payment at a date in the future.
A Documentary Collection can offer the exporter a degree of security in the transaction which is not inherent in an open account method provided all the documents of title are handled by a bank. The bank will have control over the goods through the title documents and can arrange, for one of its overseas correspondents, to release such title only against payment or acceptance.
Australian Banks, in common with banks in many other countries, have adopted the International Chamber of Commerce rules as set out in Publication No. 522- Uniform Rules for Collections (1995 revision) Commonly Known as “Uniform Rules for Collections” or “URC”.
These rules set out the procedures to be followed by all parties concerned, including the liabilities and responsibilities of banks and customers involved with collection transactions. They endeavour to eliminate difficulties (created by differences in banking phraseology and procedures) in different countries by setting out standard practices that banks can apply.
- Increased security of payment for the exporter compared to open account transactions.
- Means of accessing extended finance by use of term collections.
- Lower transactional costs than a Documentary Letter of Credit.
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