Collection is an operation of the Bank based on instructions received from the Truster (Exporter) with financial and commercial documents with the purpose of receiving payment and /or acceptance or transfer of documents against payment and/or acceptance or transfer of documents on other terms and conditions.
Collection is less expensive in comparison with L/C but at the same time is less reliable type of documentary operations.
After shipment of goods, the Seller (Exporter) sends documents to his Bank with instructions to collect the amount of documents through some bank in the Buyer’s (Importer) country. The collecting bank (Importer's bank) here is an intermediary, ie assumes no additional payment obligations to the Supplier (Exporter), providing the issuance to the Buyer (Importer) of documents for which goods can be received only after the payment (documents against payment) or acceptance (documents against acceptance).
During the settlement on collection both of sides receive the following advantages:
- The collecting bank makes payment only with customer’ s approval, giving him opportunity to get acquainted with documents;
- Low cost of the operation - there is no additional payment obligation of the Importer’s Ban
- The ability to get financing as a commercial loan from the Exporter (installment payment) or as an acceptance of urgent bills (if this payment option is described in the contract);
- The operation complies with international “Uniform rules on documentary collection” developed by the International Chamber of Commerce.
- Control over the goods remains at the Seller up to the moment of transfer of financial and commercial documents to the Buyer by the collecting bank which take place only after their payment or acceptance;
- Chance to get financing in the Bank for the term of payment by documents to the Buyer at the acceptance of documents and deferred payment described in the contract;
- The operation complies with international “Uniform rules on documentary collection“ developed by the International Chamber of Commerce.
Here you can see Tariffs on Documentary collection.