Collection is a settlement method in which the exporter issues a bill of exchange, entrusts a bank to collect the payment, and collects the payment from the foreign importer.
1) Document delivery conditions for collection
According to different document delivery conditions, collection can be divided into D/P and D/A.
Documents Against Payment (D/P) means that the seller instructs the overseas collecting bank to deliver the seller’s full set of documents to the buyer after the buyer pays, that is, payment first and then delivery of documents.
Documents Against Acceptance (D/A) means that the seller instructs the overseas collecting bank to deliver the full set of documents to the buyer after the buyer accepts the deferred payment bill issued by the seller. The buyer first collects the goods with the documents and then fulfills the payment obligation on the due date of the bill of exchange, that is, delivery of documents first and then payment.
2) Collection business process
According to the delivery conditions and payment time, the collection business types are divided into three types: D/P at sight, D/P after sight, and D/A after sight. Among them, only D/P at sight is relatively beneficial to the seller.
①After the seller ships the goods, he obtains the bill of lading, applies for collection to the local bank (collecting bank), and submits the bill of exchange and relevant documents.
②The collecting bank sends the collection instructions, bill of exchange and documents to the overseas bank (collecting bank).
③The collecting bank presents the bill of exchange to the payee (buyer) for payment.
④The payee pays.
⑤The collecting bank delivers the documents to the payee.
⑥The collecting bank remits the collected payment to the collecting bank.
⑦The collecting bank credits the client’s account.
3) Characteristics of collection business
Under the collection method, the seller entrusts the bank to collect payment from the buyer. Whether the payment can be received depends entirely on the credit of the buyer, because collection is a kind of commercial credit. Therefore, using the collection method to collect payment is quite risky for the seller. The exporter only ships goods based on the credit of the importer and collects payment after the goods are shipped. The risks are relatively high, mainly due to the bankruptcy of the importer, the importer’s refusal to pay, and the importer’s request for price reduction due to inconsistent specifications, quality, packaging, quantity, etc.