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DOCUMENTARY COLLECTION.

SOME ASPECTS OF

COMMERCIAL

BANKING

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FOCUS 1. Read and discuss the lead-in and the letters.

PART I

In documentary collection, a bank collects payment for the seller by delivering documents to the buyer. Here again, the bank acts as an intermediary between the buyer and the seller. In this case, however, the seller does not receive payment until after payment has been made to the remitting bank. He therefore has to wait longer for his money than if he were paid under a documentary credit. Moreover, his risk is not fully covered. When he sends off the goods, he still has no assurance that the buyer or the buyer’s bank will pay; he simply has to trust in their ability and willingness to do so. Documentary collections are therefore normally used only when the buyer and the seller are already familiar with each other.

Collection means the handling by banks, on instructions received, of documents in order to obtain acceptance and/or payment.

The documents are attached to an application form that the exporter presents to its bank. The latter makes out a collection order and, as a rule, passes it over to its correspondent bank in the country of the importer. The correspondent bank or some other bank called «collecting» delivers the documents to the importer against payment and/or acceptance.

Banks concerned with collection do not accept responsibility for payment or acceptance.

Specific advantages of documentary collections:

∙ Substantially	better	security	than	settlement	on	open
account;

∙Usually faster than settlement on open account (because the documents are presented through a bank);

∙Where documents are to be released against acceptance of the bill of exchange, the seller can request an official confirmation in the event of nonpayment. This speeds up recovery of the debt and simplifies the collection of interest on arrears;

∙Few formal requirements; hence great flexibility for both buyers and sellers;

∙Low cost.

Here is the diagram of a collection order:

DRAWER/		REMITTING		COLLECTING		DRAWEE/
PRINCIPAL/
		BANK		BANK		IMPORTER
EXPORTER

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Here is the scheme of the Documentary Collection procedure

LEGAL RELATIONS IN THE CASE

OF DOCUMENTARY COLLECTION

	Contract of
	sale
Importer (Drawee)	Exporter
	(Principal)
Order to
take up
Collection	Collection
documents	Оrder

Collection bank (importer's bank)

Collectio

n order

Remitting bank (exporter's bank)

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1.1. THE COLLECTION ORDER OF A BANK

Here is a collection order sent by Moscow Narodny Bank Limited (remitting bank) to the Vnesheconombank (collecting bank).

MOSCOW NARODNY BANK Limited

Telephone

Address

SWIFT Address

Telex

Registered Address

Cables:

Date:

18 October 20__.

Vnesheconombank

Remitter (Their Ref.)

Moscow, Russia

Smith and Co., Ltd.

WE ENCLOSE THE UNDERMENTIONED DOCUMENTS

AMOUNT GBP

FOR COLLECTION – OUR REF. B.C. ... WHICH PLEASE

25,000.00

QUOTE IN ALL CORRESPONDENCE

DRAWEE NOVOIMPORT

DATE OF BILL

18 January 20__

DRAWER SMITH and Co., LTD.

TERM:

SIGHT

Please

acknowledge

B/E

Invoice

Ins.

Weight

Origin

B/L

AWB

Qual.

Pack List

receipt by

Policy

List

Cert.

Cert.

return

Original Mail

x

x

x

x

Duplicate

Mail

B/L date …

Vessel TRISTAR

Goods FABRICS

PLEASE FOLLOW THE INSTRUCTIONS MARKED «X»

1.		Deliver documents against payment.
2.	x	If unpaid please protest.
3.		If unpaid do not protest.
4.	x	Advise non-payment by mail/airmail/cable stating reason.

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5.	x Collect all your charges.

6.x Collect our charges as follows:

	GBP 58,00
7.	Collect interest at __% per annum.
8.	x Advise us if interest/charges refused.
9.	x Remit proceeds to us by cheque/payment.
10.	Authorize us by Airmail/Cable to debit your account with proceeds.
11.	Funds to be Eligible for Credit to External Account.
12.	Remit proceeds to ________________________________
13.	x Deliver documents against acceptance/undertaking.

14.x Please advise us of acceptance and maturity date retaining the accepted

bill/undertaking for presentation at maturity. 15. Please return the accepted bill to us.

16.Please ensure when returning the bill to us that:

(a)it bears the name and address of the bank to which it must be presented for payment at maturity;

(b)the date of acceptance is shown if the maturity date is not

specified.

17. If unaccepted please protest.

18. If unaccepted please do not protest.

19. Advise non-acceptance by mail/airmail/cable stating reason.

20.x If still refused on arrival of carrying vessel, please land and warehouse the goods.

21.If still refused on arrival of carrying vessel, please insure the goods

against fire and theft. 22. Do not insure.

23. Payment/Presentation may be deferred pending arrival of carrying vessel.