Trade Products

Documentary Collections

ABN AMRO Page 1 of 15 Trade Operations, ACES, Chennai

TRADE COLLECTIONS
“Collection” means the handling by banks of financial and / or commercial documents in accordance with
instructions received, in order to:
i. obtain payment and/or acceptance, or
ii. deliver documents against payment and/or against acceptance, or
iii. deliver documents on other terms and conditions.

COLLECTION IN THE TRADE PAYMENTS MATRIX

Maximum benefit to Exporter Cash in Advance Highest Risk to the Importer

Confirmed Letter of Credit

Letter of Credit

Documentary Collections – D/P

Documentary Collections – D/A

Highest Risk to the Exporter Open Account Trade Maximum benefit to Importer

THE COLLECTION PROCESS

Seller Buyer
1 5
Dockyard

7 4
2

3
Seller’s Buyer’s
Bank Bank
6

Notes:
1. Seller sends goods to the dockyard in the Buyer’s Country
2. Seller sends documents to his bank.
3. Seller’s bank forwards documents to the Buyer’s bank
4. Buyer’s bank will forward documents to the Buyer only when he pays or promises to pay at a future
date.
5. Buyer takes over the goods from the dockyard.
6. The Buyer’s bank receives the money and sends it to the Seller’s bank.
7. Seller’s bank sends the money to the seller.

ABN AMRO Page 2 of 15 Trade Operations, ACES, Chennai

COLLECTION JARGONS
Principal The party entrusting the handling of a collection to a bank
(Exporter / Seller / Drawer)

Drawee The one to whom presentation is to be made in accordance with the collection
instruction.

Remitting bank The bank to which the principal has entrusted the handling of a collection
(Exporter’s Bank / Seller’s Bank)

Collecting Bank Any bank, other than the remitting bank, involved in processing the collection
(Importer’s Bank / Buyer’s Bank)

Presenting bank The collecting bank making presentation to the drawee

(Importer’s Bank / Buyer’s Bank)

Case of Need A principal may nominate a representative to act as case-of-need in the event of non-
payment and/or non-acceptance. The collection instruction should clearly and fully
indicate the powers of such case-of-need. In the absence of such indication banks
will not accept any instructions from the case-of-need.

ADVANTAGES OF THE COLLECTION PROCESS

For the buyer:
Compared to ‘Cash in Advance’, the importer has the following advantages:
a. Assurance that goods have been shipped
b. Examination of documents before deciding to take up the same

For the seller:

Compared to ‘Open Account Trade’, the exporter has the following advantages:
a. Assurance that the payment is made / will be made before goods are taken over
b. Constructive control over goods in Collection D/P cases
c. Accepted bill of exchange in Collection D/A cases also has discounting possibilities

RISKS IN TRADE COLLECTIONS

For the buyer:
a. Delayed shipment
b. Goods not as per contract / documents

For the seller:

a. Buyer may not take up the goods
b. In Collection D/A, buyer may take up the goods but may be unwilling / unable to pay at maturity
c. Country risk still exists

WHEN SHOULD COLLECTIONS BE USED

For the buyer:
a. When there is a reasonable degree of trust of the seller’s performance
b. When supply of goods is not a critical requirement in the business

ABN AMRO Page 3 of 15 Trade Operations, ACES, Chennai

For the seller:
a. When there is a long standing relationship with the buyer
b. When the buyer’s country is politically and economically stable
c. When the buyer demonstrates credit-worthiness and credibility

Along with the risk of non-payment, the exporter also needs to take the following factors into
consideration:
• Nature of goods
When the goods being exported are perishable in nature, inordinate delays by the buyer could mean
substantial losses for the Exporter.
• Alternative market
Does the exporter have an alternative market for his products (preferably in the country of import)? If
the products he is exporting are specialised or customised products, it might be difficult to arrange for
another buyer.
• Cost of rejection
What costs would the exporter incur in case the original buyer rejects the goods? This could involve
arranging for storage / insurance / arranging for another buyer / transportation to another location /
alteration of the goods to make them suitable for re-sale, legal expenses in case the exporter decided
to go to court over non-payment and / or non-acceptance etc.

CLASSIFICATION OF COLLECTIONS
Based on Tenor

Sight
• Collections may be payable at sight. Here, documents are to be delivered to the buyer upon payment of
the collection amount.
• They are referred to as ‘D/P’ documents (i.e. Documents Against Payment)
• They are also sometimes known as ‘Cash Against Documents’ (C.A.D.) or ‘Cash on Delivery’

Term
• Sometimes the seller may extend credit terms to the buyer
• These collection documents are usually delivered to the buyer upon their acceptance of a bill of exchange
or their promissory note, letter of indemnity or trust receipt.
• They are referred to as ‘D/A’ documents (i.e. Documents Against Acceptance)
• In collections, these are known as ‘term collections’ or ‘usance collections’
• In certain rare cases, the collection documents might contain a bill of exchange (or other financial
instrument) payable at a future date with instructions that documents are to be delivered against payment.
This is known as ‘Usance D/P’. This practice has many risks involved and the ICC Banking Commission
has discouraged this practice.

Based on Documents

Clean Collection
Collection documents may consist only of financial documents (draft, promissory note etc.) This is called a
clean collection

Documentary Collection
When documents consist of commercial documents (i.e. not financial documents, e.g. invoice, transport
document, insurance documents etc.), they are known as documentary collections. These may or may not be
accompanied by financial documents.

Depending on the type of documents included, documentary collection may provide constructive control to the
seller in the following manner:

ABN AMRO Page 4 of 15 Trade Operations, ACES, Chennai

Constructive Control and Modes of Shipment

Mode Transport Document Constructive Control

Sea Bill of Lading Bills of Lading are title documents. The shipping
company will require the original B/L to be presented
in order for the consignee to take control over the
goods.

By sending all original B/Ls to the buyer’s bank, the

exporter can ensure that the importer does not have
access to the goods till he pays or agrees to pay.

Air Airway Bill AWBs are not title documents and do not require
originals to be presented at the airport.

However, the buyer’s bank can be named as the

consignee.
When the importer pays or agrees to pay, the bank
would issue a release order / delivery note and allow
the importer to take control over the goods.

Road / Rail Truck / Rail Receipt Truck and rail receipts are normally subject to local
laws. In most cases, they are not title documents nor
do they require originals to be presented.

However, banks are reluctant to be named consignee

as:
(a) Goods tend to be voluminous, face higher
risks of theft and pilferage and are more
difficult to control.
(b) In case of road transport, goods are usually
delivered to the premises of the consignee.

Based on involvement of banks

Straight Collection
Where documents are sent by the seller to his bank for sending the same to the buyer’s bank, it is called
straight collection.

Direct Collection
A Direct Collection is where the documents are sent directly by the Exporter to the Importer’s bank. The
Exporter informs basic details about the collection to his banker so that they can keep a lookout for the
payment.

CONSTRUCTIVE CONTROL
Sea Shipment: Bills of Lading
The consignee in a Bill of Lading requires at least one original to take control over goods.

Method 1: Send all original bills to the buyer’s bank.

The bank will release the documents only on payment / acceptance by the importer.

Method 2: Consign the Bill of Lading to the order of the buyer’s bank.
The bank will further endorse the bill of lading in favour of the importer only on payment / acceptance by the
importer. This method also has further advantages; in case the buyer cannot pay and the seller finds an
alternative buyer, the bank can further endorse the bills of lading to the alternative buyer.
ABN AMRO Page 5 of 15 Trade Operations, ACES, Chennai
Sea Shipment: Seaway Bill
The consignee in a Seaway Bill can identify themselves and take control over goods.

Method: Consign the seaway bill to the buyer’s bank

On payment / acceptance by the importer, the presenting bank will issue a Delivery Order / Release Note in
the importer’s favour.
Using the delivery order / release note, the importer can take control over the goods.

Air Shipment: Airway Bill

The consignee in an Airway Bill can identify themselves and take control over goods.

Method: Consign the airway bill to the buyer’s bank

On payment / acceptance by the importer, the presenting bank will issue a Delivery Order / Release Note in
the importer’s favour.
Using the delivery order / release note, the importer can take control over the goods.

In case of air shipments, the goods usually arrive before the documents. Therefore the buyer’s bank is
approached by the buyer for the issue of a delivery order / release note even before the documents arrive.

The following precautions should be taken by the buyer’s bank:

• Copy of invoice and transport document to determine value
• Mark off the importer’s credit line / take cash collateral

Once an air release note has been issued, the importer loses the option to reject the documents. Therefore
once the collection documents arrive, the importer must take up and pay for the same. In case they are
unable to do so, the buyer’s bank becomes liable to pay for it.

ADDITIONAL FACILITIES UNDER COLLECTIONS

Shipping Guarantees

When goods are shipped via sea, it is usual for documents to arrive before the vessel does. However,
sometimes the ship arrives in the dockyard before the documents arrive at the counters of the bank. If the
importer allows the goods to stay in the port, it will begin to accumulate demurrage charges. He may also
require the urgent use of the goods.

Under such circumstances, the buyer’s bank may facilitate the buyer by issuing a Shipping Guarantee.

A Shipping Guarantee is an undertaking issued by the buyer’s bank to the Shipping Company stating that:
a) The buyer’s bank is awaiting the arrival of documents and
b) Upon arrival of the original transport documents, it would be handed over the Shipping Company

This document will be used by the Shipping Company in order to protect themselves from any other claimant
of goods.

• Where a Shipping Guarantee has been issued for a collection documents, the importer loses the right
to refuse the documents and must pay / accept to pay.
• If the buyer is unable to take up the documents, the buyer’s bank must step in and pay for the same.
• Shipping Guarantees are issued only to clients for whom sufficient lines have been established. (The
buyer’s bank usually requires a copy of the invoice and transport documents and marks of credit lines
of the buyer. Alternatively, the buyer may provide a cash collateral or margin.)
• When the original documents are received by the buyer’s bank and submitted to the Shipping
Company, the original Shipping Guarantee is returned to the bank and is cancelled.

ABN AMRO Page 6 of 15 Trade Operations, ACES, Chennai

Avalization

Avalization is the act by a bank guaranteeing payment of a Bill of Exchange or a Promissory Note by:
a) endorsing the reverse with the words ‘good as per aval’ and signed by the bank or
b) the issuance of a separate guarantee.
In case the Drawee (of a Bill of Exchange) or the Maker (of a Promissory note) defaults on the
payment, the bank will pay on their behalf.

What should the Collecting Bank do before adding their avalization?

a) Credit lines:
As the Collecting Bank would be responsible for guaranteeing the payment, it should ensure that it
has completed not only the KYC (Know Your Client) and CAAML (Client Acceptance and Anti Money
Laundering policy) checks but also that there are sufficient credit limits to offer this product to the
customer.

b) Consent of the Drawee:

Although the request for the avalization of the bill of exchange comes from the drawer, the Collecting
Bank would be required to take the consent of the drawee before adding their guarantee. This is
because the drawee may not be in a position to block credit lines. They may not be willing to pay the
avalization charges either.

c) Counter Indemnity from the drawee

The Collecting Bank should also hold an indemnity agreement from the drawee stating how exactly
the bank would be reimbursed in case it was called to act under the guarantee / avalization.

d) Form of acceptance
The Collecting Bank should ensure that the form of acceptance on the draft is regular and correct. It
must also check for the genuineness and authority of the drawee’s signature.

Noting and Protesting

Dishonour
If the importer refuses payment / acceptance (dishonours the bill of exchange), then he may be taken to court.

Some legal systems require a formal establishment of the fact of dishonour (via noting and protesting) before
the drawee can be taken to court.

If the collecting bank agrees to have the bill noted and protests, then it must do so without delay as stated in
URC 522.

Noting
This is the first stage in protest of a dishonoured bill:
a) The Collecting Bank must send the bill to a notary public who will re-present it to the drawee on the
day of dishonour or the next business day.
b) If the drawee still refuses the draft, the notary public ‘notes’ on the bill of exchange, the amount of his
charges, the date and his initials.
c) The reason for refusal is shown on a note attached to the bill.

Protest
d) Once the bill is noted, the notary public issues a formal protest – an official certificate that the bill has
been refused.
e) The drawer can use this certificate to sue the drawee in court.

ABN AMRO Page 7 of 15 Trade Operations, ACES, Chennai

Noting and Protest are subject to local laws
The bill must be noted on the day of its dishonour but in any event must be noted within local legal timeframe
requirements.
By protesting, the bank retains recourse to the drawer and endorsers. Therefore if, the remitting bank has
advanced funds to the drawer or if there have been subsequent endorsements, the holder in due course will
have the right of recourse to the drawer and / or any previous endorsers only if the bill has been protested.

Caution before Protesting

Before the exporter gives instructions to have the bill protested, he may like to consider the following:
a) Cost of Protest – the exporter will have to bear the cost of having the bill noted and protested.
(Although a court will usually award these and other legal costs to the drawer initially the costs are
collected from the drawer)
b) Reputation of the drawee – the act of protesting will harm the reputation of the drawee and reduce the
possibility of an amicable settlement. If the importer has a genuine reason for refusing payment, the
exporter’s reputation could also suffer.
c) Future business – the act of protest by the exporter usually would mean the end of the business
relationship with that particular importer. If the protest is not handled carefully, it may also deter some
other importers to do business with that particular exporter!

Financing Opportunities in a Collection Transaction

Export Finance
The Exporter can avail of export finance by having his bankers advance money against the Bills of Exchange.
This can take the form of:
a) Purchasing of Bills – Sight drafts are usually purchased
b) Discounting of Bills – Term bills are usually discounted
c) On Seller’s lines (With and without recourse). The remitting bank has recourse on the seller in case of
default by the buyer. However, if the buyer is a well reputed organisation with sufficient standing, the
remitting bank may choose to advance funds without recourse.
d) On Bank lines – With and without recourse. In case the bill of exchange has been avalised by the
Collecting Bank, the Remitting Bank discount the bill by blocking the bank’s lines (rather than the
exporter’s lines). Although the remitting bank may still retain the right of recourse to the drawer, this
product is mostly offered without recourse.

Import Finance
a) Import Loans
If on the due date of a collection bill, the importer is unable to pay, it may approach the Collecting
Bank for an import loan. In this case, the Collecting Bank will make the payment to the exporter and
grant a loan to the importer.

b) Trust Receipt Financing

Where the collection instructions include that documents are to be released against payment and the
buyer is not in a position to make the payment, the Collecting Bank may offer to release documents to
the buyer upon signing of a Trust Receipt. The Collecting Bank will then make a payment to the
exporter.

By signing the Trust Receipt, the importer acknowledges the interest of the bank in the goods and
agrees to make payment to the Collecting Bank when he sells the goods. This is a variation of the
Import Loan and it enables the importer to avail credit where the exporter is unable to provide the
same.

ABN AMRO Page 8 of 15 Trade Operations, ACES, Chennai

COMMON COLLECTION ERRORS

• Inconsistency between documents

• Inconsistency in the Collection Instruction
• Incomplete Collection Instructions
• Documents listed but not presented
• Drafts drawn on the Collecting Bank
• Drafts incorrectly drawn or not signed
• Difference between draft amount and invoice amount
• Difference between draft amount in words and figures
• Payee on draft being a person apart from the Exporter or the Remitting Bank
• In case payee is the Exporter, draft not endorsed to the Remitting Bank
• Bill of lading and Insurance not endorsed when required
• Goods consigned / delivered to bank without bank’s prior approval
• Instructions to release documents against payment with ‘time’ draft enclosed

Can you think of any more?

ACCOUNTING ENTRIES FOR COLLECTION TRANSACTIONS

The aim of accounting is to record the impact of current and future financial transactions.

Export Collection

Collecting Booking
Nil

Notes
• Collection booking is also sometimes referred to as Collection Issue / Initiate / Logging.
• Although there are no accounting entries posted at the time of logging the collection, the total
value of collections outstanding is mentioned as a foot-note in the balance sheet

Collecting Acceptance
Nil

Collecting Payment
Dr Nostro Mirror a/c
Cr Commission a/c
Cr Client’s Current a/c

Notes
• Instead of the Nostro, if any other account has been used to park the funds, the same must be
debited.
• Commission may be split into various accounts like Collection Commission, SWIFT Charges,
Courier charges, etc.

Collection Financing
Dr Client’s Collection Discounting a/c
Cr Interest Received a/c
Cr Commission a/c
Cr Client’s Current a/c

Collection Financing Payment

Dr Nostro Mirror a/c
Cr Client’s Collection Discounting a/c

ABN AMRO Page 9 of 15 Trade Operations, ACES, Chennai

Import Collection

Collecting Booking
Nil

Notes
• Collection booking is also sometimes referred to as Collection Issue / Initiate / Logging.
• Although there are no accounting entries posted at the time of logging the collection, the total
value of collections outstanding is mentioned as a foot-note in the balance sheet

Collecting Acceptance
Nil

If bill has been avalised:

Dr Client’s Collection Avalisation liability a/c
Cr General Avalisation liability a/c

Collecting Payment
Dr Client’s Current a/c
Cr Nostro a/c
Cr Commission a/c
Additional entries if bill has been avalised:
Dr General Avalisation liability a/c
Cr Client’s Collection Avalisation liability a/c

Notes
• Commission may be split into various accounts like Collection Commission, SWIFT Charges,
Courier charges, etc.

SWIFT MESSAGES IN COLLECTIONS

400 410 412 422

Payment Acknowle Acceptan Fate

Advice dgement ce Advice

499
Remitting Collecting /
Free
Bank Format
Presenting
Bank

420 430

Tracer Amend
ment

ABN AMRO Page 10 of 15 Trade Operations, ACES, Chennai

MT 400 Advice of Payment
This message type is sent by the collecting bank to the remitting bank.

It may also be sent:

• on behalf of the collecting bank by its branch/affiliate bank to the remitting bank or branch/affiliate of
that bank
• by a collecting bank to another collecting bank

It is used to advise a payment under a collection or a part thereof and may also be used for the settlement of
proceeds. The account relationship between the Sender and the Receiver is used, unless expressly stated
otherwise in the message.

This message must never be sent to a bank acting solely as a reimbursement bank. In this case, the
appropriate message type is an MT 202 Financial Institution Transfer.

*Amount Collected: EUR 1,000,000; Charges: EUR 200 Amendment Fee

EUR 260 Stamp Duty; Proceeds Remitted: EUR 999,540; Value Date: 5 August 2008

Sending Bank's TRN :20:COL456

Related Reference :21:REM432
Amount Collected :32K:D000STEUR1000000,
Proceeds Remitted :33A:080805EUR999540,
Details of Charges :71B:/STAMP/EUR260,
AMENDMENT FEE EUR200,

MT 410 Acknowledgement
This message type is sent by a collecting bank to a remitting bank to acknowledge the receipt of a collection.

It may also be sent by a collecting bank to another collecting bank.

Unless otherwise expressly stated, this message type states that the collecting bank intends to act in
accordance with the collection instruction.

*William Lesis, whose bank is Kredietbank, Brussels, imports shoes at a cost of Euro 2,300,000 from Martino
Gagli, whose bank is Banca Nazionale del Lavoro in Rome. Banca Nazionale del Lavoro sends the
documents for collection (against payment), together with a sight draft, to Kredietbank.

Sender KREDBEBB
Receiver BNLIITRR
Sending Bank's Reference :20: COL456
Related Reference :21: REM432
Amount Acknowledged :32K: D000STEUR2300000,

MT 412 Advice of Acceptance

This message type is sent by the collecting bank to the remitting bank.

It may also be sent by a collecting bank to another collecting bank.

It is used to inform the Receiver of the acceptance of one or more drafts under one collection instruction.

*The terms of the collection state that Mr. Lesis will pay Euro 1,000,000 on arrival of the goods and will accept
a 90 days draft for the remaining Euro 1,300,000. Kredietbank sends an advice of acceptance for the deferred
payment of EUR 1,300,000 with a maturity date of 2 November 2002.

Sending Bank's TRN :20:COL456

Related Reference :21:REM432
Maturity Date/Currency Code/Amount :32A:081102EUR1300000,
Sender to Receiver Information :72:/HOLDING/ *
*Accepted draft is held in safe custody for presentation at maturity.
ABN AMRO Page 11 of 15 Trade Operations, ACES, Chennai
MT 420 Tracer
This message type is sent by the remitting bank to the collecting bank.

It may also be sent by a collecting bank to another collecting bank.

It is used to enquire about the fate of documents sent for collection.

*On 8 July 2008, Banca Nazionale del Lavoro, Rome, sends a tracer to Kredietbank, Brussels, to ask the
position regarding a collection of Euro 2,300,000.

Sending Bank's TRN :20:REM432

Related Reference :21:COL456
Amount Traced :32K:D000STEUR2300000,

MT 422 Advice of Fate and Request for Instructions

This message type is sent by the collecting bank to the remitting bank.

It may also be sent by a collecting bank to another collecting bank.

It is used to advise the Receiver of the status of collection documents received by the collecting bank. Since
an advice of fate generally includes one or more questions or requests, the two functions are included in this
one message type.

*In replying to an MT 420 Tracer sent by Banca Nazionale del Lavoro, Rome, Kredietbank, Brussels, replies
by an Advice of Fate, indicating that Mr. Lesis is disputing the terms of the collection.

Sending Bank's TRN :20:COL456

Related Reference
Amount of Collection
Sender to Receiver Information
Answers
:21:REM432
:32K:D000STEUR2300000,
:72:GOODS WAREHOUSED AND
INSURED
:76:DRAWEE DISAGREES WITH
CONDITIONS
PLEASE VERIFY WITH DRAWER.

MT 430 Amendment of Instructions

This message type is sent by the remitting bank to the collecting bank.

It may also be sent by a collecting bank to another collecting bank.

This message is used to amend instructions contained in the collection.

*Mr. Lesis, the drawee in collection number COL456 with Kredietbank, Brussels, refuses to pay Euro
2,300,000 at sight, claiming the conditions of the contract have not been met by Mr. Gagli of Banca Nazionale
del Lavoro. Mr. Lesis claimed to have agreed to pay Euro 1,000,000 on arrival of the goods and to accept a
90 day draft for the remainder. He contacted Mr. Gagli directly in this matter.

Sending Bank's TRN :20:REM432

Related Reference
Existing Amount of Collection
New Amount (1)
Sending Bank's TRN
Related Reference
Existing Amount of Collection
New Amount (2)
:21:COL456
:32K:D000STEUR2300000,
:33K:D000STEUR1000000,
:20:REM432
:21:COL456
:32K:D000STEUR2300000,
:33K:D090STEUR1300000,

ABN AMRO Page 12 of 15 Trade Operations, ACES, Chennai

MT 499 Free Format Message
Any other message may be sent using MT499.

The collecting bank is unable to trace the drawee.

Sending Bank's TRN
Related Reference
Free Text
:20:REM432
:21:COL456
WE ARE UNABLE TO TRACE THE DRAWEE.
DOCUMENTS ARE HELD AT OUR COUNTERS
PENDING FURTHER INSTRUCTIONS FROM
YOU AT YOUR RISK AND RESPONSIBILITY

(*Examples from the SWIFT handbook. For more information on SWIFT messages, please refer to the SWIFT
handbook available on the intranet.)

ICC RULES
Uniform Rules for Collections, ICC Publication No. 522
1995 Revision in force as of 1 January 1996

A. GENERAL PROVISIONS AND DEFINITIONS

Article 1: Application of URC 522

• URC is applicable only when incorporated into the text of the “collection instruction”
• Banks are not obligated to handle collections or any collection instruction. (If so, they must advise the
party from whom it received the collection without delay.)
Article 2: Definition of Collection
• Definition of collection, financial documents, commercial documents, clean collection and documentary
collection
Article 3: Parties to a Collection
• Definition of principal, remitting bank, collecting bank, presenting bank and drawee

B. FORM AND STRUCTURE OF COLLECTIONS

Article 4: Collection Instruction

• Importance of collection instruction
• Contents of a collection instruction letter
• Complete address of the drawee

C. FORM OF PRESENTATION

Article 5: Presentation
• Collection instruction to specify exact period of time within which any action is to be taken by the drawee
• Words such as “first”, prompt”, “immediate”, and the like will be disregarded
• Documents are to be presented to the drawee in the form in which they are received
• If collecting / presenting bank is not specified by the principal, the remitting bank may use a bank of its
choice
Article 6: Sight/Acceptance
• Specifies when presentation should be made
Article 7: Release of Commercial Documents
• Discourages usance D/P documents
• Documents containing drafts payable at a future date should specify D/A or D/P. If nothing is specified,
documents will be released only against payment
Article 8: Creation of Documents
• Remitting bank should specify form and wording of such documents (like promissory notes etc.) which are
to be created by the collecting bank / drawee
ABN AMRO Page 13 of 15 Trade Operations, ACES, Chennai
D. LIABILITIES AND RESPONSIBILITIES

Article 9: Good Faith and Reasonable Care

• Banks will act in good faith and exercise reasonable care.
Article 10: Documents vs. Goods/Services/Performances
• Duties with regards to goods despatched directly to the address of a bank
Article 11: Disclaimer for Acts of an Instructed Party
• Banks utilising the services of another bank do so for the account and at the risk of the principal
Article 12: Disclaimer on Documents Received
• Banks should see that the documents received are as they are listed in the collection instruction. If they
are not, the party from whom the collection instruction was received must be notified of the same.
• Banks have no further obligation in this respect.
Article 13: Disclaimer on Effectiveness of Documents
• Banks are not responsibility for the accuracy or genuineness of documents.
Article 14: Disclaimer on Delays, Loss in Transit and Translation
• Banks are not responsible for delay and/or loss in transit of any messages or documents
Article 15: Force Majeure
• Banks are not responsibility for consequences arising out of the interruption of their business on account
of forces beyond their control.

E. PAYMENT
Article 16: Payment without Delay
• Amounts collected must be made available without delay to the party from whom the collection instruction
was received.
• The collecting bank will effect payment of the amount collected in favour of the remitting bank only.
Article 17: Payment in Local Currency
• Documents may be released to the drawee against payment in local currency only if such currency is
immediately for remittance.
Article 18: Payment in Foreign Currency
• Documents may be released to the drawee against payment in the designated foreign currency only if
such currency is immediately for remittance.
Article 19: Partial Payments
• In case of clean collections, partial payments are acceptable if authorised by the law in force. The
financial document(s) will be released to the drawee only when full payment is received.
• In case of documentary collections, partial payments are acceptable only if authorised in the collection
instruction. Instruction must also be specific as to when the documents are to be released. In case of
absence of instructions, documents will be released to the drawee only when full payment is received.

F. INTEREST, CHARGES AND EXPENSES

Article 20: Interest
• If the drawee refuses to pay interest specified in collection instruction, presenting bank may deliver the
document(s) without collecting such interest.
• If the collection instruction specifies it cannot be waived, documents cannot be delivered if the drawee
refuses to pay the interest and revised instructions must be sought.
• The collection instruction must specify the rate of interest, interest period and basis of calculation.
Article 21: Charges and Expenses
• If the drawee refuses to pay charges specified in collection instruction, presenting bank may deliver the
document(s) without collecting such interest. The charges are now to the account of the drawer and can
be
• If the collection instruction specifies it cannot be waived, documents cannot be delivered if the drawee
refuses to pay the charges and revised instructions must be sought.
• Banks reserve the right not to carry out certain instructions pending receipt of such charges

ABN AMRO Page 14 of 15 Trade Operations, ACES, Chennai

G. OTHER PROVISIONS
Article 22: Acceptance
• The presenting bank must see that the form of the acceptance of a bill of exchange appears to be
complete; but is not responsible for the genuineness of any signature or for the authority of any signatory
to sign the acceptance.
Article 23: Promissory Notes and Other Instruments
• Presenting bank is not responsible for the genuineness or authority of any signatory of a promissory note
etc.
Article 24: Protest
• Collection instruction should give specific instructions regarding protest
• In the absence of such specific instructions, the banks concerned have no obligation to have the
document(s) protested
• Charges incurred are to the account of the party from whom the collection instruction was received.
Article 25: Case-of-Need
• The powers of the case-of-need should be clearly and fully indicated.
• In the absence of such indication banks will not accept any instructions from the case-of-need.
Article 26: Advices
• Collecting banks are to advise fate in the manner specified in the collection instruction giving advice of
payment / acceptance / non-payment /non-acceptance
• In case of non-payment / non-acceptance, if no instructions are received by the presenting bank, within
60 days after its advice, the documents may be returned to the bank from which the collection instruction
was received.

TEST YOURSELF
1. Collection sent on D/A basis represents more risk to the exporter than collections sent on D/P basis. True
or False?

2. An exporter will prefer the collections product vis-à-vis open account trading as it provides protection
against commercial and country risk. Comment on the statement.

3. An exporter will use collection even if the buyer’s credibility cannot be established in case there is a
market in the buyer’s country for the product being exported.

4. What role does a bill of exchange play:

• In collections sent on D/P?
• In collections sent on D/A?

5. Instead of a bill of exchange, what other document can be used to obtain the acceptance of exporter in
collections sent on D/A?

6. Constructive control over goods can be maintained by the exporter till the payment is made. How can this
be maintained in the following cases?
• D/A. Goods sent via sea
• D/P. Goods sent via air

7. The importer receives notice that the shipment has arrived and that the goods are at the dockyard. The
documents – which were to be sent on collections – have not yet reached the bank. How can the bank
help the importer?

8. The exporter requires payment under a bill of exchange that was accepted by the importer to be
guaranteed by the importer’s bank. What is this product called?

9. What message type should be used by the remitting bank to inquire on the fate of the collection?

10. The draft is drawn at 90 days from the Bill of Lading Date. However, the collection instruction mentions
documents to be delivered against payment. Should document be delivered on D/A or D/P basis? When
is the payment due? Can the presenting bank release documents against a letter of undertaking? What
precautions should they take before releasing documents?
ABN AMRO Page 15 of 15 Trade Operations, ACES, Chennai