Sample Question – Documentary Collections

LiangShan Trading (LS) imports Goods from China into Malaysia on a collection basis.
Documents are accompanied by drafts drawn at 60 days sight

D/A. Problems have arisen in the past owing to the following reasons:

You have just landed a job in a bank’s international trade department, and have been
requested by the manager to arrange a meeting to discuss the problems with LS, explaining
the bank’s position provided under the Uniform Rules for Collection, ICC522. (15 m)

i) Collections Orders do not indicate whether the documents are to be released against
payment (D/P) or against acceptance (D/A)

According to Article 7 Release of Commercial Documents, if bill of exchange payable in the

future is in the collection of documents then the collection instruction should state if the
commercial documents will be released against payment or acceptance. If there is no clear
instruction then the documents will only be released against payment and the collecting bank
will not be liable for the delay of delivering documents. If the instructions mentioned the
documents are released against one of the two options, then it must be released accordingly.

ii) LS accepts bills of exchange, examines the goods but offers partial payment for the
accepted bill of exchange

According to Article 19 Partial Payments, in clean conditions if the conditions of partial

payment are authorized then LS can pay partially and only receive financial documents once
full payment is made. However in documentary collections partial payment is only allowed if
it is valid in the collection instructions and the presented bank will release documents to
drawee after full payment. The presenting bank will not be liable for the delay of delivering
documents

iii) LS refuses to pay the bank charges claimed by the remitting bank in their collection
order. (The remitting bank sends the documentation package by mail or by courier to
the designated collecting/presenting bank in the buyer's country with instructions to
present them to the buyer (i.e., drawee ) and collect payment.)
According to Article 21 Charges and Expenses, if the collection instruction mentions that
collection charges are accountable by the drawee, and if the drawee refuses payment then the
presenting bank will deliver document against payment (D/P) or acceptance (D/A) on other
terms and conditions without charges unless it is waived. If charges cannot be waived and
drawee refuses, then the presenting bank will not deliver documents and will not be liable for
the delay of document delivery. If LS refuses the charges then the presenting bank must
immediately inform the bank which received the collection instruction.

You are also required to explain to LS the following:

Q1 “60 days sight D/A” (5m)

Document of Acceptance is between importer and exporter. When the importer received the
collection instructions from the bank, the importer has 60 days as the credit period from the
time the instruction is received. In this duration, the importer has to review the instructions
and decide to make payment or not. The importer cannot receive document of acceptance
which confirms the ownership of the imported goods until the importer has paid for the bill of
lading or bill of exchange or until the importer has agreed to make the payment.

Q2 The significance of the statement “Subject to Uniform Rules for Collection ICC No.
522” in the collection. (5m)

According to Article 4 Collection Instruction, all documents send for collection must be
accompanied by a collection instruction stating that it is subject to URC 522 and providing
full, clear instructions and information. It is the responsibility if the party preparing the
collection instruction to ensure that the terms for document delivery are clearly stated and
banks will not be liable if the parties fail to do so. Collection instructions should include the
complete address of the drawee. If the address is incomplete or incorrect, the collecting bank
will not take responsibility.
TYPES OF DOCUMENTS (NOTES)

DOCUMENT OF ACCEPTANCE is between importer and exporter. The importer cannot

receive document of acceptance which confirms the ownership of the imported goods until
the importer has paid for the bill of lading or bill of exchange or until the importer has agreed
to make the payment. In some cases, URC 522 says that importer must accept a time draft
from the bank via the exporter and then sign the time draft agreeing to pay the exporter at a
time in the future. When time draft is accepted then the bank will give document of
ownership to importer.

DOCUMENT OF PAYMENT is between bank and exporter. The importer cannot receive
any paperwork which confirms the ownership of the imported goods until the attached bill of
exchange or bill of lading is paid by importer, or if the importer has made preparations for
payment. In URC 522, Importer (buyer) should make full payment once goods are delivered
then the bank will give document of ownership to importer.