CHAPTER 4

DOCUMENTARY COLLECTIONS
A traditional payment method for international transactions is the documentary collection (other
terms such as CAD, Cash Against Documents, Draft, Sight Draft, SD/DP, SD/DA and variations
have been and are used by companies around the world). A significant percentage of all short
term trade transactions (six months or less) use this payment method. Collection is a term of art
used to describe a banking function defined by Article 2.a. of the Uniform Rules for Collections,
ICC Publication 5221 (hereinafter URC 522). This definition is...
2.a. “ ‘Collection’ means the handling by banks of documents as defined in sub-Article 2(b),
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 document on other terms and conditions.”

Exporters should use this payment method only when they believe they have good and adequate
credit information on the importer, and are satisfied that political and economic risks (country
risks) are acceptable. That’s the caveat. Documentary collections are growing in use as an
acceptable method of payment for international trade transactions. While we know that the
amount of international trade settled by letters of credit has decreased in relative importance,
trade settled by documentary collection has increased significantly. There are a number of
readily apparent reasons for this growth.
1. A documentary collection is significantly less expensive for both exporter and importer
than a letter of credit transaction.
2. There has been an increase in the amount of trade between affiliated companies, which
reduces the credit risk inherent in an international trade transaction.

1Copyright 1995 by International Chamber of Commerce, revision to be in force as of January 1, 1966

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3. The quality and quantity of credit information has improved. With improved
information, exporters are able to make better decisions about the creditworthiness of
their clients.
4. Competition for market-share demands more flexibility on the part of exporters.
5. A documentary collection is administratively simple. Banks do not examine documents
to determine compliance, they merely transmit documents as agent for the exporter.

Parties to the Documentary Collection

There are five parties to the collection transaction. In addition to the importer and the exporter,
the banks play an agency role, carrying out instructions of the exporter. The parties are:
1. The exporter or principal initiates the collection transaction by preparing the agreed
documents and presenting them to its bank
2. The remitting bank receives the documents and instructions from the exporter, prepares
its own instructions and sends the new instructions and the documents to its
correspondent bank
3. The collecting bank (any bank, other than the remitting bank, involved in the collection
process) is a correspondent of the remitting bank
4. The presenting bank is the bank that makes presentation to the importer, and it may be a
collecting bank
5. The drawee is the importer . It receives a request from the presenting bank to pay or
accept the draft as requested by its principal, the exporter.

The remitting bank will select its correspondent bank in the buyers country and forward the
documents to that bank for collection, unless the exporter can designate a collecting or
presenting bank in that country. Major banks, the largest in each country of export, usually
maintain an extensive list of correspondent banks in other countries. Other banks will have few
if any correspondent banks outside their home country.
Because the movement of collection documents and instructions along this chain of
banks can cause extended delays, the exporter should make every effort to identify the
importers bank, by name, mailing address, fax number, SWIFT address and telex number.

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If the exporter does not have this bank name and address, the exporter has failed to do an
adequate job of credit checking and credit analysis.
As a less satisfactory alternative, the exporter can obtain from its bank a list of foreign
correspondent banks in order to direct the importer to a particular bank. [A correspondent
arrangement is one in which a bank has exchanged with a second bank test or payment codes and
signatures and one bank maintains its local currency accounts with the other. An agency
arrangement is merely an exchange of test keys and signatures, with settlement through other
banks.]
The documentary collection is an attractive payment option for the buyer because
payment is not required unless documents are presented by the presenting bank. The buyer does
not have to arrange payment in advance, as with a letter of credit purchase. Payment can often be
delayed until approximately the date of arrival of the vessel or the date the goods have cleared
customs at the port of entry (note customs entry duties are a function of the INCOTERM used.
If the terms of the draft drawn under the documentary collection provide for the release
of documents against acceptance (D/A), the buyer is able to take possession of the goods and
move them into its business operation prior to payment. The accepted draft is the credit
instrument, and the exporter must wait for maturity of the draft for payment by the buyer. The
exporter may be able to sell or discount this draft with its bank (banks may call this ‘bills
purchased’ or ‘bills discounted’)..
Because the risk is a commercial risk (and country risk) rather than a bank risk, and
because timing of the payment is less certain (as compared to a letter of credit), the documentary
collection type of transaction is more risky and less attractive to many exporters. These
drawbacks are often offset by the advantages listed above. This type of transaction is sought
after by importers, because it is flexible and less costly.

How Collections Work

There are two types of foreign collections: clean and documentary. It’s useful to have a feel for
both types, even though our concern is with documentary collections.
Clean Collections
A “clean collection” is the collection of a draft (a demand for payment) without shipping or title

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documents attached. This can be a purely domestic transaction.
The exporter forwards the draft and instructions to the remitting bank, which then sends
the draft on a collection basis to the collecting bank in the foreign country. The collecting bank
functions as agent for the remitting bank, carries out the instructions, and makes payment back
to the remitting bank when payment is received from the drawee.
A clean collection is used to obtain payment of bank drafts or checks received from
foreign buyers that are payable only at the buyer’s bank and not at a bank in the exporters
country. Bank drafts drawn on foreign banks are normally considered collection items; checks
drawn on foreign banks must be sent directly to the drawee bank which then credits the account
of the presenting bank or its correspondent. A prime exception to this is the process between
Canadian and US banks.
Here’s an example: an Alberta receives a CAD draft drawn on Barclays Bank, London as
a down payment or a cash in advance payment on a purchase. The CAD are only available to the
exporter at Barclays Bank in London, not in Edmonton or Toronto. The exporter presents the
draft to its bank (National Bank of Canada), who sends it on a clean collection to Barclays in
London. Instructions are to credit National Bank’s CAD account at X bank in the Canada. or to
wire CAD to National Bank of Canada. Barclay’s does not have CAD in London, only in the
Canada. Barclay’s makes payment to National Bank and advises National Bank of the payment.
On receipt of the advice, National Bank of Canada will credit the exporters account with CAD.
Exporters doing clean collection transactions should identify resident banks with
significant account relationships in their target countries, and direct business through these
banks. This will speed transaction times and reduce costs. Use of multiple banks can be costly.
Each bank will charge a fee; two banks, two fees; three banks, three fees.
Documentary Collections
A documentary collection is one in which the exporter sends the shipping documents and
demand for payment to its bank, for presentation to the foreign buyer for payment. The process
starts with the exporter making shipment and sending a letter of instructions to its bank. This
letter of instruction is a bank-provided form, similar to Figure 4.4. The transaction is diagramed
in Figure 4.5
COLLECTION LETTER: FOREIGN BILLS

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To: Bank name
Bank Address
Bank Address
We enclose the following item for collection

Drawer reference: Date of Draft: Terms: Amount:

Drawer: Drawee:

Contact Name Foreign Contact, in case of need:

Contact phone:

AWB Orig. NN Com’l Cons Ins Insp Cert Pack/ Sani Wt. Dra Other
OBL OBL Inv. Inv Cert Cert Orig Wt. Cert Cert ft

Deliver Documents Against Payment Name and address of foreign bank

Protest Non-Payment
Advise Non-Payment by airmail, giving reasons
Advise Non Payment by cable, giving reasons
Payment may be deferred until arrival of vessel
Advise if not paid upon first presentation
Deliver Documents Against Acceptance Our expense Their expense
Protest for Non-Acceptance Send docs via courier
Advise Non-Acceptance by airmail, with reasons Send docs via reg. mail
Advise Non-Acceptance by cable, with reasons Mail out, do not register
Acceptance may be deferred until vessel arrival Collect Interest at %, basis
Do not protest
Remit proceeds by airmail
Remit proceeds at our expense
Cable proceeds at our expense
Cable proceeds at drawees expense Other instructions:
Your charges for: Our a/c Drawee A/c

Foreign bank charges for: Please credit our account #

Waive charges if refused Other payment instructions
Do not waive charges

Bill of Exchange
,2 Amount

At sight of this sole bill of exchange

Pay to the order of

The Sum of

To:

Authorized signature & title

Figure 4.4
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Note the steps. This form is used after shipment has been made and documents prepared as
agreed between the exporter and importer
Figure 4.5

Seller Buyer
1

3
9 5 6
7
8

Remitting Presenting
Bank Bank
4
The transaction flow
of a documentary collection typically has nine steps. They are:
1. The exporter and importer agree to do business, agree on terms, availability, price,
delivery, etc. This is the offer/acceptance, the contract.
2. The exporter performs under its arrangements with the buyer, and ships goods as agreed.
There is no letter of credit. A copy of the bill of lading, clearly marked non-negotiable
is sent/faxed to the buyer to provide a “heads-up” on the shipment. Exporters may elect
to send shipping information on their letterhead rather than by non-negotiable copy of the
bill of lading (some exporters report mis-handling of the shipment by the presenting bank
or ocean carrier). All documents that were agreed between the exporter and importer are
assembled. The exporter prepares a letter of instruction for its bank, the remitting bank.
3. The exporter sends this letter (see above figure) and the documents to the remitting bank.
This letter, usually on a bank provided form, instructs the bank on how to handle the
documents The bank-provided form usually has a blank draft form attached for
completion by the exporter or its agent.
4. The exporter’s bank receives this letter of instruction, and follows the instructions. The
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 bank counts pieces of paper, and verifies that the stated number of documents are
attached. It does not check the documents for form, authenticity, internal consistency, or
any other factor. The remitting bank prepares its own letter of instruction addressed to
the collecting or presenting bank in the importer’s country or city, restating the
exporter’s instructions. Unless instructed otherwise, the remitting bank will select and
use its own correspondent closest to the buyer’s location2. Here it’s to the exporters
advantage to use a large and internationally active remitting bank, which will have
correspondent or agency arrangements in most larger cities in all commercially viable
markets.
5. The collecting bank (assuming it is also the presenting bank) will on receipt of the
documents count the documents to assure that all have been received. It will then contact
the drawee of the draft (the importer) and request the importer come in and pay for the
documents or accept the draft.
6. The buyer will go to the bank and pay for the documents (or accept the draft if a time
draft), unless the relationship between the buyer and seller has deteriorated. If the draft is
not paid, or if the draft is not accepted if it is a time draft, the exporter is advised and
“fate” is requested. The remitting bank is contacted by telex or SWIFT by the collecting
bank and asked to instruct the collecting bank on the actions to be taken.
7. After the buyer has paid or accepted the draft, the buyer will receive the documents and
do what is necessary to claim the goods.
8. The presenting bank will remit the proceeds of the collection as instructed, or advise the
remitting bank of the maturity date of the accepted draft.
9. The exporter receives payment or acknowledgment of the date of maturity of the
accepted time draft.

2 Banks will attempt to use their own branches or subsidiaries to capture revenues. They may also direct business
to those banks with which they want to increase a relationship or other internal reason.
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Direct Collections
A second type of documentary collection, finding great favor with a growing number of
exporters, is the direct collection. Diagramed in Figure 1.6 below, this procedure is more cost
effective and quicker. This transaction also uses a letter of instruction. An example of that
instruction letter immediately follows this diagram of the direct collection transaction flow.
Note that here the exporter assumes the role of remitting bank, and forwards documents
directly to the presenting or collecting bank.
Figure 4.6

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 2

Seller Buyer
1

3
3a
9 5 6
7 The direct
8 collection letter
is Figure 4.7,
Remitting Presenting
Bank Bank below

4
INTERNATIONAL DIRECT COLLECTION LETTER
[BANK LOGO] IDC No. ________________
[Bank address. SWIFT address, telex address, fax number]
______________________________________________________________________________________Col
lecting Bank Drawer
name and address:

Reference number

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 Date of Draft: Terms: Amount:

Drawee (full name and address): Enclosed for collection are the following described draft(s)
and/or documents for account of [name of bank]. Please send your acknowledgment, all
reports and advice of payment direct to [name of bank] at the address shown above
quoting our reference number

AWB Orig. NN Com’l Consular Inspect Cert of PackC Wt Phyto Draft Other Other
OBL OBL Invoice. Invoice Cert Origin ert. Cert. Cert

Deliver Documents Against Payment Advise Non Payment by cable, giving reasons
Advise Non-Payment by airmail, giving reasons Do not protest
Payment may be deferred until arrival of vessel Protest Non-Payment
Deliver Documents Against Acceptance Protest for Non-Acceptance
Advise Non-Acceptance by airmail, with reasons Advise Non-Acceptance by cable, with reasons
Acceptance may be deferred until vessel arrival Collect Interest at %, basis
Advise if not paid upon first presentation Remit proceeds by airmail
Remit proceeds at our expense Cable proceeds at our expense
Remit proceeds at drawees expense Cable proceeds at drawees expense
Your charges for: Our a/c Drawee A/c Waive Charges if refused
Do not waive charges
Other Payment Instructions:

___________________________________________________________________________
___________________________________________________________________________
_
In case of need refer to:

AUTHORITY: ____Unlimited ___Limited to:

-----------------------------------------------------------------------------------------------------------------------------------------------------------
_______________________________________________________________________________________________________
This collection is subject to the Uniform Rules for Collection, International Chamber of Commerce, in effect at the date of this collection .
Name and title of Drawer’s Representative Authorized Signature

___________________________________________ x

Bill of Exchange
Place: Date: ,2 Amount
At sight

Pay to the order of

The Sum of

To:

Authorized signature & title

Procedures for a Direct Collection. A direct collection is used by exporters to speed the
collection process, i.e. save mail and handling time, and to save on bank charges. The
difference is that the direct collection is initiated by the exporter and uses the bank provided

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form. At this point the difference is apparent. The bank provided form (see above Figure 1.7)
is called a bank direct collection letter (DCL).
The exporter’s bank (the remitting bank) provides these pre-numbered forms, and a
list of its correspondent banks by country. The exporter completes the collection instructions,
which have data elements that are almost identical to the data elements required on the
documentary collection. The steps to this transaction type are quite similar to the
documentary collection diagramed above.
1. The exporter and importer agree to do business together, etc.
2. The exporter ships the goods, and then prepares the documents agreed between the
exporter and importer. One of the documents is the direct collection letter.
3. When the direct collection document is completed, it appears to be and is handled as
if it is a collection instruction from one bank to another. The exporter sends the
collection letter to the foreign bank, usually by courier or express. A copy is sent to
the exporters bank. The exporter’s bank makes a brief data entry for future follow-up
purposes, and debits the exporters account for its fee.
4. The recipient bank, either the collecting bank or the presenting bank, will then follow
the instructions in the letter as if those instructions had been received from its’
correspondent bank.
5. Handling of the transaction from this point is identical to the procedures with the
documentary collection (reduce the step number by 1). The exporter has the same
risks for either sight or time draft transactions. The handling obligations of the
presenting bank are not changed.

The draft (Figure 4.8) is a key document in the documentary collection process. It is a formal
demand for payment, which when accompanied by the documents specified under the
contract of sale (offer and acceptance), evidences compliance with the contract.

Figure 4.8

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 Reference Number Place Date

At Sight

Pay to the Order of (sellers name) (Amount in figures)

(amount in words) (Name of currency )

To: (Buyers name and address) (Sellers company name)

Authorized Signature

Each country has specific laws concerning negotiable instruments. The draft is a distinctive
negotiable instrument. Also called a “bill of exchange”, a draft is used as a demand for
payment instrument in all forms of trade, domestic and international, clean or documentary.
Note that the draft is addressed to the buyer. You may obtain draft forms from your
bank, your freight forwarder, your financial advisor, a commercial stationer, or you may
create one on your computer. All bills of exchange or drafts, worldwide, have this form.
Figure 4.9 is a time draft, or usance draft. Its tenor is 90 days bill of lading date.

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This draft is a demand for payment at 90 days from the bill of lading date. On acceptance of
the draft, the buyer receives the documents and obligates itself (him/her/whatever) to pay on
maturity of the draft, 90 days from the bill of lading date.
The buyer has, in effect, signed a promissory note payable at a specific date. At
maturity of the draft the presenting bank will contact the buyer for payment of the draft. On
receipt of payment the bank will pay to the remitting bank as instructed on the collection
instructions.

Figure 1.9

Reference Number Place Date

At 90 days bill of lading date sight

Pay to the Order of (sellers name) ###$

(amount in words) US Dollars

To: (Buyers name and address) (Sellers company name)

Authorized Signature

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A number of things can go wrong, and sometimes do. A documentary collection is a
transaction between the buyer and the seller. Banks act only as agents to facilitate the
exchange of a payment (or a promise to pay) for documents. The following negative events
can occur:
1. On a sight draft documentary collection
The buyer states it does not want the goods, and does not pay. The exporter’s goods
are on the dock (or in storage at the consignee bank) in the destination country. The
exporter can ship the goods back, sell the goods at a distressed price, abandon the
goods, or seek other channels of distribution in that country. Exporter’s of
commodity goods may encounter buyer resistance to agreed prices, and be leveraged
into negotiating a new price for the goods sitting at the dock. In addition, rules in the
buyers country may have changed, regarding foreign currency payment, import
permits, other rules and regulations. The exporters recourse is somewhat limited (law
suit in that country, find a new distributor, etc.).
2. On a time draft documentary collection
Once the draft is accepted, the documents are released to the buyer who then takes
possession of the goods (the goods are released by the bank (or the banks agent) if it
was an air shipment consigned to the bank). The buyer may not pay at maturity of the
draft. This could be due to bankruptcy, insolvency, fraud, other business or personal
problems. The rules in the importers country may have changed, regarding foreign
currency payments, import permits, other rules and regulations. The exporters
recourse is once again limited. The exporter has a signed draft, equivalent to a signed
promissory note. The exporter can act to enforce its rights on the draft. This will be
difficult at best. If there is no contract to the contrary, enforcement will be subject to
the laws of the importer’s country.

How to Handle the Draft

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For the documentary (or direct documentary) collection process to work, it has to be a
negotiable transaction. To be negotiable, to move from bank to bank and seller to buyer, the
draft (if used) must be negotiable. A draft that is payable to the exporter says: Pay to the
order of [name of exporter]. It must be endorsed in blank by the exporter before it is sent for
collection (or for payment under a letter of credit transaction).
A draft that is payable to the remitting bank says: Pay to the order of [name of bank].
It will be endorsed by the bank. Failure to properly endorse the draft will cause undue delay
and added expense for the exporter. The draft will have to be physically returned to be
endorsed, or waivers and assurances must be given by the remitting bank to the presenting
and collecting banks.

Documents
The documents that are sent via the collection (thus the name documentary collection)
usually evidence and identify the trade transaction. These may include: Ocean Bill(s) of
Lading or Air Waybill(s), Commercial Invoice(s), Packing List(s), Consular Invoice(s),
Inspection Certificate(s), Sanitary Certificate(s), Weight Certificate(s), and any other
documents required by the sales contract or sales agreement. The number, type, and content
are agreed between the buyer and seller, not by the banks that move the documents on their
behalf.
Consignment of Ocean Bills of Lading
Control of the goods until payment or evidence of the payment obligation is a primary issue
with documentary and direct collections. This control is achieved through consignment of
the bill of lading evidencing shipment and ownership of the goods.
Generally, an ocean bill of lading is a negotiable instrument (unless structured
otherwise). The ocean bill of lading (or OBL) is a carriers receipt for the goods. It is a
contract for carriage between the shipper and the carrier3. And, it is title to the goods
described on the bill of lading. The party that has possession of the original bills of lading
controls the goods, or the named consignee owns the goods.
For an exporter to retain ownership of its goods, the ocean bill of lading should be
3To clarify, the shipper is the seller or the party that contracts for carriage with the carrier. The carrier is the
party that physically moves the goods.
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consigned “to order” or “order of shipper”. The shipper, which is always the seller, not the
carrier, then endorses the bill of lading in blank on the back prior to initiating the collection
process. Endorsement of the bill of lading enables ownership of the goods to pass to the bona
fide holder of the bill of lading. The following are examples of how to consign an ocean bill
of lading.
Consigned to:

Order

The party that holds the original bill(s) of lading controls the goods. Endorsement in blank
transfers the ownership to the next holder.

Consigned to:

Order of shipper

The shipper receives the original bill(s) of lading from the carrier, signed as loaded on board.
Title to the goods resides with the shipper. The shipper endorses them in blank to pass along
negotiability.

Consigned to:

Order of Banco Serfin

Control of the goods (and functional ownership) is transferred to the bank on signature of the
bill of lading by the carrier. The bank endorses it to pass ownership to another party.

If the shipper wants the goods released to the buyer quickly and is willing to forego control
of the goods (in open account or cash in advance sales, etc), the bills of lading would be
“consigned to [named buyer]”, or the shipper would use a sea waybill which is a delivery
order instructing the carrier to deliver the goods to the named consignee.

An Air Waybill is different

An air waybill is a contract for carriage, a receipt, and delivery instructions. Unlike a

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negotiable ocean bill of lading, an air waybill is not negotiable.
The consignee named on an air waybill will receive the goods (paid for or not). To
control the goods, the exporter should consign the air waybill to the collecting/presenting
bank (after first obtaining permission from that bank to do so). Failing permission, the air
waybill should be consigned to a highly trusted third party that will act as the agent of the
exporter. This could be the local office or affiliate of the exporters freight forwarder which
should act on instructions received.
Don’t endorse the air waybill, no one cares. The air carrier will release the goods
directly to the named consignee. And, the air carrier will not accept goods for shipment
without a named consignee for the air waybill.
Below are two ways to consign an air waybill.
Consignee

Mandalay Trading. Co Ltd

On arrival the carrier will contact Mandalay Trading and advise it that a shipment is
available for pickup

Consigned to:

Deutsche Bank AG

On arrival the carrier will contact the bank and

advise that the shipment is available and request disposition. The bank will contact a customs
broker to arrange for pickup/disposition of the shipment by its broker pending payment or
other settlement. To expedite handling the bank may have to issue a Direct Release, which
will increase the seller’s risk.

Steamship Guarantee or Shipside Bond

Exporters should realize that in some instances the goods will arrive at the destination before
the documents (lost documents, accidents, etc). This is usually the case with air freight. In
some cases, presenting banks will take it upon themselves to release the collection
documents to the drawee without payment or acceptance of the draft. This release is done to
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enable the buyer to get the goods into its trade cycle in a timely manner, and to avoid
demurrage or other on-dock fees assessed by ocean or air carriers. The release is made by the
bank, which issues a guarantee to the carrier. This guarantee is called a steamship guarantee
or shipside bond. It might also be called a ‘bank guarantee’: be careful here, it is not a
guarantee of payment to the exporter. The steamship guarantee holds the carrier harmless
from claims for improper release of the goods. The bank assumes that liability, and, by
executing the guarantee or bond, is obligated to pay the collection when it does arrive. Banks
will usually take collateral (the goods and perhaps other assets) to support their bond.

When to Use a Documentary Collection

It’s normal to anticipate that an export sales relationship that begins with letter of credit
transactions could evolve into a relationship where exports are done on a documentary
collection basis. This evolution depends on the satisfactory answer to a number of questions,
which include:
1. Is the buyer financially strong?
2. Is the buyer reputable, of proven responsibility?
3. Is the buyer's country politically and economically stable?
4. Is the commercial relationship important to the buyer?
5. Is there a satisfactory mechanism for the settlement of commercial disputes?
6. Can the exporter protect its interest in its accounts. The importing country may have
a legal system that does not facilitate foreign nationals enforcing title to goods.
7. Are the rights and interests of the exporter protected, or recognized, by the laws of
the importer's country?

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If these questions get satisfactory answers, export sales on documentary collection payment
terms could be a viable alternative to letters of credit.
Costs for a documentary collection procedure, including the charge to credit the
exporter’s account with the funds, differ between the “documentary” and the “direct”. The
documentary process costs charged by banks in the Canada or United States usually range
from USD95-USD125 or more per transaction, while the direct collection process costs may
vary if done by form or electronically. The range can be from about USD55-USD85 or more
per transaction. The lower price is because the exporter is doing the front-end routine and
expensive part of the process. Banks may assess an additional charge to credit the exporters
account with the proceeds of the collection. In either situation there will be courier fees and
other charges.

Uniform Rules for Collections, URC 522

As noted, the URC were last updated effective January 1, 1996. There are 26 articles within
seven headings. They are:
A. General Provisions and Definitions
Article 1. Application of URC 522
These rules apply where they are shown to be incorporated into
the text of the Collection instruction. Every collection must be
accompanied by a collection instrument4.
Article 2. Definition of Collection
A collection means the handling by banks of financial
documents or commercial documents in order to obtain
payment or acceptance, deliver documents on terms stated in
the collection instruction
Article 3. Parties to a Collection

4 These comments, for each article, are adapted from “ICC Uniform Rules for Collections A
Commentary”, ICC publication 550. Copyright 1995 by International Chamber of Commerce .
The comments herein are not definitive, merely illustrative. Users of the URC 522 are
encouraged to obtain the complete text plus this referenced commentary, as the author accepts
no responsibility or liability for the users failure to do so.
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 These are the principal, the remitting and/or collecting and the
collecting and/or presenting bank, and the drawee.
B. Form and Structure of Collections
Article 4. Collection Instruction
Each collection must have a separate instruction attached,
collecting banks are guided only by the instruction on the
instruction itself and will not look elsewhere for instructions.
C. Form of Presentation
Article 5. Presentation
Defines presentation, sets out the clarity required for dates or
times of presentation and or payment, and the specificity
required generally.
Article 6. Sight/Acceptance
Presentation of documents ‘without delay’ is considered
acceptable as the term is used successfully in the UCP 500
(note the URC522 is dated 1996)
Article 7. Release of Commercial documents: Documents Against
Acceptance (D/A) vs Documents Against Payment (D/P)
Banks will release documents only against payment or
acceptance. Documentary collections should not contain bills
of exchange payable at a future date with instructions that
documents are to be delivered against payment.
Article 8. Creation of Documents
If the collecting bank or drawee is instructed to create
documents, the form and wording must be supplied, otherwise
the collecting bank shall not be liable for the form and wording
of any such document.
D. Liabilities and Responsibilities
Article 9. Good Faith and Reasonable Care
Banks will, in accordance with local practice and law, act in

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 good faith with reasonable care
Article 10. Documents vs. Goods/Services/Performances
Banks deal in documents, not goods. Goods should not be
consigned to or dispatched directly to banks without prior
permission of theat bank. Banks are not liable to take action to
protect the goods, and are not liable for the acts of third parties
if such protective action has been taken.
Article 11. Disclaimer for Acts of an Instructed Party
The instructing party (principal) must bear the primary risk of
the remitting bank using the services of another bank, and the
risk that instructions so given are not carried out.
Article 12. Disclaimer on Documents Received
The principal and remitting bank must list the individual
documents and number of such documents in the collection
instruction. The collecting bank is obligated to advise the
remitting bank if the documents received are as listed.
Article 13. Disclaimer on Effectiveness of Documents
Derived from the UCP500 article 15, banks have no liability
for matters outside their control. See UCP600, article 34.
Article 14. Disclaimer on Delays, Loss in Transit and Translation
Banks assume no liability for any delay and/or loss in transit of
any communication, or for mutilation or other errors in the
transmission of any telecommunication or errors in translation
or interpretation of technical terms.
Article 15. Force Majeure
Standard disclaimer of liability for riots, civil commotion,
insurrections, wars or other causes beyond their control or by
strikes or lockouts.
E. Payment
Article 16. Payment Without Delay

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 Unless the collection bank agrees otherwise, amounts collected
will be remitted only in favor of the remitting bank. If payment
to another party is desired, the remitting bank must obtain prior
agreement of the collecting bank.
Article 17. Payment in Local Currency
If the documents are payable in local currency, the collecting
bank will release the documents only if the local currency is
immediately available for disposal as specified in the collection
instruction.
Article 18. Payment in Foreign Currency
Documents are to be released to the drawee only if the foreign
currency immediately be remitted in accordance with the
collection instructions.
Article 19. Partial Payment
Partial payment is permitted however documents will be
released to the drawee only after full payment has been
received.
F. Interest, Charged and Expenses
Article 20. Interest
If interest is to be collected from the drawee, and the drawee
refuses such payment, documents may be released against
payment or acceptance. If however, interest payment may not
be waived, the documents will not be released until such
interest is paid. If payment is refused, the collecting or
presenting bank must inform the remitting bank without delay
Article 21. Charges and Expenses
Charges and expenses will be paid by either the drawee or the
principal. If charges and expenses cannot be waived, the
collecting bank will not deliver documents, and will not be
responsible for any delay.

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G. Other Provisions
Article 22. Acceptance
The presenting bank is not responsible for the genuineness of
any signature or the authority of the signatory.
Article 23. Promissory Notes and other Instruments
The presenting bank is not responsible for the genuineness of
any signature or the authority of the signatory. The principal
and/or remitting bank must not draw drafts on the
collecting/presenting banks unless otherwise agreed
beforehand.
Article 24. Protest
Protest is written statement, made by a notary, at the request of
a holder of a bill or a note that describes the bill or note and
declares that on a certain day the instrument was presented for,
and refused, payment or acceptance. Some countries do not
have this legal process.
A protest is generally made to save some right that
would be waived unless a negative opinion was expressly
voiced. The document states the reasons for the refusal and
provides for the notary to protest against all parties to the
instrument declaring that they can be held liable for any loss or
damages. A notice of protest is given by the holder of the
instrument to the drawer or endorser of the instrument. 5
Article 25. Case of Need
A nominated ‘case-of-need’ party must have its powers clearly
delineated by the principal
Article 26. Advices
The collecting bank must send without delay: advice of
payment, advice of acceptance, advice of non-payment or non-
5This information is adapted from West's Encyclopedia of American Law, edition 2. Copyright 2008
The Gale Group, Inc. All rights reserved.
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 acceptance. On receipt of advice of non-acceptance or non-
payment the remitting bank must give within 60 days
instructions on the further handling of the documents. If such
advice is not timely received, the documents may be returned
to the bank from which the collection instruction was received
without further responsibility on the part of the presenting
bank.

The URC 522 deals only with the handling and movement of collection documents. It does
not deal with: payment risk, credit risk, country risk, validity or quality of any documents,
control of the goods, timeliness of any act by seller or buyer. It does deal with a bank’s
responsibility to timely handle documents, move documents, report on the status of
documents, and transmit funds if any are received.
Users are encouraged to obtain the complete text of URC 522 and/or the referenced
commentary, from ICC Publishing, Inc. NY, USA or ICC Publishing S.A., Paris, France

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 Discussion items:

1. Explain country risk as it pertains to a transaction on a Documentary

Collection basis. What are the characteristics of Country Risk?

2. Mobycorp wants to enter a new foreign market, in which it has no experience.

Because it has no international sales force, and its goods are of low value, it often
sells on a consignment basis. What terms of payment should Mobycorp use for its
consignment sales to the buyer in Nigeria? What shipping term should Mobycorp use
on these sales to the Nigerian company? Is consignment a sale? What are Mobycorp’s
risks?

3. Wingate LLC exports using documentary collections and sight drafts for its
payments. It prepares the commercial invoice and draft. Its freight forwarder prepares
the relevant shipping documents, does the packing, marking, labeling, and contracts
for carriage to the destination. The freight forwarder also sells Wingate LLC marine
insurance. What must Wingate do to assure its export selling price is appropriate?

A. After Wingate assembles the documents and sends them to its bank with the
collection instruction, the bank finds that there are missing documents. What
does the bank do? What does Wingate do?

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