Chapter 9. Documentary Collection

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Chapter 9. Documentary Collection

1. Introduction

In a documentary collection the exporter will ship the goods and send the shipping documents through the banking system.

In a documentary collection the exporter will not send the shipping documents directly to the importer, instead the exporter will send the shipping documents via a remitting bank and a collecting bank.

FIGURE Documentary Collections

Importer (지급인, Drawee) Exporter

(추심의뢰인, Principal)

① Contract → Shipment

④ 선 적 서 류 도 착 통 지

②추심요청 (documents, draft)

Collecting Bank (추심은행) Remitting Bank

(추심의뢰은행)

③추심의뢰 (documents, draft)

⑤ 환 어 음 인 수

⑥ 선 적 서 류 인 도

⑦대금송금

⑧ 수 출 대 금 지 급

Documentary collections are governed by the International Chamber of Commerce's publication URC 522.

* URC 522 : the Uniform Rules for Collection (ICC의 추심에 관한 통일 규칙)

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2. Documentary Collection and Control of Goods

The general advantage with this method of payment is that the buyer knows that the goods have been shipped and can examine the related documents before payment or acceptance.

From the seller's perspective, the documents are not placed at the disposal of the buyer until the buyer pays or accepts the enclosed draft (bill of exchange).

However, the practical value for the seller of this control of the documents depends on the documents involved (in most cases the transport documents). For example, compare the two scenarios below.

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3. Documentary Collection Documents

It is important that the documents required under a collection are specified in the terms of payment in order to avoid disputes with the buyer later on, which will only delay the collection procedure.

Documents often used include:

- draft/bill of exchange, issued at sight or as a term bill (usance bill);

- invoice, sometimes also separate consular invoices;

- specifications and separate packing or weight lists；

- relevant transport documents；

- certificate of origin；

- other certificates, such as health test or performance certificates；

- inspection certificates, verifying quality or quantity of the goods；

- insurance documents.

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4. D/P(Documents against Payment) and D/A(Documents against Acceptance)

The collections are often divided into two main groups：

1) Documents against payment (D/P)

when the bank notifies the buyer that the documents have arrived and requests them to pay the amount as instructed by the seller's bank.

FIGURE Documents against payment (D/P)

⑤ 어음 인수 및 대금 지급

⑦대금송금

⑧ 수 출 대 금 지 급

2) Documents against acceptance (D/A)

when the buyer is requested to accept a term draft (bill of exchange) that accompanies the documents instead of payment.

The seller's risk deteriorates by handing over the documents against a bill of exchange instead of receiving payment and is dependent on

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the buyer's ability to pay the bill at a later stage, and the seller has lost the advantage

FIGURE Documents against acceptance (D/A)

⑤ 환 어 음 인 수

⑧대금송금

⑨ 수 출 대 금 지 급

⑦ 환 어 음 결 제

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5. Definitions

Documentary collections are governed by the International Chamber of Commerce's publication URC 522.

The International Chamber of Commerce (ICC) publication that governs documentary collections is the 'Uniform Rules for Collections (URC) - publication No 522' - referred to as URC 522. All collections should bear reference to URC 522.

Under Article 2a of URC 522, "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 documents on other terms and conditions.'

More commonly, collections are defined as being DP, documents against payments or DA, documents against acceptance, where payment is received at a future date.

The main parties to a collection are:

1) the principal is the party entrusting the handling of a collection to a bank and is normally the exporter.

2) the remitting bank is the bank to which the principal has entrusted the handling of a collection. The remitting acts for the exporter and is usually based in the exporter's country.

3) the collecting bank will present the documents to the drawee. The collecting bank is normally a correspondent of the remitting bank, and based in the importer's county. The collecting bank acts as agent of the remitting bank;

4) the presenting bank is the collecting bank making presentation to the

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drawee. The presenting bank notifies the drawee of the arrival of the collection and requests payment.

5) the drawee who is the party to whom the collection is presented. The drawee is usually the importer.

(The collecting and presenting bank is normally one and the same, but does not have to be.)

* correspondent bank : 환거래은행

* correspondent arrangement : 환거래약정