OVERVIEW OF COLLECTION PAYMENT METHOD
The Payment Collection of Bills also called “Uniform Rules for Collections” is published by International Chamber of Commerce (ICC) under the document number 522 (URC522) and is followed by more than 90% of the world's banks. According to URC 522, “Collection” means the handling by banks of the documents in accordance with instructions received, in order to obtain payment and/or acceptance or delivery documents against payment and/or against acceptance or deliver documents on other terms and conditions. In deeper detail, “Collection” means international trade procedure in which a bank in the importer's country acts on behalf of an exporter for collecting and remitting payment for a shipment. The exporter presents the shipping and collection documents to his or her bank (in own country) which sends them to its correspondent bank in the importer's country. The foreign bank (called the presenting bank) hands over shipping and title documents (required for taking delivery of the shipment) to the importer in exchange for cash payment (in case of 'documents against payment' instructions) or a firm commitment to pay on a fixed date (in case of 'documents against acceptance' instructions). The banks involved in the transaction act only in a fiduciary capacity to collect the payment but (unlike in documentary credit) make no guaranties. They are liable only for correctly carrying out the exporter's collection instructions and may, if so instructed, sue the non-paying or non-accepting importer on the exporter's behalf. There are four main parties whom get involved in processing a collection:
Principal: the exporter of the goods or services, who gives a collection instruction to banks.
Remitting bank: a bank which is authorized by the seller to carry out collection.
Collecting bank/presenting bank: a bank which is authorized by the remitting bank to execute collection. (Presenting bank to be the collecting bank making...
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