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The transaction is initiated by the exporter, who despatches the goods to the buyer’s country. At the same time, he entrusts the related documents (which may include negotiable bills of lading) to his bank, for collection of sale proceeds and the delivery of documents to the buyer according to the terms of the sales contract.

There are three types of collection:

•   Clean collection
  
  
•   Documents against acceptance (D/A)
  
  
•   Documents against payment (D/P)

Clean collection

For a clean collection, the exporter despatches the goods and the related documents directly to the buyer and then sends his bank the bill of exchange for the value of the goods drawn according to the sales contract.

His bank can then set in train the collection of the due amount from the buyer.

• The exporter sends goods first to the buyer.
• The exporter sends all documents except the bill of exchange to the buyer.
• The exporter sends the bill of exchange to his own bank.

 The exporter’s bank sends the bill of exchange to the buyer’s bank for it to be presented to the buyer.

•  The buyer pays the money, which is remitted to the exporter’s bank.

Advantages: All in favour of the buyer.

Disadvantages: All against the exporter. If the buyer does not pay, or if he does pay but his country blocks remittance of funds to exporter:

• The exporter has neither the goods nor the money, and
  
  
• The exporter may not get his goods back.

 Documents against acceptance (D/A)

• The exporter sends goods first to the destination country.
  
  
• The exporter sends the required documents to his own bank.
  
  
• His bank sends the required documents to the buyer’s bank.
  
  
• The buyer’s bank obtains the buyer’s acceptance of the bill of exchange, payable either at an agreed period after sight or on a    fixed date in the future, and releases the required documents to the buyer.
  
  
• The buyer obtains delivery of the goods.

The documents referred to in a documentary collection D/A usually include:

•  A bill of exchange drawn payable at a future date
  
  
• The transport documents needed to obtain delivery of the goods along with other related documents.

For a documentary collection D/A, the exporter (through the bill of exchange) does not authorise release of the transport documents until the buyer accepts the bill of exchange for payment at a definite future date.

Once the buyer accepts the bill of exchange, the buyer’s bank releases the transport documents needed to obtain delivery of the goods and any other remaining documents. The buyer can then take possession of the goods for which he has agreed to pay in terms of the accepted bill at a definite date in the future.

Advantages: All in favour of the buyer.

Disadvantages: All against the exporter. If the buyer does not pay on the due date, or if he does pay but his country blocks remittance of funds to exporter:

•  The exporter has neither the goods nor the money, and
  
  
•  The exporter may not get his goods back.

Documents against payment (D/P)

The documents referred to in a documentary collection D/P usually include:

•  A bill of exchange drawn payable at sight, at an agreed period after sight, or on a fixed date in the future
  
  
• The transport documents needed to obtain delivery of the goods along with other related documents.

The essential word in D/P collections is “payment”. There are two types of D/P collection, according to when payment is made, but in both types the documents that give title to the goods are released to the buyer only upon payment. Unlike collections on D/A terms, collections on D/P terms leave the exporter in effective control of the goods until payment.

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Payment at sight

•   The exporter sends goods first to the destination country.
  
  
•   The exporter sends the required documents to his own bank.
  
  
• His bank sends the required documents to the buyer’s bank.
  
  
• The buyer’s bank obtains the buyer’s payment and releases the required documents to the buyer.
  
  
• The buyer obtains delivery of the goods.

For a documentary collection D/P with payment at sight, the terms of the sales contract stipulate that the buyer must pay as soon as the exporter presents the documents. Upon such payment, the exporter releases the transport documents (typically including bills of lading that grant title to the goods) to the buyer, who can then arrange for delivery of the goods.

Advantages: Mostly in favour of the exporter, who retains control over his goods until payment is made.

Disadvantages: If the buyer’s country blocks remittance of funds to the exporter:

• The exporter has neither the goods nor the money, and
  
  
• The exporter may not get his goods back.
  
  
• If the buyer does not pay:
  
  
• The exporter may not get his goods back.

Payment at an agreed period after sight or on a fixed date in the future

For a documentary collection D/P with payment at an agreed period after sight, the terms of the sales contract stipulate that the bills of exchange be drawn at say 30, 60, 90 or 120 days (or another agreed period) after sight. Alternatively, the bill of exchange may be payable on a fixed date in the future. The buyer is required to accept the bill of exchange for payment at the defined future date, but the exporter does noti mmediately release the transport documents (which give title to the goods).

•  The exporter sends goods first to the destination country.
  
  
•  The exporter sends the required documents to his own bank.
  
  
•  His bank sends the required documents to the buyer’s bank.
  

• The buyer’s bank obtains the buyer’s acceptance of the bill of exchange payable on a defined future date, and retains all   documents in its custody.
  
  
• On (or before) the defined future date, the buyer’s bank obtains the buyer’s payment and releases the required documents to the  buyer.
  
  
• The buyer obtains delivery of the goods.
  

The buyer makes payment on the defined future payment date. The exporter then releases the documents to the buyer, enabling the buyer to take delivery of the goods. If the goods arrive before the defined future payment date, and if the buyer then wishes to take delivery of the goods, the buyer must still make payment before he can receive the documents that enable him to take delivery of the goods.

Advantages: Mostly in favour of the exporter, who retains control over his goods until payment is made.

Disadvantages: If the buyer’s country blocks remittance of funds to the exporter:

•   The exporter has neither the goods nor the money, and
  
  
•   The exporter may not get his goods back.
  
  
•   If the buyer does not pay:
  
  
•  The exporter may not get his goods back.

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