Documentary collections

A documentary collection is an instruction from an exporter (seller or supplier) to a remitting bank (usually the exporters local bank) to collect payment immediately, or at a future date, from an importer (buyer) against delivery of the relevant commercial documents. Documentary collections
By using the bank as a collecting agent, a documentary collection is a practical method for an exporter to receive payment from an importer for goods or services. The exporter is able to maintain control over the consignment until payment is made or acceptance of the bill of exchange is obtained from the importer. Documents against letter of undertaking the commercial documents are released after the importer signs a letter of undertaking to pay the amount owed at a fixed future date. Usance documents against payment despite the bill of exchange being accepted, the commercial documents are released to the importer at time of payment only. Aval bills of exchange the commercial documents are released after acceptance of a bill of exchange by the importer and avalisation (guarantee) by the collecting bank or another first-rate bank.

Payment terms under documentary collections

Documentary collections can be drawn: At sight, that is payment is made on first presentation to the drawee or importer. At a usance, that is payment is made a certain number of days (usually calculated in multiples of 30) after sight or after the date of the transport document or invoice.

Types of documentary collections

There are two types of bank collections: 1. Clean collections The collection of a financial document, such as a bill of exchange, only. 2. Documentary collections which consist of: Documents against payment the commercial documents may be released to the importer against immediate and full settlement of the amount owing to the exporter. Documents against acceptance the commercial documents are released against the importers acceptance of a bill of exchange maturing at a future date.

Governing rules
The documentary collection is governed by the Uniform Rules for Collection (URC 522) drafted and distributed by the International Chamber of Commerce. The brochure describes the approved procedures to be followed and explains the rights and obligations of all affected parties.

Benefits
Simplicity The simplicity of the operation makes documentary collections a convenient way to receive payment from an importer. Convenience The exporter is relieved of the administrative burden of collecting the proceeds, handling correspondence and any follow-up action. Security Control over the goods is maintained until the importer pays or accepts the financial instrument. Guarantee payment The exporter can ask the collecting bank to sign as surety (pour aval) on the financial instrument, thereby obtaining a guarantee of payment independently of the importer.
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Versatility
It is a versatile financial instrument that comes in different forms to cater for the diverse types of commercial and financial transactions and under defined circumstances, the exporter can avail of discounting facilities.

3. The remitting bank forwards the documentation under cover of a collection order to a collecting bank in the importers country. 4. The collecting bank will release the commercial documents to the importer against acceptance or payment in terms of the collection order. The collecting bank keeps the remitting bank and the exporter informed of progress made in the collection process. The exporter tells the bank what steps to take to finalise the transaction

simultaneously receives the commercial documents, including documents of title from the collecting bank. 2. Upon payment, the collecting bank will remit the proceeds of the collection or, in the case of an accepted bill, send an advice of acceptance to the remitting bank. 3. The remitting bank pays the proceeds of the collection or advises acceptance of the bill to the exporter. In the case of an acceptance the proceeds become available on maturity of the bill. The bank advises the exporter immediately the documentary collection is paid. The exporter must: Provide the bank with conversion instructions. Instruct the bank as to which account the funds are to be credited to. Complete an application Funds received from outside the borders of South Africa and insert the appropriate Balance of Payments category. Reconcile the Exchange Control Declaration Form F178.

Risks
There are a number of risks inherent in cross-border trade. See our brochure on Risks in international trade for more details.

Collection process
A. Documentary collections lodgement Collection process A importer 4 collecting bank
documents contract of sale goods

exporter
documents 2 remitting bank

1. The exporter and importer agree to specific terms and conditions (such as pricing, payment, packaging, transport and insurance) under which the transaction will be concluded. The agreement is known as the Contract of Sale. 2. The exporter completes the following: Manufactures and packs the goods. Completes an Exchange Control Declaration Form F178. Draws up the financial and commercial documents. Delivers documents promptly to the bank (the remitting bank).
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if, for example, the importer wants an extension to the payment terms or offers to pay in instalments. B. Documentary collections payment 1. The importer makes payment or returns the accepted bill to the collecting bank and

Collection process B importer

payment of accepted bill

exporter 1 2
payment

funds

collecting bank

remitting bank

C. Documentary collection dishonour The importer may decide that for one reason or another he does not want the goods and refuses to pay for them. The dispute can be referred to the case of need, that is the exporters agent or nominee in the importers country who may be able to assist in resolving the dispute and obtain settlement. The exporter may elect to institute legal action to recover money due by a defaulting buyer by protesting the dishonoured documentary collection. Protesting is ineffective if: The importer has sound reasons for not paying, such as non-compliance with the contract on the part of the exporter, errors in documentation or alleged fraud. The drawee cannot be found. The drawee has no money. The exporter may face the problem of either reselling the goods in the importing country, re-exporting them or repatriating them. In the case of non-payment, the exporter has to apply, through his bank, for permission from the Reserve Bank to write-off the amount. Full reasons for non-payment and the action taken must be given.

D. Documentary collections discounting Discounting of documentary collections can be done under predefined conditions. The finance is on a with recourse or without recourse basis depending on the structure of the transaction. Important notes: Banks deal in financial and commercial documents and not in goods. Any defect in the goods must be resolved between the importer and exporter on the basis of the contract of sale. The bank is not concerned with or liable for any breach of the terms of the contract of sale or purchase or any underlying commercial contract relative to the transaction. The bank is not qualified to express an opinion whether the parties to a contract have performed as agreed. The bank is not liable for errors, omissions or delays in transmissions arising from circumstances beyond its control.

Discount charges will apply if the transaction is to be financed. Collecting bank charges include a handling fee, courier fees and telegraphic expenses, if applicable, as well as a risk-related ad valorem charge for avalising (guaranteeing) the financial instrument if requested. Charges vary from bank to bank and the importer and exporter must decide who will pay the costs.

Conclusion
For further information on any of our products and services, please contact your nearest International Trade Services office, visit our website at www.standardbank.co.za (select Corporate and Investment, click on Banking/ Finance solutions and go to International Trade Services), or call 0860iTrade/0860487233.

Costs
The fees for processing documentary collections incorporate local and foreign bank charges. Remitting bank charges consist of a handling fee, courier fee and telegraphic expenses, if applicable.

Disclaimer: The Standard Bank of South Africa Limited (SBSA) has made every effort to ensure the accuracy and completeness of the information contained in this document. The information is not intended as advice and no warranty express or implied is made as to the accuracy, correctness or completeness of the information, which is subject to change at any time after publication without notice. Should the information lead you to consider entering into any transaction in relation to a financial product (the product) you must take note of the following: There are intrinsic risks involved in transacting in any products. No guarantee is provided for the investment value in a product. Any forecasts based on hypothetical data are not guaranteed and are for illustrative purposes only. Returns may vary as a result of their dependence on the performance of underlying assets and other variable market factors. Past performances are not necessarily indicative of future performances. Unless a financial needs analysis has been conducted to assess the appropriateness of the product, investment or structure to your unique particular circumstances, SBSA cautions you that there may be limitations on the appropriateness of the information for your purposes and you should take particular care to consider the implications of entering into the transaction, either on your own or with the assistance of an investment professional. There may be various tax implications to consider when investing in the product and you must be aware of these implications before investing. SBSA does not accept liability for the tax treatment by any court or by any authorities in any jurisdiction in relation to any transaction based on the information. It is strongly recommended that individual tax advice be sought before entering into any such transaction. The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). Authorised financial services provider. SBSA 804698-05/06-Eng

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