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16. FOREIGN COLLECTIONS. TYPES OF COLLECTIONS. Both parties gain from efficient collection transfer document processing. Documentary-Export Collection (outward) requires:commercial invoicebill of lading Insurance certificate other documents involves:sight draft

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16. FOREIGN COLLECTIONS

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Types of collections
TYPES OF COLLECTIONS

Both parties gain from

efficient collection

transfer

document processing


16 foreign collections

Documentary-Export Collection (outward)

requires:commercial invoicebill of lading

Insurance certificate

other documents

involves:sight draft

time draft (acceptance)


16 foreign collections

Clean Collections

documents sent directly to an importer

Use:

transmitting a check


16 foreign collections

Inward Collections:

opposite of outward collection

U.S. resident owes a foreigner


Drawer s instructions
Drawer’s Instructions

Drawer:the party who wants collection

Drawee:the party who accepts a time draft and orders the bank to pay

Instructions:a letter written and signed by the exporter on the drawers bank

It instructs bank to send out exporter’s draft for collection.


16 foreign collections

Tenure and Delivery of Documents

Tenure(time): sight or time must agree with the tenure of the sales agreement

Delivery of Documents:

D/P =Delivery against payment

D/A +Delivery against acceptance

Trade Acceptance: kept in safe place by collecting bank until payment due by importer


Documentation
Documentation

Instruction Letter of Collection:

should state exactly what documents exporter wants to accompany the draft

kind and number of documents should be guided by the sales agreement

If documents are missing, importer justified in refusing to accept the shipment


Interest and collection charges
Interest and Collection Charges

Bank Charges:

  • Interest rate should be indicated

  • Fees may apply

    Who pays charges?


Payment and remittances
Payment and Remittances

Amount and currency

  • indicated on the collection letter

  • where to be made payable

  • manner in which proceeds are to be remitted


Dishonor and protest
Dishonor and Protest

Notice of Dishonor

  • importer refuses to pay

  • collecting bank required to give prompt notice

  • The sooner the exporter knows, the sooner alternative disposition of the goods can be arranged


16 foreign collections

Protest

exporter instructs foreign collecting bank to go through legal procedure

Safeguarding the Goods

exporter authorizes collecting bank to arrange warehouse storage to avoid demurrage charges


Collection related bank services
Collection-Related Bank Services

Completion of Documents

useful in certain geographic situations such as a Midwest exporter

Direct Collections

send draft and documents directly to importer


Advantages risks of foreign collection terms
Advantages/Risks ofForeign Collection Terms

Advantages

Exporter assured importer must pay first before documents are delivered

Importer gets partial financing (float time)

Risks for Exporter

  • Nonacceptance of merchandise

  • Nonpayment of trade acceptance

  • Possession of Goods without payment

  • Exchange restrictions


16 foreign collections

Minimizing the Risks

  • Keeping informed

  • adequate insurance

  • cash deposit


Risks for the importer
Risks for the Importer

Justified refusal to Accept Goods:

  • late arrival of goods

  • Increase in product price not agreed

  • Quality of merchandise

  • Neglect in packaging and marking


Foreign collections
Foreign Collections

Cautions:

  • requires complete confidence between buyer and seller in each other’s honesty

  • Knowledge of local regulations

  • Complete understanding and agreement between buyer and seller as to what rights and responsibilities are under the

    sales contract


Financing foreign receivables
Financing Foreign Receivables

External Financing when:

  • exporter needs to buy and store prior to shipping

  • Exporter needs financing to carry the accounts receivable


16 foreign collections

Advances Against Foreign Collections

Pool Basis

Individual Transaction Basis

Determining Percentage of Advance

usually between 50 and 100%

Title Documents

bank may require bill of lading to specify its name to control ownership


16 foreign collections

Acceptance Financing

Discounting Trade Acceptances

Factoring


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