Understanding a Basic Documentary Collection Process
Cash against document or documentary collection is a payment method in international trade. Other payment methods in international trade are cash in advance, open account and documentary credits. If you would like to get more information about international payment methods please follow this link to reach our page written on this subject.
You need to understand each payment method very well if you would like to use international payments efficiently. In order to do this you need to know ;
the key characteristics of each payment method
pros and cons of each payment method
governing rules of each payment method
and transaction flow of each payment in detail.
After you learn these critical points you should examine case studies. By working on the case studies you should be able to understand core elements of each payment method. Case studies will also reveal most frequently made mistakes. Remember benefiting from others mistakes is the wisest way in business.
"Do not lose money by repeating common mistakes."
What does a "collection instruction" mean in a documentary collection or cash against documents payment?
Collection Instruction is a written and seperate document which exporter should supply to his bank along with commercial and financial documents.
Collection instructions are written in a cover letter format and normally they must contain some critical information such as governing rules, bank from which the collection was received, principal, drawee, presenting bank, documents to be supplied, number of originals and copies of each document supplied, conditions for release of documents, charges, interest, method of payment and form of payment advice.
According to URC 522 exporters will be held responsible for the instructions they give to the banks. Banks have almost no responsibility in a documentary collection or cash against documents payment. For this reason as an exporter you should know what URC 522 is requesting from yourself. In case of any misleading instruction exporters will be held responsible.
Want to read more about collection instructions, want to learn content of the collection instructions. Please follow this link.
Where to find a reliable collection instruction format?
May be we need to change the question little bit to find the correct answer "what is the right collection instruction format for submitting to our bank"
Almost every bank has its own collection instruction format available to its clients either in electronic format or hard-copy. These collection instructions follow the requirements indicated on URC 522, the Uniform Rules for Collections and they contain almost identical information.