What are the Risks in a Documentary Collection for Exporters?
I have already discussed documentary collections in my website under several headings such as “What is a documentary collection?”, “How does a documentary collection work?” Today I would like to give some information regarding the risks in a documentary collection transaction. Please kindly keep in mind that documentary collections are also called as simply “collections” or “cash against documents” in some occasions.
Documentary collection is one the most frequently used payment method in international trade. We should understand that there are some risk factors exist in a documentary collection for exporters and importers like all other payment options. Let us try to explain risks in a documentary collection for exporters on this article.
Exporters Risk in a Documentary Collection Payment:
Non-Acceptance of Documents Risk: This is one of the major risk factor in a documentary collection for exporters. Under current documentary collection rules which are called URC 522 importers are not obligated to collect documents from their banks. As a result exporters have to understand that upon arrival of the cargo to the importing country buyers may decide not to pay for the documents and simply left goods unclear at the customs. Under such a scenario exporters have couple options.
•Option 1: Exporters can find another customer to the goods within the country that cargo has arrived. For example if you shipped one container of textile products to Algiers and your buyer do not clear goods from the customs by not having the documents from the bank than you may try to find another buyer to your goods from Algiers. You may have to give additional discount to make the container attractive to an another buyer.
•Option 2: Exporters may try to bring back the container to its home country.
•Option 3: Exporters may try to sell the container to the same buyer under more favorable terms.
Non-Payment Risk: Nonpayment risk is the second most frequently seen risk factor in documentary collections. In most cases we would expect to see a nonpayment risk in a documentary collection which is available by Documents Against Acceptance (D/A). Nonpayment risk would be happened if the importer accepts a time draft but not be paying on maturity.
"Exporters may seek to have importer’s banks aval to the time draft or bill of exchange in order to eliminate non-payment risk."
Risk of Delivery of Goods to the Importer without Original Shipment Documents:Importers may clear goods from the customs without having original shipment documents on road, air and rail transportation. It is also possible for buyers to receive goods from transport companies under sea shipments if express bill of lading and non-negotiable bill of lading has been utilized. Under all these conditions explained above importers will be able to receive goods without the need of original shipment documents which may lead to a nonpayment for exporters under a documentary collection payment.