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What are the Risks in a Documentary Collection for Importers?

What are the Risks in a Documentary Collection for Importers?
 















In general terms, we may argue that documentary collections inherit more risk factors for exporters than the risk factors they inherit for importers. I have already discussed “Risks in a Documentary Collection for Exporters” on my previous article. You can understand main risks factors that exporters have to bear when using a documentary collection by reading this article

You can also find several articles explaining documentary collections in detail in my website under several headings such as “What is a documentary collection?”, “How does a documentary collection work?” and “Benefits of a documentary collection”.

Today I would like to give some information regarding the risks in a documentary collection transaction for importers. 

Please kindly keep in mind that documentary collections are also called as simply “collections” or “cash against documents” in some occasions.

Importers Risk in a Documentary Collection Payment: 

Low Quality Goods Shipment Risk: This is one of the major risk factor in a documentary collection for importers. Under current documentary collection rules, which are called URC 522, banks do not check or control the documents. As a result importers pay for the documents without knowing the quality of the goods. This risk is higher when the documentary collection is utilized with “documents against payment” (D/P) payment option. Even if the documentary collection is utilized with “documents against acceptance” (D/A) payment option importers may be forced to pay low quality goods according to local law that governs bill of exchange (draft) procedures.

"Importers can limit their Low Quality Goods Shipment Risk by requesting a pre-shipment inspection from the exporters when working with a new supplier under a documentary collection payment."  

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What are the Risks in a Documentary Collection for Importers?
  • Low Quality Goods Shipment Risk : This is one of the major risk factor in a documentary collection for importers.