TERMS OF PAYMENT DOCUMENTARY COLLECTION Under Uniform Rules

TERMS OF PAYMENT DOCUMENTARY COLLECTION – Under Uniform Rules for Collection ICC 522 (1995 Revision)

Collection is defined by Perry’s Dictionary of Banking as “the receipt, transmission and presentation for payment of a bill, cheque or other instrument by a collecting banker for a customer and the subsequent direction of the resulting funds into the customer’s account

Uniform Rules for Collection (URC) defines “collection” as the handling by banks on instructions received, of financial and/ or commercial documents in order to: a) Obtain acceptance and/ or, as the case may be payment; b) Deliver commercial documents against acceptance and/ or as the case may be, against payment, or

c) Deliver documents on other terms and conditions

Outward collection – This involves a Uganda bank undertaking to obtain payment of a financial instrument e. g a cheque, a bill of exchange or a promissory note from some one abroad.

Inward collection – This involves a Ugandan bank assisting a bank abroad to obtain payment of a cheque, bill of exchange or promissory note from some one in Uganda

• Collection involves collection of paper and not debt because it is not a bank’s job to ensure that the exporter is paid for the goods sent to a buyer abroad • Banks are therefore responsible for ensuring that the collection of financial documents takes place without regard to the commercial transactions underlying them.

Documents handled • Financial documents: these are bills of exchange, promissory note, cheques, payment receipts or other similar instruments for obtaining the payment of money. • Commercial documents: these are invoices, shipping documents including bills of lading, or a waybill which exporters give the bank to handle.

Clean collection and Documentary collection A clean collection: This is a collection of financial documents not accompanied by commercial documents. They relate to the invoice value of the goods already dispatched to the buyer A documentary collection: This is the collection of either financial and commercial documents together or commercial documents only.

Parties to collection • • • The Principal The Remitting Bank The Collecting Bank The Presenting Bank The Buyer

• Documentary collection can either be: Documents against Payment (D/P) Or • Documents against Acceptance (D/A)

Meaning of “ 30 days” sight D/P i) Payment will be due 30 days after presentation of documents to the buyer ii) The bill of exchange must be presented to the buyer for acceptance as soon as the documents have been received from the remitting bank

iii) The underlying documents will not be handed over to the buyer until 30 days later (i. e. when the buyer is to make payment on maturity of the bill). Should the buyer wish to obtain goods earlier, then he must pay the full amount and the documents will be handed over to him

The meaning of “ 60 days” sight D/A i) The bill exchange must be presented to the buyer for acceptance as soon as the documents are have been received from the remitting bank ii) On the acceptance of the bill of exchange by the buyer, the collecting/ presenting bank will release the documents to the buyer including the documents of title, if they are part of the collection iii) The bill of exchange will be payable 60 days after acceptance.

The collection order should contain at least the following: a) The name of the banker to whom the collection order is being sent b) The name (and collection order/ reference number) of the sender c) The name and address of the drawee and of the consignee( if different from the drawee)

d) Details of the documents accompanying the collection order e) In case of documentary collection and a term bill of exchange, whether the documents should be released against payment (D/P) or against acceptance (D/A). In the absence of any instruction, the collecting bank should assume that documents should be released against payment (D/P). f) The date, tenor and value of the bill of exchange

g) How the proceeds should be remitted (i. e. by SWIFT, T. T or Mail Transfer) h) How the charges should be born the principal, drawee or both i) The name, address and powers of the case-of –need in the event of non payment or non acceptance. j) How advice of acceptance, non- acceptance or non- payment should be sent.

k) Whether a bill should be protested in the event of non-acceptance or non-payment l) How the goods should be protected (warehoused and insurance) in case where the documents are not delivered to the buyer immediately on arrival of the goods at their destination provided, of course, that the collecting bank has agreed to help in this respect.

m) In a case of D/A collection where the bill is payable “X days after sight”, the presenting bank should give advice of the date of acceptance and maturity of the bill. The collection order should state how the advice should be sent n) Other instructions (e. g. about the waiving of interest charges) may also be included in the collection order.

Bill of Exchange The English Bill of Exchange Act 1882, states that: “a bill of exchange is an unconditional order in writing, addressed by one person (drawer) to another (the drawee) requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future date, a certain sum of money to, or to the order of, a specified person (payee) or to bearer.

• The word “draft” is often substituted for “bill of exchange”

Acceptance Pour Aval This is an alternative to straightforward documents against acceptance (D/A). If the collection order states “release documents against acceptance pour aval”, it means the bill of exchange must be accepted by the drawee and then guaranteed for payment at maturity by the drawer’s bankers (i. e. the drawer’s bank will add their signature and stamp on the bill)

• The documents may then be released and the benefits to the exporter are: a) The drawee’s bank is liable on the bill, thus eliminating risk of non-payment if the bank is sound b) Funds will be remitted on the due date, thus reducing the 20 - 30 days delay normally met. The prior permission of the importers and their banks should be obtained before submitting such a collection

Exercise Make sure you go through the Uniform Rules for Collection ICC 522 article by article to increase your knowledge on documentary collection as a method of payment