What is it?
The exporter (a client of UniCredit Bulbank) ships the goods to the buyer and presents the bank with documents related to the goods and their shipment, such as commercial invoices, bills of lading, cargo insurance, etc., with collection instructions. In the collection instruction, the exporter identifies the foreign buyer (payer), full details of the buyer's bank (collecting bank), a brief description and value of the exported goods, a full description and value of the type and number of documents submitted, and Conditions for handing over documents to the drawee.
UCB processes the documents and forwards them to the collecting bank, usually the buyer's bank, for processing and delivery to the buyer in accordance with the collection instructions. As instructed, the collecting or presenting bank releases the documents to the payer after paying the value of the documents, or according to a written commitment to accept/pay when due, or not to pay.
Under export documentary collection, the bank only receives and transmits documents according to the exporter's instructions on how to handle the documents, without any payment obligation to the exporter. Payment for documents sent on a collection basis depends solely on the goodwill and creditworthiness of the buyer.
A step-by-step guide to understanding export documentary collections
Broadly speaking, from your (as the exporter) perspective, the export documentary collection process can be broken down into five steps:
1. Terms and Conditions:
You and your importer agree to terms of transaction and payment, including the use of export documentary collections. At this point, you should also negotiate whether:
Acceptance Document (DA) – Once the importer agrees to pay later, a document related to the sale of the goods will be provided.
Payment Document (DP) – Once payment is made and finalized, the importer will get the document.
2. Shipment and receipt of documents:
You ship the goods and receive documentation from the carrier or freight forwarder that the shipment has occurred.
3. Submit documents to the bank:
First, fill out the export documentary collection application form and the draft. Next, submit these documents along with your shipping documents to OCBC, which is also known as the remittance bank during the process. Your remittance bank will then proceed to:
Forward these documents to your importer's bank, the collecting bank.
The collecting bank will then notify your importer that the documents have arrived and will release the documents when the payment terms are met (this depends on whether your payment term is DA or DP, as described in step 1 above).
4. Receive payment from importer and own the goods:
Importers will pay their bank and obtain documentation via DA or DP (as above).
5. Payment receipt from OCBC Bank to exporter:
OCBC Bank will deposit funds into your account immediately upon receipt of funds from the importer's bank (in the case of DP) or on the scheduled date when the draft has been accepted (in the case of DA).
Key point
D/C is less complex and less expensive than LC.
Under a D/C transaction, the importer is not obligated to pay for the goods before shipment.
If properly structured, the exporter will retain control of the goods until the importer pays the draft amount at sight or accepts the draft to meet the legal obligation to pay at a later date specified.
Although sea transportation can control the goods, it is more difficult to control air and land transportation. Foreign buyers can receive the goods with or without payment, unless the exporter hires an agent in the importing country to pick up the goods until the goods arrive for payment.
The exporter's bank (the remittance bank) and the importer's bank (the receiving bank) play a vital role in the letter of credit.
Although banks control the flow of documents, they neither verify documents nor take any risk. However, they can affect the mutually satisfactory settlement of D/C transactions.
