When your company uses collections as a method of paying for imports, the bank has control over the goods through the shipping documents relating to the goods. These documents can only be delivered to your company when you have paid the amount due or signed a bill of exchange that falls due at a later date. Note that the banks have no obligation to make payments.
Advantages of using collection when paying for imports
- A payment or commitment to pay is made only upon receipt of the relevant documents by your bank.
- You can decide not to accept or pay the collection.
- Your banking facilities are not affected unless the seller asks that an accepted bill of exchange be guaranteed by your bank.
- The importer's bank will effect payment on the importer's behalf rather than the importer having to make payment by international money transfer or bank draft.
You should be aware, however, that according to the international rules for collections, banks are not responsible for the authenticity or correctness of the documents or for the condition of the goods.
Release of goods
The goods sometimes arrive before the documents. When the goods are consigned to the Bank, the importer can take possession of the goods if the Bank releases them and the importer provides an indemnity to the Bank.
To obtain the release of the goods, the importer makes a commitment to pay for or accept the documents immediately upon presentation.