Collections

The collection mechanism provides for the presentation of commercial, financial or title documents to the goods to the buyer by a bank entrusted to make collection on behalf of the seller. Upon payment or acceptance, the documents are delivered to the buyer who may then proceed to make commercial use of the goods.

The parties to the collection process are the "principal" (seller) who is the party entrusting the handling of a collection to a remitting bank; the "collecting bank" which is any bank, other than the remitting bank, involved in processing the collection; and the "presenting bank" which is the collecting bank making presentation to the drawee (buyer). The rules and procedures governing collections by banks are codified under the I.CC. Uniform Rules for Collection (URC 522) in effect on January 1, 1996.

Unlike the letter of credit transaction, neither the remitting nor collecting bank engages its own liability to pay to the principal nor the drawee. The funds collected do not belong to the collecting bank, nor to the remitting bank. Nor do the goods enter into the possession or title of either bank.In the event the collection is not successful, the banks have no liability for the buyer’s non-payment or non-acceptance.

Documents sent for collection are accompanied by a collection instruction indicating that the collection is subject to URC 522. Banks are only permitted to act upon the instructions given in such collection instruction and do not examine documents in order to obtain instructions.

Unless otherwise authorised in the collection instruction, banks disregard any instructions from any party/bank other than the party/bank from whom they received the collection. Banks have no obligation to take any action in respect of the goods to which a documentary collection relates, including storage and insurance of the goods even when specific instructions are given to do so.

As is the case of processing letters of credit, banks assume no liability for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document, or for the general and/or particular conditions stipulated in the document or superimposed thereon. Nor do they assume any liability for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any document, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignors, the carriers, the forwarders, the consignees or the insurers of the goods, or any other person.

Rather than looking to the bank as the neutral paymaster, the principal or seller looks to its own purchaser for payment. The collection instruction gives specific instructions regarding protest   in the event of non-payment or non-acceptance. In the absence of such specific instructions, the banks concerned with the collection have no obligation to have the document protested or subjected to other legal process for non-payment or non-acceptance.