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16. FOREIGN COLLECTIONS

16. FOREIGN COLLECTIONS. TYPES OF COLLECTIONS. Both parties gain from efficient collection transfer document processing. Documentary-Export Collection (outward) requires: commercial invoice bill of lading Insurance certificate other documents involves: sight draft

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16. FOREIGN COLLECTIONS

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  1. 16. FOREIGN COLLECTIONS

  2. TYPES OF COLLECTIONS Both parties gain from efficient collection transfer document processing

  3. Documentary-Export Collection (outward) requires: commercial invoice bill of lading Insurance certificate other documents involves: sight draft time draft (acceptance)

  4. Clean Collections documents sent directly to an importer Use: transmitting a check

  5. Inward Collections: opposite of outward collection U.S. resident owes a foreigner

  6. Drawer’s Instructions Drawer: the party who wants collection Drawee: the party who accepts a time draft and orders the bank to pay Instructions:a letter written and signed by the exporter on the drawers bank It instructs bank to send out exporter’s draft for collection.

  7. Tenure and Delivery of Documents Tenure(time): sight or time must agree with the tenure of the sales agreement Delivery of Documents: D/P = Delivery against payment D/A + Delivery against acceptance Trade Acceptance: kept in safe place by collecting bank until payment due by importer

  8. Documentation Instruction Letter of Collection: should state exactly what documents exporter wants to accompany the draft kind and number of documents should be guided by the sales agreement If documents are missing, importer justified in refusing to accept the shipment

  9. Interest and Collection Charges Bank Charges: • Interest rate should be indicated • Fees may apply Who pays charges?

  10. Payment and Remittances Amount and currency • indicated on the collection letter • where to be made payable • manner in which proceeds are to be remitted

  11. Dishonor and Protest Notice of Dishonor • importer refuses to pay • collecting bank required to give prompt notice • The sooner the exporter knows, the sooner alternative disposition of the goods can be arranged

  12. Protest exporter instructs foreign collecting bank to go through legal procedure Safeguarding the Goods exporter authorizes collecting bank to arrange warehouse storage to avoid demurrage charges

  13. Collection-Related Bank Services Completion of Documents useful in certain geographic situations such as a Midwest exporter Direct Collections send draft and documents directly to importer

  14. Advantages/Risks ofForeign Collection Terms Advantages Exporter assured importer must pay first before documents are delivered Importer gets partial financing (float time) Risks for Exporter • Nonacceptance of merchandise • Nonpayment of trade acceptance • Possession of Goods without payment • Exchange restrictions

  15. Minimizing the Risks • Keeping informed • adequate insurance • cash deposit

  16. Risks for the Importer Justified refusal to Accept Goods: • late arrival of goods • Increase in product price not agreed • Quality of merchandise • Neglect in packaging and marking

  17. Foreign Collections Cautions: • requires complete confidence between buyer and seller in each other’s honesty • Knowledge of local regulations • Complete understanding and agreement between buyer and seller as to what rights and responsibilities are under the sales contract

  18. Financing Foreign Receivables External Financing when: • exporter needs to buy and store prior to shipping • Exporter needs financing to carry the accounts receivable

  19. Advances Against Foreign Collections Pool Basis Individual Transaction Basis Determining Percentage of Advance usually between 50 and 100% Title Documents bank may require bill of lading to specify its name to control ownership

  20. Acceptance Financing Discounting Trade Acceptances Factoring

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