Credit
Collection
When banks handle documents in order to obtain acceptance and/or payment, following the instructions given to them, this is called «collection». The exporter presents to his bank an application form with the documents attached. This bank makes out a collection order and passes it over to its correspondent bank in the country of the importer. The correspondent bank or some other bank may present the documents to the importer or pass them over to another collecting bank. This presenting bank presents the documents to the importer. Collecting banks do not take responsibility for acceptance or payment.
There exist two types of collections. Collections may be documentary or clean. The documentary collection is the collection of commercial documents or the collection of financial documents together with commercial documents. The collection of only financial documents is called clean. Commercial documents are: invoices, bills of lading, waybills and certificates. Financial documents are: bills of exchange, promissory notes, cheques and payment receipts.
Documentary letter of credit
When a buyer in one country wants to pay a seller abroad he asks his bank to «issue» or to «open» a letter of credit. It means that the buyer's bank issues a documentary letter of credit. It is an agreement with banks, made by a buyer, provided certain conditions are fulfilled.
The issuing bank asks its correspondent bank — usually in the seller's country — to advise and confirm the credit. The advising bank informs the seller that the credit has been opened. As soon as the seller receives the credit, he checks it and if he can meet its requirements, the seller ships the goods. At the same time the seller sends the documents which prove shipment of the goods to the bank where the credit is available. The bank checks the documents against the credit. If the documents comply with the requirements of the credit, then the nominated bank will make
When banks handle documents in order to obtain acceptance and/or payment, following the instructions given to them, this is called «collection». The exporter presents to his bank an application form with the documents attached. This bank makes out a collection order and passes it over to its correspondent bank in the country of the importer. The correspondent bank or some other bank may present the documents to the importer or pass them over to another collecting bank. This presenting bank presents the documents to the importer. Collecting banks do not take responsibility for acceptance or payment.
There exist two types of collections. Collections may be documentary or clean. The documentary collection is the collection of commercial documents or the collection of financial documents together with commercial documents. The collection of only financial documents is called clean. Commercial documents are: invoices, bills of lading, waybills and certificates. Financial documents are: bills of exchange, promissory notes, cheques and payment receipts.
Documentary letter of credit
When a buyer in one country wants to pay a seller abroad he asks his bank to «issue» or to «open» a letter of credit. It means that the buyer's bank issues a documentary letter of credit. It is an agreement with banks, made by a buyer, provided certain conditions are fulfilled.
The issuing bank asks its correspondent bank — usually in the seller's country — to advise and confirm the credit. The advising bank informs the seller that the credit has been opened. As soon as the seller receives the credit, he checks it and if he can meet its requirements, the seller ships the goods. At the same time the seller sends the documents which prove shipment of the goods to the bank where the credit is available. The bank checks the documents against the credit. If the documents comply with the requirements of the credit, then the nominated bank will make