International Trade & Banking Institute


Section V - Collections

Foreign Collection

Through its own bank, the exporter instructs the overseas bank to obtain payment from the importer in exchange for agreed-upon documents.

Why use it? If there is a document of title, a collection provides some constructive control for the seller. For the buyer, there is evidence that the goods have been shipped before payment.

Every time a merchant mails a statement to a customer, a collection is taking place. However, when an international sale is made, the collection can be processed through the importer’s and exporter’s banks, which act as intermediaries. This normally requires the presentation of commercial documents and documents of title in return for payment. By using foreign collections, the seller is assured that documents (eg a bill of lading) will not be released until the collection instructions have been observed. On being advised of the buyer’s credit reliability, the seller will ship the goods and forward documents relating to the shipment via the banks. These documents are then released to the buyer upon payment or acceptance.

There are two types of collections:
Clean Collection involves any form of financial document for obtaining payment, such as a Bill of Exchange or payment receipt.
Documentary Collection, sometimes called foreign collection, requires the presentation of commercial documents such as an invoice and documents of title.

Advantages for the Exporter

Ensure that the collecting bank will only release key documents to your buyer once payment has been made or terms accepted. Export Collections are a good alternative to selling on open account.

Advantages for the Importer

By having a bank act as an intermediary in your purchase, you can review key documents before paying your supplier. Documentary Collections allows for:

A documentary collection only establishes the importing company’s obligation to pay, NOT its ability to pay. The banks act only as a custodian of the documents on behalf of both exporter and importer, and do not examine them for compliance.


Understanding the Risks and Avoiding Pitfalls


The exporter's only protection under a documentary collection is that a bank will only release the document of title when the importer has paid for the goods, or has agreed to pay at a specified later date by accepting a term bill. However, the seller accepts all risks and expenses of the collection - the banks act only on the instructions set out in the collection order.

Care in preparing and processing documents can prevent delays and avoid the expense of providing corrected documents. When organizing your documents, be sure that:


What if the buyer (the drawee) refuses to accept (dishonours) a bill or does not provide payment at maturity? It may be necessary to protest the item, however, the legal effect of this action varies from country to country. Here are a few tips on the subject of protesting:

Missing Documents (on an import collection)

In a documentary collection, it is general practice to package the documents in two sets and forward them in consecutive mailings. However, there may be times when the shipment arrives before the collection documents. How can the buyer avoid the expense of delays?

The carrier will expect to receive a properly endorsed negotiable bill of lading before releasing the shipment. A guarantee form, signed by the buyer and a guarantor, such as a bank, will permit release - on the understanding that the original bill of lading will be presented at a later date.

When a bank indemnifies the shipping company for a missing bill of lading, it becomes responsible to the shipper for claims arising from the shipment.



Principal: The customer entrusting the operation of collection to his or her bank. In a documentary collection the principal is the drawer, while for a clean collection it is the payee or last endorser.

The Acceptor: The drawee who has signed the Bill of Exchange, typically the importer or buyer.

The Drawee: The party to whom presentation is to be made according to the collection order, typically the importer or buyer.

The Drawer: The party drawing up and signing the bill of exchange, typically the exporter or seller.

Collecting Bank: Any bank, other than the remitting bank, involved in processing the collection order.

Presenting Bank: The collection bank making presentation to the drawee.

Remitting Bank: The bank to which the principal has entrusted the operation of collection.

Collection Order: The instructions, issued by the remitting bank, which lists the documents enclosed and provides the terms and conditions under which the collection is to be paid (and the documents released).


The Bill of Exchange

A Bill of Exchange is an unconditional order in writing, requiring the company to which it is addressed to pay, either on demand or at a specified time in the future. It is commonly used as proof of liability in Canada, the U.S. and Britain, as well as many other nations. However, some countries treat Bills of Exchange as receipts and do not use them in documentary collections, relying instead on a bill of lading as proof of title and the invoice as record of payment due.


Collections Checklist

The following checklist is intended to assist the exporter in preparing documents for a foreign collection.