General Concept of Export Bill Collection
Export bill collection refers to sending export bills to the overseas buyer through exporters bank to collect payment under export bills. The exporter prepares necessary documents for collection of money of exported goods and sends it to the overseas buyer after completion of export formalities. These documents include Commercial invoice, Packing List, Certificate of Origin, Bill of lading or Air waybill, bill of exchange, quality certificate and other documents mentioned by the buyer at the time of placing the purchase order. At this stage, exporter advises his bank to send the documents to the overseas buyer for the collection of money. After receiving export proceeds from the overseas buyer, the exporter bank credits the amount to exporters account.
How Export Bill Collection Works
- Step 1, the seller and the buyer will enter into a contract and will be agreed that payment will be made on the basis of the documentary collection.
- Step 2, At this stage, the seller will ship the goods and tender the relating documents to remitting bank together with a corresponding collection order
- Step 3, This is the stage where remitting Bank sends the documents along with collection instructions to the buyer’s bank (collecting bank).
- Step 4, This is the stage where the “Collecting Bank” notifies the buyer/importer on the arrival of documents for payment/acceptance
- Step 5, At this stage, The buyer will pay the amount due or accepts the draft and in turn receive the documents
- Step 6, Where the Collecting bank remits the amounts to remitting bank.
- Step 7, This is the Final Stage where the remitting Bank credits the amount to the seller’s account.
Advantages of Collection
- This is a more secure method than any other collection process
- This is the comparatively less expensive mode of settlement
- This is a usually quicker collection process than any other method
- Title of the goods can be controlled by the bank until banker’s payment or acceptance of the bill of exchange obtained.
Disadvantages of Collection
- This payment is not guaranteed by the bank
- Payment date is not be determined
- Additional costs may be incurred
What will be happened if discounted export bills not paid by the buyer
Sometimes the buyer may not be settled out the payment of exported bills discount. In this respect, the whole amount of discounted bills with interest is debited to exporter’s account. Usually, the bank discounts all export bills of their account holders without collecting creditworthiness of the exporter. However, most of the banks demand collateral security from exporters before credited the finance. Bank also obtain insurance against exporters to cover default of payments against the discount of export bills from credit guarantee agencies.