RETAIL BANKING FOREXII

WHAT IS COLLECTION:

According to Article #:2(a) of Uniform Rules

for Collection (URC #:522),
collection means handling of collection
documents by banks according to the
instructions received from the principal.

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TYPES OF DOCUMENTS OF
COLLECTION:

The article #:2 (b) of URC 522 discriminates

the collection documents as under:

1.

Financial Documents
Commercial Documents

2.

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FINANCIAL DOCUMENTS:

It refer to bills of exchange, promissory notes,

cheques or other similar instruments used for
obtaining the payment.

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COMMERCIAL
DOCUMENTS

They include invoices, transport documents ,

documents to title to goods ( B/L, Truck
Receipt, Railway receipt etc) or any other
documents not being financial documents.

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TYPES OF COLLECTION

The collection Is categorized into ;

1- Clean Collection
2- Documentary Collection.

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CLEAN COLLECTION

Under article 11:2(c) of URC 522 it is defined

as , collection of financial documents not
accompanied by the commercial documents.

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DOCUMENTARY
COLLECTION

The article a1:2(d) of URC 522 means

collection
of
F=INANCIAL documents
accompanied by commercial documents
or collection of commercial documents not
accompanied by financial documents.

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PARTIES INVOLVED

Exporter / Principal: He may be the exporter or the drawer of a

bill of exchange or a bank collecting on its own behalf.
Remitting Bank: The bank of principal to whom documents
are presented for collection.
Collecting Bank: The branch or the agent of the remitting
bank in importer's country to whom documents are sent by the
remitting bank for presentation to the importer for obtaining
payment or acceptance.
Presenting Bank: The Bank which actually present the
documents to the drawee. The collecting hank itself may or may
not be the presenting bank accordingly as It present the
documents to the drawee directly or through some other bank .
Drawee.
He is the buyer of the goods or servlces or the payer
of the bill of exchange.

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DOCUMENTS USED IN
INTERNATIONAL TRADE

AIR WAY BILL

It is a consignment note used for the carriage of goads by air. It
Is often called an air consignment note. It Is not a document of
title or transferable or negotiable instrument. Tills document
travels with cargo and It Is not possible to use It as a negotiable
for tiC, as the cargo arrives at destination earlier to the
documents via banking system, there by allowing the consignee
to take the delivery of the goods.
Today many major world airlines have a fully computerized air
freight documentation system, they have also extended bar
codes for automatic verlflcatlon.

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DOCUMENTS USED IN
INTERNATIONAL TRADE

BILL OF EXCHANGE
As per bill of exchange Act 1882 definition bill of
Exchange is an unconditional order in writing
addressed to one person to another, duly signed
and requesting the person to whom it is addressed
to pay, on demand or at a fixed determinable future
time, a certain sum of money to or to the order of a
bearer.
The Bill of exchange may be of two types:
a)Slght
b)Usance

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DOCUMENTS USED IN
INTERNATIONAL TRADE

BILL OF LADING:
A bill of lading Is a receipt for goods shipped on board a vessel,
signed by the person or his agent who contract to carry them and
stating the conditions In which the goods were delivered to and
received by the ship. It Is a document of title to goods. It Is used
to control delivery of goods transported by sea.
There are several types of bill of lading such as:
Shipped bill of lading, Received bill of lading, Clean bill of
lading, Caused bill of lading, container bill of lading,
charter party bill of lading and etc.

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DOCUMENTS USED IN
INTERNATIONAL TRADE

COMMERCIAL INVOICE
It gives the details of the goods , unit price,
terms of payment etc and is issued by the
seller.

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DOCUMENTS USED IN
INTERNATIONAL TRADE

PACKING LIST:
It is a mandatory document required by the
customs and bank authorities. It gives details
of the invoicing, buyer, consignee, country of
origin , weight or volume of goods including
packing information.

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MECHANISM OF
COLLECTION

After execution of sale contract between the

buyer and seller ,the seller ship's the goods
in accordance with the terms and conditions,
agreed between buyer and seller.

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MECHANISM OF
COLLECTION

The seller / exporter / drawer sends the

financial documents ie Bill of exchange along
with other commercial as well as shipping
documents to the buyer / importer /drawee
either directly or through a banking channel
for collection of proceeds of exported goods
their
against
with
certain
collection
Instructions 1.e deliver the goods against
payment or acceptance.

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MECHANISM OF
COLLECTION

The remitting bank will however will check the

documents apparently to ensure that the documents
mentioned in his letter has been received dully
endorsed in its favour , where necessary.

The remitting bank then will enter the documents

into FOREIGN BILLS SENT ON COLLECTION
REGISTER and will allot the running serial number
which should also be marked on each document
received for collection.

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PROFORMA ENTRY

Then the Bank passes the following entry

regarding such collection in its books:

Dr:
Cr:

Bills for Collection Account

Bills lodged Account

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MECHANISM OF
COLLECTION:

Thereafter remitting bank will forward the

documents to the COLLECTION BANK under
its covering schedule called "COLLECTION
INSTRUCTIONS' in the light of detailed
instructions given by the principal / seller
/exporter at the time of submission of
documents, as to how the bank (remitting
bank) should handle future events. Banks are
required to follow these instructions
meticulously.

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MECHANISM OF
COLLECTION

The Collection Instruction must be complete and

precise and should indicate that the collection is
subject to URC 522.Banks are only permitted to act
upon the Instructions given in such Collection
Instruction and in accordance with these Rules.

It should be noted that if collections accompanying

the Collection Instruction received by the collecting
bank directly from principal . Such collections, even
though they may contain a statement that it is
subject to URC 522, do not come under Uniform
Rules for Collections because they are not routed
through banks.

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Collection Instruction

1. Details of the principal/exporter and of remitting bank.

2 details of drawee / Importer including his complete address at which the
documents have to be presented.
3.Details or presenting bank if any.
4. Amount and currency to be collected.
S. List of the documents enclosed and numerical count of each document
b. Mode of delivery of documents i.e against payment or on acceptance.
7. Action to be taken in the event of dishonour - bill to be noted and protested,
goods to be cleared ,stored and insured.
8. Mode of remittance of proceeds i.e whether by air mail or by cable.
9. Interest to be collected, if applicable, indicating whether it may be waived or
not if refused by the drawee. (a) rate of interest (b) interest period basis of
calculation for example 360 or 365 days in a year as a applicable.
In t r earancd (c) b el basis of [calculation for example 3b3 or 365 days
Whether charges & expenses are to be collected or deducted indicating whether
they may be waived or not if refused by the drawee.
11. Instructions in case of non- payment , non-acceptance and or non
compliance with other instructions.

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COLLECTION STEP BY
STEP

STEP # 1:
Exporter & Importer executes sale contract.
STEP #:2
The Exporter manufacture the goods as per sales
contract and ship it to the importer's country.
STEP #:3:
The Exporter submit his Bill of exchange financial
documents) along with commercial & transport
documents to remitting bank with the request to
collect the proceeds their against from drawee.

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COLLECTION STEP BY
STEP

STEP # 4:
The remitting Bank forwards the documents as per instructions of
Its principal for collection of proceeds from drawee through Its
branch or correspondent bank called "Collecting Bank" In the
country of importer /drawee under cover of "Collection
Instructions
STEP # 5:
The collecting bank if it is not the presenting bank will forward the
documents to the presenting bank for presentation of documents
to the Importer! drawee for payment or acceptance as the case
may be

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COLLECTION STEP BY
STEP

STEP # 6:
The Importer In case of sight bill pays the amount of
bill or In case of usance bill, he accepts it for
payment on a future determinable date.
STEP # 7:
The collecting I presenting bank present the
accepted bill for payment to the drawee / acceptor
for payment on its due date.
STEP # 8:
The collecting bank will remit the proceeds to the
remitting bank as per its payment Instructions.

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COLLECTION STEP BY
STEP

STEP # 9
The remitting bank will credit the proceeds Into the account of Its
principal, by reversing collection entry passed at the time of
collection.
1)
Dr:
Bill Lodged Account
Cr:
Bill for Collection Account
2)

Dr:
Cr:
Cr:
Cr:
Cr:

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FET HO Karachi Account

Commission Account (Customer Service Charges)

P& T charges recovered account

With Holding Tax
Client's Account
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RESPONSIBILITY OF
REMITTING / COLLECTING
BANK

Article #:6 regarding Presentation:

The
collecting
/Presenting
bank
is
responsible to present the documents ,
received under
collection immediately after their receipt, to
the drawee for payment ,if the documents are
payable at sight.

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RESPONSIBILITY OF
REMITTING/ COLLECTING
BANK

In case if the documents payable at a tenor

other than sight, it must present the
documents i.e Bill of Exchange for
acceptance to the drawee without any delay
and present it for payment on maturity date
for payment.

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RESPONSIBILITY OF
REMITTING/ COLLECTING
BANK
Article #:7 regarding the release of documents:

The Collection Instructions should clearly state

whether the commercial documents are to be
released to the drawn against acceptance (DTA) or
against payment (DIP).

In the absence of such statement or Instructions, the

collecting bank will release the documents only
against payment to the drawee and it will not be held
responsible for any consequences arising out of any
delay in delivering the documents.

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RESPONSIBILITY OF
REMITTING / COLLECTING
BANK

Article #:7
documents

regarding

the

release

of

If the financial document i.e Bill of Exchange

presented along with other documents is a
usance bill and the Collection Instruction
indicates that the commercial documents are
to be released against payment, documents
will only be released against payment.

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RESPONSIBILITY OF
REMITTING / COLLECTING
BANK

Article #:16 regarding payment:

It is the responsibility of the collecting bank to
remit the proceeds of the bill received from
the drawee against the collection documents
less charges or disbursement or any other
expenses, where applicable to the remitting
bank as per Collection Instruction.

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RESPONSIBILITY OF
REMITTING/ COLLECTING
BANK

Article #:19(a) regarding partial payments:

Clean Collection: In case of clean collection
partial payments may be accepted to the
condition on which partial payments are
authorized by the law In force in the place of
payment however the financial documents
only be delivered /released to the drawee on
full payment thereof.

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RESPONSIBILITY OF
REMITTING/ COLLECTING
BANK

Article #:19(b) regarding partial payments:

Documentary Collection: In case of
documentary collection, partial payments will
only be accepted if specifically authorized in
collection instruction. However unless
otherwise
instructed,
the
collecting
/presenting bank will release the documents
after receipt of full payment from drawee &
will not be held responsible for any
consequences for delay.

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RESPONSIBILITY OF
REMITTING/ COLLECTING
BANK
Article 4:24 regarding noting & protesting:

The collection instruction should clearly give specific

Instructions regarding protesting of bill ( or other
legal process In lie thereof] in the event of nonpayment or non-acceptance.
In the absence of such clear Instructions , the
collecting bank have no obligation to have the
documents protested for non-payment or nonacceptance, any charges Incurred in this connection
will be on account of remitting bank from whom the
collection instructions were received.

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LETTERS OF CREDIT

DEFINITION
The Article 2 defines a 'Letter of Credit' in the following terms:
For the purpose of these rules:
"Credit means any arrangement, however named or de-scribed,
that is irrevocable and thereby constitutes a definite undertaking
of the issuing bank to honour a complying presentation.
Honour means:
(a) to pay at sight if the credit is available by sight payment.
(b) to incur a deferred payment undertaking and pay at
maturity if the credit is available by deferred payment.
(c) to accept a bill of exchange (draft') drawn by the
beneficiary and pay at maturity if the credit is available by
acceptance."

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Confirmed or Unconfirmed
Credit:

The credit is called 'confirmed' when the

importer's bank confirms to the exporter the
terms of credit

the confirming bank becomes liable for

payment in terms of the letter of credit?

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Documentary Letter of
Credit:

A documentary Letter of Credit may be

defined as an authority issued by the opening
bank on behalf of the importer in favour of the
exporter with the stipulation that the drafts
drawn thereunder will be duly honoured.
provided that the terms and conditions as
mentioned therein are duly complied with.

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Revocable and Irrevocable

Letters of Credit:

A `revocable credit' can be amended or

cancelled by the openers before the expiry
date of the Letter of Credit.

An 'irrevocable credit' cannot be altered or

cancelled without the consent of all the
parties, i.e. the opener, the opening banker,
the confirming banker, and the beneficiary.

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