1. CHAPTER SEVEN
Collection

2. The seller agrees to make a shipment before demanding payment and the buyer agrees to pay before getting possession of the merchandise. Here the seller is at risk.
COLLECTION TYPES
There are two types of collections:
1 Clean Collections (financial document alone)
Checks, traveler’s checks, money orders drawn on banks are received by individuals and/or companies (home or abroad) then these checks are taken to the bank in order to credit their account.

3. Documentary Collections (vesaik mukabili ödeme)
It includes commercial documents either with a financial document or alone. The commercial documents are; invoices, bills of lading, weight list etc. The bank pays the exporter after receiving these documents and the buyer possesses the merchandise. The important point here is that, the buyer can get hold of documents after giving payment instruction to his bank to pay the seller (exporter). This procedure is called documents against payment (D/P).
See figure 7.1

4. The exporters usually determine the collecting bank.
3. SIGHT DRAFT (takdim edildiğinde ödemeli)
A sight draft becomes payable when it is first presented to the importer by the collecting bank in the importer’s area. In some countries the importer is permitted to wait until the vessel arrives before paying.
Direct Collection: To speed up the transactions many banks furnish exporter with blank drafts and collection instruction letters. This enables the exporter to mail it directly to the foreign bank. This is called direct collection.
Protest is the formal legal process of demanding payment of a draft from the drawee who has refused to pay.
See figure 7.2
The exporters usually determine the collecting bank.
The expenses and commissions of the bank are paid by either the exporter or the importer depending on the agreement.

5. This is sometimes called documents against acceptance.
4. TRADE ACCEPTANCE
In some cases, the exporter in order to make sales may agree to be paid after the importer gets and sells the merchandise. In agreeing to release the merchandise before receiving a payment, the seller wants to have a written promise from the buyer that the payment will be made at a future specific date. In this case the exporter draws the draft, not at sight but at a future date say “90 days after sight”.
This is sometimes called documents against acceptance.
The importer accepts the draft, collects the document and agrees to pay the exporter on a specific day. This is trade acceptance.
See figure 7.3
5. IMPORT COLLECTIONS
Collections for import are the reverse of those covering exports. The collections are usually received from a foreign bank, which conveys all instructions from the seller. Any deviations from the foreign bank’s instructions are at the risk of the collecting bank.

6. 6. FOREIGN CURRENCY COLLECTIONS
The documents accompanying the draft are presented to the importer. To pay the draft, the importer will need to purchase the foreign exchange.
7. OTHER COLLECTIONS
Some exporters sell on “cash against documents” term (same as a draft sale)
Eligible products: Payments are made after the shipment passes inspection by health authorities
Consignment Method: Payments are made after goods are sold. All expenses belong to the exporter
Delivery order: The shipping agent informs the buyer that goods ordered are ready to be delivered.
FINANCING
If the exporter wishes to obtain financing, the bank finances the exporter while the collection is being forwarded to the importer. If importer does not pay then the exporter -together with the interest- pay back this loan.

7. For the bank, collections develop business and relationship.
ADVANTAGES AND DISADVANTAGES
A collection provides more protection to the seller than selling on open account and more protection to the buyer than prepaying the shipment. The cost of collection is low compare to L/C or other method.
And the seller is exposed to non-payment by the buyer either from the buyer’s death, bankruptcy or refusal to pay (the collection is the property of the exporter and the intermediary banks are the exporter’s agent).
For the bank, collections develop business and relationship.
The risk for the bank is that, in case of protest of nonpayment, the name of the bank can be deteriorated although it is merely passing on its customers instructions.
If the exporter bankrupts then some charges such as storage cannot be recovered.
Accounting: Outstanding collections do not appear in a bank’s financial statement as the bank is an agent and has no responsibility unless it acts against the customer’s instruction. Fees and commissions are reflected in the bank’s income statement.
In short, in collections the bank acts as an agent for the seller of the goods in presenting the demand for payment to the buyer. Once the payment is made the bank then gives the shipping documents to the buyer who needs them to take possession of the goods.