Collection

Collection is a settlement method in which the exporter collects payment from the importer through a bank. The process is as follows: after shipping the goods, the exporter submits the draft and commercial documents to the remitting bank, which then entrusts a collecting bank in the importer's location to present the documents to the importer. The importer obtains the documents to take delivery of the goods after making payment or accepting the draft. Collection is divided into clean collection and documentary collection, with the latter being more common. It is typically used when the buyer and seller have a certain level of trust, when the importer is unwilling to open a letter of credit, or to save on costs. Points to note: Collection is based on commercial credit, and the bank does not assume payment responsibility, so the exporter faces the risk of the importer refusing or delaying payment. The exporter should thoroughly investigate the importer's creditworthiness and prefer Documents against Payment (D/P) over Documents against Acceptance (D/A). Compared with a Letter of Credit (L/C), collection has lower fees and simpler procedures but poorer payment security. Compared with remittance, collection gives the exporter more protection by controlling the title to goods through documents.