Import from China

Trade Terms >>

Bills for Collections >>

In theory, the "Bill for collections" is the more secure trade term for an exporter than "Open Account" trading, as the exporter's documentation is sent from an exporter or supplier designated bank to the importer or buyer's bank. This invariably occurs after shipment and contains specific instructions that must be obeyed. Should the buyer or importer fail to comply, the exporter does, in certain circumstances, retain title to the goods, which may be recoverable. The buyer or importer's bank will act on instructions provided by the exporter or supplier, via their own bank, and often provides a useful communication route through which disputes are resolved. The Bills for Collection process is governed by a set of rules, published by the International Chamber of Commerce (ICC) called "Uniform Rules for Collections" document number 522 (URC522). Over 90% of the world's banks adhere to this document - pick up a copy from the ICC (See contact details below) or your bank and familiarize yourself with the contents. There are two types of Bill for Collection, which are usually determined by the payment terms agreed within a commercial global trade contract. Different benefits are afforded to exporters by each and they are covered separately below:

Documents against Payment (D/P)

"Documents against payment" terms are usually used when payment is expected by the supplier or exporter from the buyer or importer immediately, otherwise known as "at sight". This process is often referred to as "Cash against Documents". The buyer or importer's bank is instructed to release the exporter's goods only when payment has been remitted. Where goods have been shipped by sea freight from China in this case, covered by a full set of Bills of Lading, title is retained by the exporter until these documents are properly released to the buyer or importer. Unfortunately, for airfreight items, unless the goods are consigned to the buyer's bank no such control is available under an Air Waybill or Air Consignment Note, as Under URC522, "goods should not be consigned to a bank without prior approval", these documents are merely "movement certificates" rather than "documents of title". Similarly, there is no such control over the trade terms available to the goods that are transported through land lines or railways.

Documents against Acceptance (D/A)

"Documents against acceptance" terms are used where a credit period, e.g. 30/60/90 days - 'sight of document' or from 'date of shipment', has been agreed between the supplier or exporter and buyer or importer. The buyer is able to collect the documents against their undertaking to pay on an agreed date in the future, rather than immediate payment. The exporter's documents are usually accompanied by a "Draft" or "Bill of Exchange" which looks something like a check, but is payable by or in a other word, drawn on the buyer. When a buyer or "drawee" agrees to pay on a certain date, they sign and accept the draft. It is against this acceptance that documents are released to the buyer. Up until the point of acceptance, the exporter may retain control of the goods, as in the "documents against payment" scenario described above. However, after acceptance, the exporter is financially exposed until the buyer or importer actually initiates payment through their bank.

It should be noted that Bills for Collection are used only in certain markets, particularly in Asia including China to fulfill Exchange Control Regulations. As a matter of the fact,  in many cases, the state controlled insurance agent may issue an insurance policy to the exporter or supplier with preset credit limit for a specific buyer or importer after conducting credit evolution on them.  In general, "Bill for collections" terms are the cost effective methods of evidencing a transaction for buyers or importers, where documents are handled and reported via the banking system. It should also be noted that "Bill for Collection" terms are typically used by Chinese suppliers for trading with their customers with long standing relationships and excellent payment histories. Therefore, if you just started import from China, you may not be able to get such terms. It is critical for importers to build up sound business relations with the suppliers or exporters in China so favorable trade terms like these can be used in the business practices of import export nature.

  Related - Sample "Draft or Transmittal Letter"

1. U.S. DOLLARS - Enter the entire amount to be collected

2. DATE - Enter the date the Draft is issued.

3. OF THIS FIRST EXCHANGE (SECOND UNPAID) - Enter the terms of payment: at 45 Days, at Sight, At 30 days B/L, etc. "Second Unpaid" refers to the duplicate copy of the draft of this second exchange, first unpaid. Once payment has been made against either copy, the other becomes void.

4. PAY TO THE ORDER OF - Enter the name of the party to be paid, i.e.,  Seller or "Payee"

5. UNITED STATES DOLLARS - Enter the amount from Field 1 in words.

6. CHARGE TO ACCOUNT OF - Enter  name and address of the paying party, i.e., buyer or "Drawee".

7. NUMBER - Enter an identification, or Draft, as assigned by the Seller.

8. AUTHORIZED SIGNATURE - Signature   of  authorized individual for the Seller or the seller's agents ("Drawer").

9. FORWARD DRAFT TO - Enter the name and address to whom the Draft is being sent. Unless this is a letter of credit being negotiated in the U.S., this should be the name and address of a foreign bank.

10. FORWARDING DATE - Enter the date the Draft is being sent to the bank.

11. DRAFT NUMBER - Enter the Seller's Draft number.

12. PURPOSE OF DRAFT - Check the applicable box if the draft is part of letter of credit negotiation, a collection, or an acceptance.

13. LIST OF DOCUMENTS - Enter the number and type of each original and duplicate document to be included with this Transmittal Letter. Any document attached will eventually be released to the Buyer.

14. DELIVER ALL DOCUMENTS - Check either "Deliver all documents in one" or "Deliver documents in two mailings." Commonly, documents are delivered in one mailing.

15. DELIVER DOCUMENTS AGAINST - Ensure that the type of Draft attached (Block 3) is compatible with the "deliver against" instructions. Sight Drafts should accompany "Deliver against Payment" instructions, while Time Drafts should accompany "Deliver against Acceptance" instructions.

16. BANK CHARGES - The correspondent bank will not pay unless all charges are collected. Based on your agreement with the Buyer, indicate which party is responsible for both the remitting and presenting bank's charges. By checking "all charges for Account of Drawee," the Buyer is responsible for these charges; if the Buyer does not pay (or is not to pay) these charges, and id "Do Not Waive Charges" has not been checked, the Seller will be billed for expenses incurred.

17. PROTEST - Check "Protest"; specify "for nonpayment" or for "non-acceptance," depending on the type of draft attached - see instruction, Field 15 if you wish the correspondent bank to process written, notarized documentation in event that the Buyer refuses to pay or accept the Draft. Additional Bank expenses associated with a protest are usually charged to the Seller.

18. PRESENT ON ARRIVAL - Check if you wish the Draft to be presented on the arrival of the goods to the Buyer.

19. ADVISE - Check the appropriate blocks, and block-out the non-applicable terms, if you wish to be advised of payment/acceptance or non-payment or non-payment/non-acceptance.

20. IN CASE OF NEED - Enter the representative of the Seller in the country to which the Draft and documents are going, if one exists; check the block which describes the representative's authority.

21. OTHER INSTRUCTIONS - Enter any instructions to either the remitting or correspondent banks, such as remittance instructions, clarification of protest procedures, multiple-draft instructions, etc.

22. REFER ALL QUESTIONS - Enter the name of the contact, and his/her address & telephone number, in the Seller's country; specify if this contact is employed by the Shipper (Seller) or the Seller's agent (Freight Forwarder).

23. AUTHORIZATION - Enter the person authorized to sign the Transmittal Letter (see Field 8 above), the date prepared, and the authorized person's signature.

Beijing Travel

Xian China Travel