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The payment clause in the contract of sale and in the quotation refers to one of the following types of collection.
Types of Documentary Collections
Documents Against Payments
The presenting bank (the buyer's bank) is authorized to release the documents to the buyer only against immediate payment. "Immediately" in the context of international practice for documentary collections means "at the latest on arrival of the goods." If the seller does not wish to wait this long for payment, he must request "payment upon first presentation of documents" when issuing the collection instructions. In this case, however, both the sales contract and the invoice must contain a clause stating that the documents are to be presented to the drawee at the collecting bank immediately on receipt. According to the Uniform Rules for Collection, the collection order must specify the precise deadline by which the buyer must collect the documents or meet any "other conditions".
Documents Against Acceptance
The presenting bank releases the documents to the buyer against his acceptance of a bill of exchange, which generally matures 30-180 days after presentation (after-sight bill), or on another predetermined date (time bill). This enables the buyer to take possession of the goods before the payment has actually been made. By selling them immediately, he can raise the necessary funds to pay the bill of exchange. He thus obtains a period of credit and is relieved of the need to arrange short-term warehouse financing.
Once the documents have been released, the seller's only security is the bill of exchange accepted by the buyer. Thus while waiting for the bill to mature, the seller bears the risk of non-payment. If the contract of sale has a clause to this effect, however, he may request that the presenting bank, or another first-class bank, issue a guarantee for the accepted bill of exchange. The seller thereby reduces his own risk and is more likely to be able to discount the bill or – in the case of medium-term maturities – sell it to a forfaiter.
Acceptance With Delivery
This third type of collection is encountered more often in specialist publications than in practice. For orders of this type, which occasionally originate, from countries in the Far East, the seller gives instructions that the buyer, on presentation of the documents, shall accept a bill of exchange drawn at, say, 60 days after sight. The documents may not, however, be released to the buyer until the bill has been paid. Until then the goods must be kept in a warehouse.
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