9/3/2024

Chapter 6

METHOD OF COLLECTION

METHOD OF COLLECTION
* Objective: to help learners:
• Explain the process of collection payment
method with the participation of related
parties.
• Analyze the advantages and disadvantages of
participants in the collection payment method.
• Apply the collection payment method in
practice.

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METHOD OF COLLECTION
* Content:
6.1. Legal framework.
6.2. Definition.
6.3. Participants.
6.4. Classification of collection: clean collection and
documentary collection.
6.5. Collection instruction.
6.6. Application of collection method: outward/
export collection and inward/ import collection.
6.7. Notes on method of collection.

6.1. LEGAL FRAMEWORK

- The most basic and important international legal document
regulating collection method is "Uniform Rules for
Collections – URC (Quy tắc thống nhất về nhờ thu)"
issued by ICC.
- 1956: the first version URC 192 was issued.
- 1967: revised with version URC 254.
-.1978: revised with version URC 322.
- 06/1995: revised with the latest version URC 522, which
became effective on 01/01/1996 and is widely used today.
- eURC 1.0 was issued in 05/2019, and became effective on
01/07/2019; eURC 1.1 issued in 2023.
- URC has the discretionary legal nature.
- Its legal validity is under national law.

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6.1. LEGAL FRAMEWORK

* URC 522 consists of 26 articles, divided into 7 major sections:
A. General provisions and definitions (Những quy định và định
nghĩa chung): 3 articles.
B. Form and structure of the collections (Hình thức và nội dung
nhờ thu): 1 article.
C. Form of presentation (Hình thức xuất trình): 4 articles.
D. Liabilities and responsibilities (Trách nhiệm và nghĩa vụ): 7
articles.
E. Payment (Thanh toán): 4 điều khoản.
F. Interest charges and expenses (Lãi suất và các chi phí): 2
articles.
G. Other provisions (Các điều khoản khác) : 5 articles.
* URC is often referred to/ shown in the collection instruction
(chỉ thị nhờ thu), and in such cases, URC becomes effective
and binding on all relevant parties.

6.2. DEFINITION OF COLLECTION METHOD

a. “Collection” means the handling by banks of documents as defined
in sub-article 2(b), in accordance with instructions received, in order to:
i. Obtain payment and/or acceptance, or
ii. Deliver documents against payment and/or against acceptance, or
iii.Deliver documents on other terms and conditions.
b. “Documents” means financial documents and/or commercial
documents:
i. “Financial documents” means bills of exchange, promissory notes,
cheques, or other similar instruments used for obtaining the payment
of money;
ii. “Commercial documents” means invoices, transport documents,
documents of title or other similar documents, or any other
documents whatsoever, not being financial documents.
(URC 522 – Article 2)

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6.2. DEFINITION OF COLLECTION METHOD

* Thuật ngữ tiếng Việt: “Phương thức thanh toán nhờ thu”.
* Theo điều 2 “Định nghĩa nhờ thu” của URC 522 :
“Nhờ thu” là nghiệp vụ của các ngân hàng trong việc
xử lý các chứng từ (chứng từ tài chính và/ hoặc chứng
từ thương mại) theo đúng các chỉ thị nhận được, để:
- được thanh toán và / hoặc được chấp nhận thanh
toán ; hoặc
- trao chứng từ khi được thanh toán và / hoặc khi được
chấp nhận thanh toán ; hoặc
- trao chứng từ để đổi lấy các điều khoản và điều kiện
khác.

6.2. DEFINITION OF COLLECTION METHOD

The payment method of collection is the

payment method in which the exporter, after
delivering goods/ services, will prepare a set of
documents (financial and/or commercial
documents) to be sent to the exporter’s bank
for transfering this documents to the collecting
bank so that this bank can present it to the
importer for payment, acceptance or other
terms and conditions.

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6.3. PARTICIPANTS
- Principal/ Drawer (Người nhờ thu / người ủy thác thu): the
party who makes request form for collection and collection
documents sent to their bank for collection, which is exporter.
- Remitting Bank (Ngân hàng chuyển giao/ Ngân hàng nhờ
thu): the bank that receives request form for collection and
collection documents from the principal, which is the bank
serving exporter.
- Collecting Bank (Ngân hàng thu hộ): any bank that
participates in the collection process, but is not remitting bank.
- Presenting Bank (Ngân hàng xuất trình): the bank that
serves importer, holds importer's account, and presents
documents to importer, which may also be the collecting bank.
- Drawee (Người trả tiền): the party who is presented
documents in accordance with collection instruction for payment,
acceptance, or other terms and conditions, which is importer.

6.3. PARTICIPANTS
** Principal/ Drawer (Người nhờ thu / người ủy thác thu):
- The party who makes request form for collection and collection
documents sent to their bank for collection, which is exporter.
- The party who determines the content of collection, provides
instructions for all parties to follow. Therefore, all instructions
are provided by principal, and banks must comply with these
instructions in order to be entitled to get collection fees,
regardless of whether the collection is successful. However, if
banks do not follow the instructions and this causes damage,
they must compensate for loss.
- The beneficiary of collection and bears the collection fees
lastly. This means that if banks cannot collect money from
importer, principal (exporter) will have to pay fees to all
participating banks when they comply with the collection
instructions provided by principal.

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6.3. PARTICIPANTS
- Collecting bank: usually a correspondent bank or branch of
remitting bank in importer’s country that collects payment from
drawee (importer) directly or indirectly through the bank holding
drawee’s account according to the instructions sent by remitting
bank. After collecting payment, collecting bank transfers it back
to remitting bank.
- Presenting bank: the bank holding drawee’s/ importer’s
account, presenting directly documents to importer.
- Collecting bank and Presenting bank are the same: when
corrspondent bank of remitting bank in importer’s country is
also the bank holding importer’s account. In this case, it is
commonly called collecting bank since it is the most general
term for the bank collecting payment for remitting bank.
- If these two banks are different, they are seperately called
collecting bank and presenting bank.

6.4. CLASSIFICATION OF COLLECTION METHOD

* Based on the collection documents sent by the

exporter, the method of collection can be divided into
two types:
Clean Collection
(Nhờ thu trơn)
Collection
(Nhờ thu)

Documentary Collection
(Nhờ thu kèm chứng từ)

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6.4.1. CLEAN COLLECTION (NHỜ THU TRƠN)

* Definition: Clean collection is a payment method in

which collection documents only contains financial
documents, without commercial documents.
- This means that after delivering goods/services,
exporter prepares commercial documents and sends it
directly to importer for receiving goods.
- Meanwhile, exporter only prepares financial
documents (bill of exchange) and a request form for
collection to be sent to remitting bank for collection.
- Who will be the drawee in B/E? Why? Who is the
beneficiary?

6.4.1. CLEAN COLLECTION (NHỜ THU TRƠN)

- Clean collection is a form of payment after shipment:
Exporter delivers goods before receiving payment. The
delivery and the payment demand of exporter are not binding.
Therefore, there is a high risk for exporter that importer may
receive goods but fail to make payment or delay payment.
- There are two types of clean collection:
+ By clean collection at sight (Nhờ thu trơn trả ngay):
exporter issues the sight B/E, and importer pays at sight when
B/E is presented.
+ By clean collection within X days after sight/after B/E
date/after B/L date/on a specific future date (nhờ thu trơn
trả chậm): exporter issues the usance B/E, and importer
accepts B/E when it is presented, and pays when it is due. In
case that B/E is accepted by importer, it is called Trade
acceptance (Chấp phiếu thương mại).

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6.4.1. PROCESS OF CLEAN COLLECTION

4. B/E,
Remitting bank collection inst. Collecting /
(Ngân hàng Presenting Bank
7. Pay / Advise (Ngân hàng thu hộ
chuyển giao) / xuất trình)

3. B/E, request form for collection 5. Advise collection

8. Pay / Advise 6. Carry out inst.
2. Shipment &
Principal / Drawer / commercial doc. Drawee /
Exporter Importer
(Người ủy thác thu) (Người trả tiền)
1. Sign contract

6.4.1. CLEAN COLLECTION (NHỜ THU TRƠN)

* Notes on method of clean collection:
- Exporter: There is a high risk because the delivery of goods
and the payment are not binding. Importer has received goods
but he does not want to pay or cannot pay.
- Importer: Collection instruction may arrive before goods, and
importer must make sight payment or acceptance, but when
receiving goods, they may not be the same as agreed.
However, this risk can be overcome.
- Banks: only intermediaries for payment, regardless of the
result of clean collection, banks still receives fees.
* Exporter should only use clean collection when trusting
importer, or when the value of goods is small, or the inventory is
difficult to sell, or goods are for market research.
* For exporter, clean collection and remittance after shipment
are both "deliver goods first, receive payment later“ (giao hàng
trước, nhận tiền sau). Which method reduces risk for exporter?

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6.4.2. DOCUMENTARY COLLECTION

(NHỜ THU KÈM CHỨNG TỪ)
* Definition: The payment method of documentary collection
is the payment method in which collection documents
includes both commercial and financial documents, or
only commercial documents.
- This means that after delivering goods/services, exporter
prepares a set of commercial and financial documents (or
only commercial documents) and sends them to remitting
bank for collection.
- Collecting/ presenting bank will deliver documents to
importer only when importer meets conditions for delivering
documents in the collection instruction.
- Who will be the drawee in B/E?

6.4.2. PROCESS OF DOCUMENTARY COLLECTION

4. Documents,
collection inst.
Remitting bank Collecting/
Presenting Bank
(Ngân hàng 8. Pay/ Advise (Ngân hàng thu hộ
chuyển giao) / xuất trình)
5. Advise collection
3. Documents, request for collection
6. Carry out inst.
9. Pay / Advise 7. Documents

Principal/ Drawer 2. Shipment Drawee

/ Exporter / Importer
(Người ủy thác thu) 1. Sign contract (Người trả tiền)

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6.4.2. DOCUMENTARY COLLECTION

(NHỜ THU KÈM CHỨNG TỪ)
Step 6: If importer does not agree to execute the instruction
(they must state the reason of refusal for presenting/ collecting
bank to notify remitting bank), documents will still belong to
exporter, which means that exporter still has control over goods.
Exporter can handle this situation by:
- Bringing goods back to their country, and can be very costly.
- Finding another buyer, auctioning goods... in importer's country.
** In this situation, exporter may request in collection instruction:
1. Presenting/ Collecting bank will protect goods by bringing
them to warehouse, purchasing insurance for goods,....
However, according to Article 10 of URC 522, presenting/
collecting bank is not obligated to perform this even if collection
instruction requests it. These banks must immediately notify their
non-performance to the collection sender. If the banks perform it,
they will not bear any risk of loss or damage to goods during
warehousing or transportation. All risks will be borne by exporter.

6.4.2. DOCUMENTARY COLLECTION

(NHỜ THU KÈM CHỨNG TỪ)
Step 6:
2. + Another feasible option for exporter: appoint a
representative in importer’s country to act on their behalf.
+ Collection instruction includes a provision of "CASE
OF NEED" which indicates the name, address, and contact
information of exporter's appointed representative in
importing country.
+ If importer refuses to pay, presenting/ collecting bank
can contact the exporter's representative to hand over
documents so that this person can store goods, purchase
insurance,... and wait for further instructions from exporter.

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6.4.2. CONDITIONS FOR DELIVERING DOCUMENTS

* Based on the condition that importer must fulfill to receive the

documents in the collection instruction, the method of
documentary collection can be divided into three types.
D/P - Documents against Payment
Nhờ thu trả tiền trao chứng từ

Conditions for
delevering D/A - Documents against Acceptance
documents Nhờ thu chấp nhận trao chứng từ

D/OT - Documents against Other

Terms and Conditions
Nhờ thu theo điều kiện khác

6.4.2. CONDITIONS FOR DELIVERING DOCUMENTS

* Documents Against Payment - D/P (Nhờ thu trả tiền
trao chứng từ):
- The sight payment is made when documents are delivered to
importer.
- Exporter may or may not issue the sight B/E.
- The condition of “D/P at x days sight” (trao chứng từ
thanh toán có kỳ hạn): with this condition, importer accepts
B/E, makes payment on a future date which does not exceed
the specified number of days, and only when payment is
made, documents will be released to take delivery of goods.
- “D/P at x days sight” is used when collection documents
arrive before goods (due to long transport), importer does not
want to pay early, so they agree with exporter on such
condition.

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6.4.2. CONDITIONS FOR DELIVERING DOCUMENTS

* Documents Against Acceptance - D/A (Nhờ thu

chấp nhận trao chứng từ):
- Importer must accept usance B/E, it means that importer
agree to pay after a certain number of days. After B/E is
accepted by importer, presenting bank deliver documents to
importer for receiving goods.
- This is the case that exporter gives credit to importer,
allowing them to "receive goods first, make payment later“
(nhận hàng trước, trả tiền sau).
- D/A condition always requires B/E, meaning that
documents includes both commercial and financial
documents.
- For exporter, D/A creates more risks than D/P. Why?

6.4.2. CONDITIONS FOR DELIVERING DOCUMENTS

* Documents Against Other Terms and Conditions - D/OT
(Nhờ thu theo điều kiện khác):
- Partial payment (Thanh toán từng phần): combining the sight
payment (D/P) and the later payment (D/A).
- Documents against promissory note (Trao chứng từ đổi lệnh
phiếu): Importer issues promissory note to be sent to bank for
receiving documents. When is this method used?
- Documents against trust receipt (Trao chứng từ đổi biên lai tín
thác): Bank releases documents when importer signs the trust
receipt, committing to receive goods and sale turnover will be
prioritized for transferring to exporter. When is the method used?
- Documents against acceptance with aval (Trao chứng từ đổi
lấy hối phiếu chấp nhận có bảo lãnh): Documents are released
when B/E is accepted by importer and the payment is
guaranteed by a financial institution.

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6.4.2. CONDITIONS FOR DELIVERING DOCUMENTS

* Expression of collection methods in foreign trade

contract:
- D/P: By D/P ; By D/P at sight ; By D/P at 15 days sight.
- D/A: By D/A within/at 30 days after sight; By D/A within/ at 60
days after B/E date ; By D/A within/ at 2 months after B/L date.
- Thanh toán từng phần: Ex: 30% of contract value by D/P at
sight, 70% of contract value by D/A at 60 days after sight.
- Trao chứng từ đổi lệnh phiếu: By D/OT: release/ deliver
documents against promissory note.
- Trao chứng từ đổi biên lai tín thác: By D/OT: release/
deliver documents against trust receipt.
- Trao chứng từ đổi lấy hối phiếu chấp nhận có bảo lãnh:
By D/OT: release/ deliver documents against acceptance with
aval.

6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

* Request form for collection (Đơn yêu cầu nhờ

thu):
- To perform the payment method of collection, after making
shipment, exporter will prepare a set of documents (financial
and/ or commercial documents) and the request form for
collection to be sent to remitting bank.
- Request form for collection are pre-printed by banks with
standardized contents. Exporter only needs to fill in the
appropriate information and sign.
- Once approved by remitting bank, request form for collection
has legal function as a service contract between remitting bank
and exporter.

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6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

* Collection Instruction (Chỉ thị nhờ thu):

- English terms: “Collection Instruction” ; “Collection Order” ;
“Collection Schedule” ; “Covering Schedule” ; “Covering Letter”
; “Covering Sheet”.
- Based on request form for collection, remitting bank will make
a collection instruction with the content that is not in conflict
with request form for collection, and clearly indicates that it is
subject to URC 522. After being made, collection instruction is
sent together with documents to collecting bank for collection.
- Collecting bank, presenting bank, and drawee must comply
with this collection instruction and URC 522.
- Unless otherwise authorised in the collection instruction,
banks will disregard any instructions from any party/ bank
other than the party/ bank from whom they received the
collection (Article 4a, Sub-Article 3).

6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

* When handling collections between banks: it is necessary
to comply with the information sequence.
1. Receipt of collection information:
- According to Article 4a, Sub-Article 3 of URC 522, relevant
parties, including remitting bank, collecting bank, presenting
bank, and drawee, only follow the instructions sent directly from
the party whom they received the collection.
- If instructions are received from a party other than the party
whom they received the collection, banks must disregard
instructions (unless the collection instructions clearly state
otherwise). If following these instructions causes damages to
relevant parties, compensation must be implemented.
2. Sending/ notification/ feedback of collection information:
Similarly, according to Article 26c of URC 522, if relevant
parties, including remitting bank, collecting bank, presenting
bank, and drawee, notify the collection status or the payment…,
they must follow the information sequence.

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6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

* Content of collection instruction:

- Details of participants: Remitting bank, Principal (exporter),
Drawee (importer), Collecting bank / Presenting bank (if any).
- Amount and currency unit of collection.
- List of documents and quantity for each type of documents.
- Conditions of collection/ conditions for delivering documents
(clean collection, documentary collection: D/P, D/A, D/OT).
- Regulations on charges.
- Regulations on interest rates (interest rate level, maturity,
day-count convention).
- Warehousing and insurance provisions.
- Provision of exporter’s representative (CASE OF NEED).

6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

* Content of collection instruction:

- Protest: if drawee refuses to pay (sight B/E) or refuses to
make acceptance (usance B/E), there is a protest against B/E
or not.
- Form of notifying the collection result: by telegraph or by
mail.
- How to make payment: when payment is made, where the
amount will be transferred to (clearly stating the account
number, bank, SWIFT address…)
- Further instructions in case that drawee refuses to pay,
refuses to make acceptance, or does not comply with other
instructions.

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6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

* Regulations on collection fees:

- Relevant banks in the collection process are entitled
to collect charges regardless of the collection result, as
long as they have complied with collection instructions.
- Banks collect immediately collection charge and
other related charges when providing collection
service.
- There are 3 ways to determine the charge payment:
+ All charges are borne by principal (exporter).
+ All charges are borne by drawee (importer).
+ Charges are shared by two parties.

6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

1. Regulation 1: All charges are borne by exporter:

- Expressions in English:
+ All charges are for drawer/ principal’s account.
+ All your charges are for our account.
+ Collect your charges from our account.
- There are 2 ways to collect charges:
+ Banks will deduct charges from the collected amount.
+ The bank receiving collection debits the account of the
bank sending collection directly to them. Next, this bank
continues to collect charges from the previous bank in the
same way until remitting bank recovers all charges from
exporter.

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6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

2. Regulation 2: All charges are borne by importer:

- Expression in English: All charges are for drawee's
account.
- Way to collect charges:
+ Participating banks in the collection process will clearly
state the amount of collection charges in the collection
instruction, and presenting bank will collect the charges of all
banks from importer.
+ Presenting bank will pay the collection amount and
charges to the participating banks. Each bank will collect
their charges. Finally, the remaining amount, which is also
the exact collection amount, will be delivered to exporter.

6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

3. Regulation 3: Charges are shared by two parties:

- Expressions in English:
+ Your charges are for drawee’s account.
+ Collect your charges from drawee’s account.
- Charges are shared by two parties: charges inside
exporter’s country (charges of remitting bank) are borne by
exporter, while charges outside exporter’s country (charges
of collecting bank and presenting bank) are borne by
importer.
- Therefore, remitting bank directly collects charges from
exporter. Meanwhile, collecting bank and presenting bank
directly collect charges from importer.

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6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

* Special cases when importer pays charges: for regulations
2 and 3.
- Importer refuses to pay/ make acceptance: regardless of the
ways to pay charges, all participating banks will still collect
charges from exporter.
- Importer agrees to pay/ accept, i.e. agrees to receive
documents but refuses to pay charges: two cases:
a. Case of waiver/ exemption (Trường hợp được miễn):
collection instruction indicates:
+ Only stating generally that drawee (importer) is responsible
for the charges as English expressions in regulation 2 and 3.
+ Or add the phrase “In case of refusal, it may be waived”
+ Or simply abbreviate as “All/Your charges may be waived”
* When expressed in this way, importer is exempted from paying
charges, and presenting bank will still deliver documents to
importer and collect charges from exporter.

6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

* For the case that importer is exempted from paying charges, if
presenting bank does not deliver documents and this delay
causes damage to importer, presenting bank must be
responsible for compensation.
b. Case of no waiver/ exemption (Trường hợp không được
miễn): collection instruction indicates:
+ All/Your charges are for drawee’s account. In case of
refusal, it must not be waived / may not be waived.
+ Or in abbreviation“All/Your charges must not be waived”.
* In this case, drawee is not exempted from paying charges.
Presenting bank will not deliver documents to drawee and will
immediately notify the situation to the bank from whom
presenting bank received collection to request new instructions.
* Presenting bank is not responsible for any damages resulting
from delayed delivery of documents.

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* SWIFT message types used in the collection method:

No. Mes. Type English meaning Vietnamese meaning
1 MT 400 Advice of payment Thông báo thanh toán
2 MT 410 Acknowledgement Thông báo nhận được
chứng từ nhờ thu
3 MT 412 Advice of acceptance TB chấp nhận T.Toán
4 MT 420 Tracer Điện tra soát
5 MT 422 Advice of fate and TB tình trạng nhờ thu và
request for instructions yêu cầu các chỉ thị mới
6 MT 430 Admendment of Sửa đổi các chỉ thị
Instructions
7 MT 450 Cash Letter Credit Advice Thư thông báo ghi có
8 MT 455 Cash Letter Credit Thư sửa đổi thông báo
Adjustment Advice ghi có
9 MT 456 Advice of non payment / TB không thanh toán/
non acceptance không chấp nhận TToán

6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

EXERCISE 6.1: View given collection instruction and indicate:

1. Participants (exporter, importer, remitting bank, collecting
bank). Reference number of collection.
2. Colletion condition, responsibilities of collecting bank and
importer in this collection method.
3. Required documents. Are there any financial documents?
4. Amount of collection, way of transferring money.
5. The regulation for paying charges? If importer refuses to
pay charges, will collecting bank deliver documents to
importer? Why?
6. Explain the content of "Special instructions" section at the
end of page 1 of collection instruction.
7. What is the legal document that regulates this collection
method? Where is it reflected in the collection instruction?

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6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

EXERCISE 6.2: View the collection instruction in the

textbook (page 187) and indicate:
1. Participants (importer, remitting bank, collecting bank.)
2. Colletion condition, responsibilities of collecting bank
and importer in this collection method.
3. The regulation for paying charges (Who pays).
4. Required documents.
5. Amount of collection, way of transferring money.
6. Other instructions when importer refuses to pay or
collecting bank does not agree to collect.

6.6. APPLICATION OF COLLECTION METHOD

* In fact, commercial banks divide the collection method
into two main operations:
- Export Collection (Nghiệp vụ nhờ thu hàng xuất)/
Outward Collection (Nghiệp vụ nhờ thu đi): is
performed when the bank's customer is the principal /
drawer (exporter). The bank acts as the remitting bank
(ngân hàng chuyển giao/ ngân hàng nhờ thu).
- Import Collection (Nghiệp vụ nhờ thu hàng nhập) /
Inward Collection (Nghiệp vụ nhờ thu đến): is
performed when the bank's customer is the drawee
(importer). The bank acts as the presenting bank (ngân
hàng xuất trình) / the collecting bank (ngân hàng thu hộ).

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6.6.1. OUTWARD / EXPORT

Customer COLLECTION

Remitting bank . Check request form for collection

. Check the accompanied documents
Check documents

. Compile the collection instruction

Process documents . Send documents + collection inst.

Solve problems
. Problems in the collection process
. Problems in the payment process
File documents

6.6.2. INWARD / IMPORT

Remitting/ Coll. bank COLLECTION

Coll. / Pres. bank . Check collection instruction

. Check types and quantities of
documents
Check documents
. Advise customer of collection
. Customer agrees to pay/ accept
Process documents
. Customer refuses to pay/ accept

Solve problems
. Problems in the collection process
. Problems in the payment process
File documents

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6.6. APPLICATION OF COLLECTION METHOD

* Financing of commercial banks in the collection method
includes:
- Financing of remitting bank for exporter: Remitting bank
will discount the collection documents of export goods
(usually discount with recourse). The exporter who wants to
discount must submit an Application for discount (according
to bank's form) to remitting bank.
- Financing of presenting bank for importer:
+ Granting a loan to importer to pay for receiving
documents (for D/P), using the imported goods themselves
as collateral.
+ Payment guarantee for B/E if the condition for delivering
documents requires B/E to be made acceptance and
guaranteed by a financial institution.

6.7. NOTES ON METHOD OF COLLECTION

* Collection method of D/P:
- For importer: There is the risk of not receiving goods, or
receiving goods that are not accordance with documents due
to errors or fraud while having already made payment.
Therefore, it is important to carefully select reputable
exporters.
- For exporter: Although they have the right to own and
control goods, they still suffer losses and disadvantages if
payment is refused.
To mitigate the risk that buyer does not receive goods, it
should agree on the Incoterms in which buyer pays freight
such as EXW, FCA, FAS, FOB so that buyer’s ability to
fulfill contract will be higher.

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6.7. NOTES ON METHOD OF COLLECTION

* Collection method of D/A:
- For importer: There is the risk of not receiving goods, or
receiving goods that are not accordance with documents due to
errors or fraud, while having accepted B/E and is obliged to pay
when it is due, otherwise importer will be sued and lose prestige.
Therefore, it is necessary to carefully select exporter and not
rush to sign contract just because exporter offers deferred
payment.
- For exporter: They no longer have control over goods when
importer has only just accepted payment. When payment is due,
maybe importer does not want or cannot make payment.
To overcome this risk, exporter needs to agree on the condition
for delivering documents as B/E that is accepted and
guaranteed by the importer's bank (presenting bank), or export
credit insurance, or factoring service.

6.7. NOTES ON METHOD OF COLLECTION

* Advantages of collection method:
- For exporter:
+ In the documentary collection, the receipt of
goods and the payment are more binding, ensuring
greater benefits for exporter.
+ If payment/ acceptance is refused, exporter can
nominate a representative in importer’s country to
settle the issue, and specify this in collection
instruction so that presenting bank can contact.
+ Exporter can sue importer for not paying the
accepted B/E when it is due.

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6.7. NOTES ON METHOD OF COLLECTION

* Advantages of collection method:
- For importer:
+ Importer can check documents at preseting bank before
agreeing to pay/ accept.
+ Importer is granted commercial credit in the case of D/A or
D/P at x days sight.
- For banks:
+ Only act as an intermediary for payment, not involved in
the transaction between exporter and importer, but banks can
earn income from collection charge and other related charges.
+ Help develop other activities of banks such as forex
trading, commercial financing...
+ Enhance relationships with correspondent banks, create
potential for development and profitability from correspondent
banking.

6.7. NOTES ON METHOD OF COLLECTION

* Disadvantages of collection method:
- For exporter: + Clean collection: high risk.
+ Exporter bears all risks when documents are delayed or lost
on route although banks are the ones sending documents.
+ In case that payment is refused or unaccepted, exporter
suffers significant losses although they still have the right to
own and control over goods (for documentary collection).
- For importer:
+ Risk of not receiving goods, or receiving goods that are not
accordance with documents due to errors or fraud while having
already paid/ accepted.
+ Importer is obligated to pay the accepted B/E on maturity
even if goods are not received or do not conform to the
agreement, otherwise importer will be sued and lose prestige.
- For banks: They face risks only when providing commercial
financing to exporter or importer.

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6.7. NOTES ON METHOD OF COLLECTION

- In summary, the payment method of collection
creates more risks for exporter than importer.
- The collection method should only be used when
buyer and seller have a long relationship and trust
each other, so they choose this method to save costs
and make quick delivery.
- Exporter should note that in addition to the above
reason, this method should only be used when:
+ The value of goods is small.
+ Goods are difficult to sell as they are inventory.
+ Goods are in the market research stage and need
to rely on importer.

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Nhập

Thu hộ

Thu hộ

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6.5. COLLECTION INSTRUCTION - CHỈ THỊ NHỜ THU

EXERCISE 6.1: View given collection instruction and indicate:

1. Participants (exporter, importer, remitting bank, collecting
bank). Reference number of collection.
2. Colletion condition, responsibilities of collecting bank and
importer in this collection method.
3. Required documents. Are there any financial documents?
4. Amount of collection, way of transferring money.
5. The regulation for paying charges? If importer refuses to
pay charges, will collecting bank deliver documents to
importer? Why?
6. Explain the content of "Special instructions" section at the
end of page 1 of collection instruction.
7. What is the legal document that regulates this collection
method? Where is it reflected in the collection instruction?

COLLECTION - CASE STUDY 1:

The collection documents under D/A condition has participants
including exporter A, remitting bank B, collecting bank C,
importer D, and D has accepted B/E. However, at the maturity,
D refuses to pay with the reason of slow sales. C advises A of
the situation and requests new instructions. A replies to C that if
D refuses to pay, C, as the bank holding D's account, must act
on behalf of D to make payment to A.
a. According to URC 522, is the way that bank C handles this
collection situation correct or incorrect? Please apply URC 522
to explain.
b. Does bank C have the obligation to pay A? Why?
c. Besides relying on the foreign trade contract, which other
reason can A use to sue D? Explain in detail.

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COLLECTION - CASE STUDY 2:

The collection documents under D/A condition has participants
including exporter A, remitting bank B, collecting bank C,
presenting bank D, importer E, and E has accepted B/E.
However, at the maturity, E refuses to pay with the reason of
slow sales. D quickly advises B of the situation and requests
new instructions. B replies to D that if E refuses to pay, D, as the
bank holding E's account, must act on behalf of E to make
payment to A.
a. According to URC 522, is the way that bank D handles this
collection situation correct or incorrect? Please apply URC 522
to explain.
b. Does bank D have the obligation to pay A? Why?
c. Besides relying on the foreign trade contract, which other
reason can A use to sue E? Explain in detail.

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