The Remitting and Collecting bank Obligation in Documentary Collection

In: Documentary-Collection, Trade-Finance

The Remitting Bank (the seller's bank) and the Collecting Bank (typically the buyer's bank) Obligation under Documentary Collection Transaction

The Documentary Collection Process

Understanding the Roles of the Remitting & Collecting Banks

Based on the Uniform Rules for Collections (URC 522)

upload_file

Remitting Bank

The Seller's Bank (Exporter)

Acts on behalf of the seller to forward trade documents. Its primary duty is to create clear, precise instructions for the collecting bank.

Key Obligations:

rule
Provide Precise Instructions: Must create a collection instruction specifying URC 522 applies, with complete details on how to handle the documents.
clarify
Ensure Clarity of Terms: Must clearly state the terms, such as Documents Against Payment (D/P) or Documents Against Acceptance (D/A), to avoid ambiguity.
forward_to_inbox
Forward Documents: Sends the documents and instructions to the collecting bank nominated by the seller or one of its own choosing.
no_transfer
No Payment Undertaking: The bank does not guarantee payment. It acts as a channel, and the seller bears the risk of non-payment by the buyer.

arrow_right_alt

download_for_offline

Collecting Bank

The Buyer's Bank (Importer)

Acts as an agent for the remitting bank in the buyer's country. Its duty is to follow the received instructions exactly as given.

Key Obligations:

task_alt
Act Strictly on Instructions: Must follow the collection instructions and URC 522 rules without deviation. It has a right to refuse the collection but must advise immediately if it does.
checklist
Verify Document List: Must check that the documents received match the list in the instruction. It does not examine the content of the documents.
paid
Release Docs on Payment/Acceptance: Releases documents to the buyer only after receiving full payment (D/P) or a formal acceptance to pay later (D/A).
report
Advise on Non-Payment: If the buyer refuses to pay or accept, the bank must find out why and immediately inform the remitting bank. It is liable for losses if it breaches instructions.

Key Takeaway: A Matter of Agency, Not Guarantee

In a documentary collection, banks act as agents or intermediaries. The remitting bank ensures instructions are clear, while the collecting bank executes them precisely. Unlike a Letter of Credit, neither bank guarantees payment. The ultimate risk of the buyer failing to pay remains with the seller.