Clean collection

ofei · Post by **ofei** » Thu Nov 27, 2008 12:25 pm

It seems very cold here compared with L/C forum.
Have you ever serve your customers under clean collection? What are the most commonly used financial documents? I am still puzzled how will checks or promissory notes be used under such circumstances? It should be the buyers who send checks or promissory notes to the sellers, then the sellers present them to his bank. Is that clean collection? If so, why not does the buyers make remittance through T/T directly? T/T is more convenient and ecnomical.

Ofei

nesarul · Post by **nesarul** » Sat Nov 29, 2008 9:34 am

Dear,
Normally bill of exchange are used.
regards
nesar

dholat · Post by **dholat** » Mon Dec 01, 2008 1:10 am

dear ofei,

there is very little differences between a cheque, BOE and promissory note. in fact cheque is a kind of bill of exchange. i have an article. will search today. i will try to post in more detail then

picant · Post by **picant** » Mon Dec 01, 2008 6:26 pm

Hi pals,

I appreciated the fact that a forum on collection is working, naturally L/C represents a field in which many cases occur, but having the possibility to discuss on collection problems it is very very good.
For istance, check collections: normally checks are cleared via a system called Cash Letter, only if it is not accepted in that system check will be send on collection. I heard that when reviewing the URC members of ICC wanted to remove checks from these rules but then decided not to do. A problem for me was when collection remittance indicated" Your charges for drawer account and may not be waived".
Please post your comments about it. Thanks.
Ciao

jmitra · Post by **jmitra** » Sat Dec 06, 2008 1:09 am

dear picant,

you are quite right. i personally think that cheque should not covered under URC. because it s a issue that is convered more by the local law than the URC. as commentary on URC says

Cheque collection could be included, under sub-Article 2(c), but as practices differed from country to country (and even from location to location within some countries) it was not feasible to draft separate Articles to cover them.

about your question on collection charges, such phrase is usually useful when the charges are on drawee's account, not the drawer. in think the remitting bank has a common format to send documents for collection in which the charges are on drawee's account. anyway, charges on "drawer's account is sufficient information and you may deduct you charges from the proceeds to be made.

regards

mitra

deepa_flower · Post by **deepa_flower** » Sun Mar 15, 2009 7:20 pm

Hi Pals

I too wondered for a long time, why a promissory note (issued by the buyer) is presented to a bank under clean collection i/o directly remitting funds vide T/T.
Finally i got an answer. I thought i can share with you all.

Under clean collection, when a promissory note (issued by the buyer) is submitted to a bank by the seller, then the seller can request the bank to take legal action if the promissory note remains unpaid on due date. This is done if the seller requests for protest on non-payment and if the bank is ready to undertake this action based on the seller's request. By this way the seller can make sure that the payment is made by the buyer at least fearing the legal actions.

dflower

ofei · Post by **ofei** » Mon Mar 16, 2009 3:29 pm

TKS d-flower.
In china, clean collection is regarded as risky to the sellers. Usually, promissory notes and checks are often used. But the buyer retains the right of recource is the seller fails to deliver goods or the goods are not in conformity with the contract. Moreover, when the buyer has taken delivery of goods against transport docs, the seller may face the risks that the buyer won't make payment.
My trouble is:
1.Why doesn't the seller forward docs only after receipt of proceeds from the buyer?
2.Does it mean that under clean collection payment is made by the buyer only after receipt of docs?
3.If so, is there any difference between clean collection and CAD (cash against documents)?
Your further explanation appreciated.

Regards
Ofei

picant · Post by **picant** » Mon Mar 16, 2009 8:52 pm

Dear Pals,

Sometime it happens that in a documentary collection, a bank will deliver documents against acceptance of a bill of exchange, when accepted the bill is returned to the remitting bank, and in few months this bill will be remitted, as clean collection, to be paid. So it is not the clean collection but the transaction here under that make this transaction plus/minus risky. Know your customers is very important.
Other comments appreciated.

Ciao

ajoy · Post by **ajoy** » Tue Sep 01, 2009 3:02 pm

Hi guys,

This thread has been long dead but I decided to respond to the original question anyway.

It seems very cold here compared with L/C forum.
Have you ever serve your customers under clean collection? What are the most commonly used financial documents? I am still puzzled how will checks or promissory notes be used under such circumstances? It should be the buyers who send checks or promissory notes to the sellers, then the sellers present them to his bank. Is that clean collection? If so, why not does the buyers make remittance through T/T directly? T/T is more convenient and ecnomical.

What is clean collection? Found this nice defination on the net so thought will share it some minor changes in emphasis:

Is a Documentary collection whereby only the financial document (draft or bill of exchange) is sent through the banks
without
a bill of lading and/or other shipping documents (which are sent separately by the consignor to the consignee).
Used usually
in open account arrangements,
clean collection
allows a consignee to take delivery of the shipment without paying and without making a firm commitment to pay on a fixed date.

The last line helps understand the purpose of clean collection.

Under Clean collection the consignee is able to collect the goods without paying

( unlike in D/P where he must pay to recieve the docs and then collect the goods. )

And without making a firm commitment to pay on a fixed date.

(unlike in DA where he must accept a Bill of Exchange i.e commit to a firm date of payment/maturity before he recives the docs to then collect the goods)

Thus 'clean collection' is esenially designed for 'Open account trade' .

In open account of course the buyer parts with money only after recieving the goods.

I am still puzzled how will checks or promissory notes be used under such circumstances? It should be the buyers who send checks or promissory notes to the sellers, then the sellers present them to his bank. Is that clean collection? If so, why not does the buyers make remittance through T/T directly? T/T is more convenient and ecnomical.

Under clean collection the most common financial instrumnet used is a 'bill of exchange' - typically sight but term is also doable.

Cheques and promissory notes are also used and in the manner you state above.

Why not use T?T ? Well there is an additional security for the seller if they actually part with docs against a cheque or promissory note because if the buyer dishonurs these then he can be taken to court .

(Of course the original sales contract and proof of dispatch of goods can be used for the same BUT in many countries if the cheque bounces for example it is a criminal offence and the beneficiary of the cheque can claim and get compensatin from teh courts without any refernce to underlying contract. In other words if I sign a cheque favouring you and the same is not honured then The court will not look into the underlying contract and disputes. court will only check the genuiness of the cheque and the signature. Moreover the signatory risks going to jail too.)

Why not use T/T which is cheaper and more convinient?

T/T can be used in two ways .

1) before the goods are dispatched or recieved by buyer:

In this case the buyer parts with funds before the goods arrive. Useful where buyer has agreed to make ' advance payment' in the original sales contract but no use if the agreement is for 'Open Account Trade'

2) After recipt of goods by buyer:

In this case the arrangement would be fine for ' Open Account' but the seller has higher risk. By taking a 'cheque' or a 'promissory note' he could have some additional security.

There could be another reason for using 'Clean collections' . The banking laws of importing country might not allow payments for imports without a Bill of exchange.

In some jurisictions this is also the reason why LCs require an additional draft drawn on the applicant. If this draft is not there the LC issuing bank cannot claim money from the buyer.

Thus no BE means no payment can be made under law. The BE is also a source of income for the government in teh form of stamp duty.

Hope this answers the question.

( Every product is designed to meet some requirements. One reason is management of risk for all parties involved. Another reason is local reglations)

Your comments welcome.

Cheers

jmitra · Post by **jmitra** » Tue Sep 01, 2009 10:26 pm

thanks for reviving

good answer

ajoy · Post by **ajoy** » Thu Sep 03, 2009 10:46 am

collections do have intersting intricacies although they are quite simole from a bank's perspective given that the bank 's role.

Unfrtunately that is alos the reason why we rarely talk of them which is quite a pity in a way..

Cheers

Clean collection

Clean collection

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Clean Colletion

waiting for further help

just one thing

Clean Collections

great

Thanks Mitra