confirmation

[jabra]

dear sir

have you ever heard of confirming a collection document? i mean my company will export under the purchase order contract and we want some guarantee. how can we do that?

[dholat]

dear,

Though I haven’t seen any, but I think its possible. But since the risk will be very high, I think your bank will charge very high. Besides I think you should set the term as D/P and Not D/A. that should give you sufficient protection. However it largely depends on the bank to which you are sending the document for collection. Better also look for the banks rating before sending the documents.

[jim]

i have one question. in DP, the bank will only release the document against the payment. why it is considered as risky then? and whats the use of LC here?

[iLC]

Well, delivery against payment and a letter of credit gives sufficient security as long as the control over the goods is concerned. but a d/p term does not give you a payment guarantee. for example in the time of falling price you might not want to sell product on a d/p term unless you have a very good relation with the buyer. for example you sell rice on d/p terms. however when the ship arrives, the buyer found that the price has fallen significantly and he will thus not release the cargo and cancel the deal and you will have nothing to do. or you can find another buyer / offer a discounted price... anyway that will cost you time and money.